What Was Angelo Mozilo Thinking?

Posted by: Chris Palmeri on June 5, 2009

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The SEC complaint against former Countrywide chief Angelo Mozilo has some pretty damning stuff in it. Throughout the 53 page complaint, Mozilo can be seen complaining about the increasingly risky mortgages his company was making. In several cases he would ask that standards be raised and the riskiest product be discontinued.

According to the government, Countrywide adopted a “matching” strategy where it would not lose business to other more aggressive lenders. Countrywide used to refer loans that didn’t qualify under its guidelines to other lenders. Instead, when the company’s automated underwriting software spit out a loan that didn’t fit, Countrywide staffers refered the file to an “exceptions” department which figured out a way to underwrite the loan anyway.

“We’ve ceded our risk standards to whoever has the most liberal guidelines,” John McMurray, the company’s chief risk officer, said. But still the machine kept churning.

Mozilo recognized the risk of the company’s Pay Option Arms, ordering first that the risks be printed in bold letters on loan documents so customers couldn’t miss them. Then he ordered the company to sell all its Pay Option loans.

Knowing all this, why did Mozilo keep selling his Countrywide stock, setting himself up for an insider trading case like this? Maybe the thought his regular stock sale plan would cover him. Maybe he thought he could figure a way out of the company’s troubles before things got really ugly. A lot of questions, that he may have to answer in court.

Reader Comments

Snoz

June 7, 2009 4:02 AM

Mozilo, BW's Palmeri, and Gopal were all on the same parade float, cheering and foisting the virtue of home ownership during the housing speculation frenzy of 2002 through 2007.
Lately, the difference between them is that BW's Palmeri and Gopal have been pointing fingers or acting as the virtuous investigative journalists while Mozilo is targeted as the villain.
Let there be no mistake. All of three deserve what Karma has installed for them.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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