In Search of a Subprime Villain
The panic of 1869 had Jay Gould and Jim Fisk. The junk-bond insider scandals had Ivan Boesky and Mike Milken. And turn-of-the-21st century book-cooking had poster boys Jeff Skilling and Bernie Ebbers. Now, the subprime meltdown cries out for its own icon—an easily vilified, Leno-quotable, high-seven-figured household name.
If there were Vegas odds for this kind of thing, the money would be on Angelo Mozilo, founder and chief executive of Countrywide Financial (CFC), the largest U.S. mortgage lender and the source of so many of the bad home loans that have gummed up the global financial system.
But don't finger Mozilo just yet. The scale, ripple effect, and emotional particulars of this bust make it uniquely hard to pin on one character. Countrywide will become less newsworthy as it is acquired by Bank of America (BAC), an outcome regulators want to hasten. And the more we dissect the subprime episode, the more we'll want to put the whole affair out of our minds altogether.
Make no mistake: Mozilo, 69, certainly looks the part. Central casting would be hard-pressed to produce a CEO with a more luxurious tan, shinier teeth, or louder pinstripes. He pocketed nearly $400 million in the past six years of housing boom and bust, opportunistically dumping shares. Adding insult, Mozilo stands to take home a consolation prize of around $100 million, plus country club fees, once the fire sale to Bank of America goes through, with Countrywide priced 85% below its peak value and 12,000 workers lighter. Lawsuits are piling up. Presidential Candidate Hillary Clinton is excoriating Mozilo for his exit booty, while Senator Charles Schumer (D-N.Y.) said he wants to see the executive "boiled in oil—figuratively."
Neither Countrywide nor Mozilo would comment for this story. It could be that he is too busy coating himself in patriotic Teflon. The son of Italian immigrants loves to invoke the American dream. "We have provided over 25 million families with an opportunity to have a home of their own, to build equity, and to utilize that equity to educate their children and to have the best life possible in our great country," he said in a Jan. 11 letter to employees about Countrywide's buyout. "We are now financing homes for the grandchildren of our first generation of mortgagers."
You can bet your teaser rate that Mozilo was addressing more than his workforce. The Feds and campaigning pols alike know that Countrywide originates one of every six mortgages out there—no small feat at a time when more than 100 home-loan competitors have flamed out in a matter of months. Yes, disappointed borrowers contend that they were conned by the lender. But millions more got precisely what they wanted from Countrywide: an honest, affordable loan. Mozilo is further amassing extra-credit points by announcing the easing of loan terms on more than 81,000 homeowners facing foreclosure and partial debt forgiveness in an additional 8,000 cases.
If that doesn't immunize him, he's willing to play dumb—or to proclaim martyrdom. It's clear now that Countrywide's easy underwriting culture invited nothing short of business suicide: an astonishing 7.2% of its mortgages are delinquent, while foreclosures more than doubled in a year. Cut off from the credit market and paying unsustainably high rates to attract depositor cash, Countrywide started the year on bankruptcy's doorstep. With his company's stock in free fall, Mozilo had to agree to what traders derisively call a "takeunder"—as opposed to a premium-sweetened takeover.
All of which will conveniently allow Mozilo to profess: Hey pal, pity me. I lost my baby, everything I've worked for. My company hemorrhaged $20 billion in value in less than a year. Indeed, in his staff memo, he blamed "regulators, rating agencies, legislators, the media, and others" for Countrywide's demise. A half a billion dollars richer than he was five years ago, Mozilo might convince you that the system foreclosed on him.
Whether or not you fall for this Jedi mind trick, Countrywide is increasingly moot now that subprime has rotted into the rest of the economy. Consumers are retrenching, while all manner of banks, credit-card companies, and even retailers set aside billions to cover their bad debts. "There was a terrific lapse of standards across the board," says Stuart Gabriel, a professor of real estate finance at University of California at Los Angeles. "The problem is just so much broader than Countrywide."
And therein lies the rub. Mozilo is most inoculated by the fact that this whole exercise invariably circles back to the public: our rapacity, our naiveté, our willing suspension of disbelief toward all things credit. But who wants to ponder that?