By Patrick Oster
Angelo Mozilo, who propelled Countrywide Financial Corp. to become the largest US mortgage lender during the housing boom only to see the company crash in the 2008 financial crisis, has died. He was 84.
He died on July 16 of natural causes, said his son, Mark.
The housing bubble that burst in 2008, sending the US economy into a recession and erasing almost $US8 trillion ($11.7 trillion) in value from the stock market, was built on exceptionally cheap and available credit extended to homebuyers along with creative options to repay their debt. Countrywide was a pioneer in the field, and, fairly or not, Mozilo became a public face of the financial crisis. Time magazine, citing Countrywide’s loosened lending standards and exotic mortgages, named him one of the “25 People to Blame.”
Mozilo’s long tenure as CEO ended in 2008 after Countrywide, running out of funds to finance loans, agreed to be acquired by Bank of America Corp. for $US4 billion — a fraction of what it had been worth a year earlier. The final sales price was lower still.
Even at a heavy discount, the sale came to be seen as a painful mistake by Bank of America, which over subsequent years paid more than $US50 billion to resolve regulatory probes and litigation tied to Countrywide.
In some ways, Mozilo was an unlikely villain in the saga. The tactics Countrywide used toward the end of his career as CEO were starkly different from the tried-and-true loan-verification methods he and his partner, David Loeb, had used when they started the company in 1969 as a two-person operation focused on low-cost loans with little risk.
For much of his long career, Mozilo “believed strongly in the importance of underwriting standards — that is, in making loans to people who had the means to pay them back,” Bethany McLean and Joe Nocera wrote in All the Devils Are Here: The Hidden History of the Financial Crisis.
But Countrywide dipped its toes into subprime lending — issuing mortgages to borrowers with poor credit histories — in the late 1990s. That was several years after other non-bank lenders, with the government cheering them on, began loosening their borrowing requirements and extending mortgages to those who previously might have been turned away. Those unconventional buyers were willing to agree to higher-than-normal interest rates to offset their added risk.
It was after 2000, when Loeb left the company, that Mozilo fully embraced the looser practices of surging subprime mortgage companies. With their enhanced interest rates, these mortgages were in high demand on Wall Street, where firms bundled them with other, less-risky forms of consumer debt and sold them as mortgage-backed securities.
Mozilo “felt he had no choice,” McLean and Nocera wrote. “If he stayed out of subprime, Countrywide would never be number one — and that was unacceptable.”
All was right for a while. Countrywide surpassed Wells Fargo to become the No. 1 mortgage originator in the US by market share in 2004. In 2006, it made $US2 billion in new loans on the average working day. Shareholders had reason to celebrate: The company said its five-year total return at the end of 2006 was 340 per cent, almost 10 times higher than that of the S&P 500.
Mozilo had reason to cheer as well. In 2006, he was paid $US48 million, beating JPMorgan Chase & Co. Chairman and CEO Jamie Dimon by $US10 million and Bank of America CEO Kenneth Lewis by $US20 million. From 2000 until 2008, Mozilo received total compensation of $US521.5 million, according to Equilar, a compensation-research firm.
Looking back on those boom years, Mozilo said Countrywide had been swept up in a “gold rush” mentality that had overtaken the US. “Housing prices were rising so rapidly — at a rate that I’d never seen in my 55 years in the business — that people, regular people, average people got caught up in the mania of buying a house, and flipping it, making money,” he said in a 2010 interview with the US Congress-appointed Financial Crisis Inquiry Commission.
“Housing suddenly went from being part of the American dream to house my family to settle down — it became a commodity,” he said. “That was a change in the culture.”
In 2006, housing prices began declining. A wave of subprime lenders declared bankruptcy, announced significant losses or put themselves up for sale in the first months of 2007, the pain spreading to a broad swath of hedge funds, commercial banks and investment banks that had bought, sold, repackaged and invested in the loans. Countrywide needed a $US2 billion investment by Bank of America to get through 2007 but lasted just one month into 2008.
‘One of the greatest companies’
In his 2010 interview with the commission that analysed the financial crisis, Mozilo expressed pride in his company’s record of helping 25 million people buy homes, including minorities, who had historically been the victims of discrimination in housing.
“Countrywide was one of the greatest companies in the history of this country and probably made more difference to society, to the integrity of our society, than any company in the history of America,” he said.
Angelo Robert Mozilo was born in the New York City borough of the Bronx in December 1938, the first of five children born to first-generation immigrants from Italy. His father, Ralph, was a butcher.
To help pay for his Catholic schooling, Mozilo worked at the butcher shop and as a messenger boy in Manhattan, including for the mortgage-servicing company that employed one of his uncles. He began working full-time for the firm after graduating in 1960 from Fordham University with a degree in marketing and philosophy.
Soon after, the company merged with a competitor founded by Loeb, an industry pioneer. That merged company was bought out in 1968, and Mozilo and Loeb formed Countrywide, initially called Countrywide Credit Industries.
“No, no, no, we didn’t do anything wrong. Countrywide or Mozilo didn’t cause any of that.”Angelo Mozilo in a 2014 interview
Their timing was fortuitous, as the mortgage market was about to take off. In 1970, the federal government authorised the Federal National Mortgage Association — the government-sponsored entity known as Fannie Mae — to begin purchasing conventional mortgages, not just those insured by the Federal Housing Administration or the Veterans Administration.
By 1992, Countrywide was the largest originator of single-family mortgages in the country. It was also a leader in refinancings, “making it possible for homeowners to use their homes as piggy banks,” McLean and Nocera wrote.
Mozilo sold off much of his stake in Countrywide even as he encouraged shareholders to stick with the company. His sales, conducted under a prearranged trading program, got him sued in 2009 by the US Securities and Exchange Commission for insider trading and fraud linked to Countrywide’s sale of substandard mortgages whose risks were allegedly hidden from the public.
Mozilo settled the suit by agreeing to repay $US45 million in ill-gotten profits and $US22.5 million in civil penalties, while admitting no wrongdoing. He accepted a lifetime ban from serving as an officer or director of any public company. It was the largest settlement by an individual or executive connected to the housing collapse and, at the time, the largest SEC penalty ever paid by a senior executive at a publicly traded company.
Mozilo was investigated for criminal fraud on the same facts the SEC alleged. In 2011, federal prosecutors dropped the case, which would have required them to prove an intent to defraud on Mozilo’s part. A subsequent Justice Department attempt to build a civil case also ended without charges.
He mostly kept a low profile, writing an unpublished autobiography and accepting no blame for the market collapse.
“No, no, no, we didn’t do anything wrong,” he said in a 2014 interview. “Countrywide or Mozilo didn’t cause any of that.”
Mozillo and his wife, Phyllis, had five children. One son, Eric, was a senior vice-president for Countrywide. Phyllis Mozilo died in 2017, according to an online death notice.
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