Countrywide Feels the Heat

Embattled CEO Angelo Mozilo answers critics who claim the lender helped bring on the housing crisis

by Maria Bartiromo

Angelo Mozilo, CEO of Countrywide Financial (CFC), is taking serious flak for the mammoth mortgage company's role in the housing meltdown. I caught up with Mozilo twice in the space of a week—first for an exclusive interview on CNBC following Bank of America's (BAC) $2 billion infusion into Countrywide, and then on the heels of a New York Times story taxing Mozilo and Countrywide with allegedly engaging in questionable lending practices.

Now sources tell me the embattled Mozilo will soon announce layoffs of about 10% of Countrywide's 60,000 employees in the face of a 20% decline in the mortgage business. In addition, I am hearing that Countrywide is looking for further financing and that the next investor will likely come from private equity. When BusinessWeek magazine went to press on Aug. 29, Countrywide's stock had lost about half its value since June 1. That was the same day that Senator Chuck Schumer (D-N.Y.) urged Countrywide to halt "predatory" lending practices.

Since our interview on CNBC, you've been criticized, first for offering aggressive loans to people who should not have taken them and next for screaming that a recession is coming while still offering lax lending, because those loans were so lucrative for Countrywide. Your response?

I don't remember screaming, first of all. But let me just tell you that Countrywide for 40 years has been on a mission to lower the barriers of entry for the American people to have the opportunity of home ownership. And every application we take is within that framework of making certain as best we can that these individuals can afford the home.

And so my response is simply that we have not been an opportunist but have created opportunities for individuals and families to own a home. We've made 25 million loans in the 40 years we've been in existence. We hold about $1.5 trillion in loans today in our servicing portfolio. And we work very hard not only to position people to own a home but also to educate them on the responsibilities of home ownership.

What was the main driver of the mortgage boom—the desire to own a home or the Street's insatiable desire to buy up mortgages, repackage them, and sell them to hedge funds and other investors?

The main driver was real estate values rising. And when they begin to rise—no different from the tech boom—everybody at all levels of society wants to participate. They don't want to be left behind. And that's particularly true with home ownership, which [comes with] a passion to make a profit, to own something, to have a piece of America. But there's no question there were speculators who were trying to make a quick profit.

Did you tailor your business accordingly as this was happening?

Remember, we didn't reach out to home buyers. They came to us. And as prices went up and interest rates were at a palatable level, we began to tailor programs to see if we could assist these people in getting into homes.

Subprime was a very profitable part of your business. Did the company push these types of loans over others because they were such commission generators and money makers?

We did not. I mean, our subprime company, which was Full Spectrum, offered them. But if a prime loan came through that subprime arena, that loan had to close at a prime price, not at a subprime price. And the reason why the subprime prices were higher is because they were about four times more expensive to originate than a prime loan. It was more difficult to get documentation. We had a lot of counseling involved.

It's important to understand that everybody has experienced substantial losses. So it's not a matter of the borrower paying too much. There wasn't enough that could be charged because, you see, every company that was involved with subprime is either out of business or going out of business or has substantial losses. After the debacle in subprime, the conclusion that people charged too much is absurd.

But only recently did Countrywide stop making risky mortgages, like so-called liar loans, which require little verification of borrower information. Why did you let underwriting standards become so lax?

Well, I don't agree that the standards became lax. On every loan we made, we believed when we made it that the individuals were qualified for the mortgage product that they asked for. We had 184 programs. They picked the one that they wanted. And we adjusted our underwriting in certain categories based on rapidly changing market conditions. We're never lax. But there was no way that anybody could foresee what would happen. These were common practices that were done by every single institution in the country, be they large or small. You know, the words being used here, they're very incendiary words…

On Aug. 26, a New York Times article suggested that Countrywide steered borrowers into higher-cost mortgages when they would have qualified for lower ones under traditional standards. Why did you choose these strategies?

[Countrywide] didn't choose those strategies. This is not true. You have to consider the source. People [in the story] refused to identify themselves. This is all anonymous. You know, it's very easy to indict people and not be responsible for the words that you choose. I don't think a lot of people were interviewed. I think there was an allegation from one person.