Subprime loans were especially lucrative for Countrywide, because Wall Street wanted the riskier, higher-yielding loans, and salespeople were paid larger commissions for originating them. There were no ceilings to these commissions, and many salespeople were making millions of dollars each year. According to a former Countrywide compliance officer, some borrowers who could have qualified for prime loans were steered into the more expensive subprime loans instead.
Stan Kurland was to succeed Mozilo asC. Like Mozilo, Kurland had been waiting a long time to gain control of the company. But now that his ascension was set, his influence seemed to wane.
In early , with interest rates steadily rising, Kurland sent a memo to senior managers, saying that the boom was plainly over, and that it was time for the company to tighten its guidelines and plan for reduced volume. His memo was ignored. The two men were very different. Kurland was mild-mannered and analytical, with a laconic demeanor that masked strong emotions; Sambol was arrogant, volatile, and uninhibited. Under the existing system, banks may choose their own regulators, which in turn are funded by the fees that the banks pay; the O.
Last week, the Obama Administration proposed several regulatory reforms, including the elimination of the O. About six weeks later, Kurland sent Mozilo an emotional memo. Kurland said that he could not accept this arrangement, and that when Mozilo stepped down as C. Both were told on numerous occasions to be adults. Nick Krsnich, meanwhile, had decided to leave the company.
In March, , he went to say goodbye to Mozilo. Krsnich believed that Kurland had failed in his responsibilities as president, by not reining in Sambol. Nevertheless, Krsnich told Mozilo that if the choice were between Kurland and Sambol he would unhesitatingly choose Kurland.
In early September, , the company announced that Sambol would replace Kurland as president and chief operating officer, that Mozilo would stay on as chairman and C.
Kurland left the company, where he had worked for twenty-seven years, without even sending an e-mail message to employees. Last year, along with several other former Countrywide executives, he started a new company, PennyMac, which buys and sells distressed mortgages; many people were outraged that someone who had helped create the mortgage debacle was now scavenging its remains.
Mozilo had to negotiate a new contract, and focussed on obtaining his due. So he was very, very adamant about what his compensation should be. Comp Watchers. By early , subprime defaults were rising rapidly. He appeared confident, however, that Countrywide would emerge stronger from this crisis, as it had from every other, while weaker lenders fell away. Meanwhile, he decided that it was important for Countrywide to increase its efforts to diversify; he was interested in building up other divisions, such as capital markets.
The two firms were an odd match. Dunne was widely known to be risk-averse. After suffering devastating losses in its offices in the World Trade Center on September 11th, Dunne rebuilt the company, and, by December, , it was profitable again. Where was the doubting Thomas? Sambol rejected the idea, and Dunne ended the discussions. Kurland, schooled by Loeb, had believed that Countrywide should make only as many loans as it could promptly sell, but Sambol argued that such a policy was antiquated.
As late as July, , Countrywide was originating billions of dollars of loans that one analyst estimated would likely be salable only at a loss. A month later, Wall Street buyers abandoned most mortgage-backed securities, and the collapse of the mortgage market predicted by Krsnich finally occurred.
Mozilo flew to New York to plead with the heads of J. Morgan Chase, Bank of New York, and other Countrywide creditors to continue to fund the short-term debt, known as commercial paper, which the company counted on to finance many of its loans; they refused. This is unlike anything I even thought three months ago. Sieracki bridled at the price, and pointed out that Golden West—a big California thrift that had been sold in May, , near the top of the market—had brought almost twenty-six billion dollars.
But Mozilo was determined to close the deal. On January 11, , Bank of America announced it would buy Countrywide for four billion dollars in stock—a sixth the amount of its market value before the crisis began. A year earlier, in July, , when ithad become plain that problems in the mortgage market were widespread—affecting prime as well as subprime loans—an analyst asked Mozilo, in a conference call, whether with hindsight he would have done things differently, starting in or It would have been an insight that only, I think, a superior spirit could have had at the time.
What should I have known and when should I have known it, and what should I have done about it? The next month, the market collapsed, and the real damage began to unfold. Since then, Mozilo has had plenty of time for introspection. Unsurprisingly, he takes issue with the notion that all roads in the worldwide financial implosion lead to his doorstep. It is true that the crisis was greater than the collapse of the subprime-mortgage market. There were many bubbles, and they extended beyond housing in many countries to commercial real estate mortgages and loans, to credit cards, auto loans, and student loans.
There were bubbles for the securitized products that converted these loans and mortgages into complex, toxic, and destructive financial instruments. And there were still more bubbles for local government borrowing, leveraged buyouts, hedge funds, commercial and industrial loans, corporate bonds, commodities, and credit default swaps. Taken together, these amounted to the biggest asset and credit bubble in human history. Nonetheless, probably because problems with home mortgages have affected so many people, Countrywide and its C.
In May, , when he was still chairman of Countrywide, pending the Bank of America acquisition, he received an e-mail from a borrower, Daniel Bailey, Jr. Obviously they are being counseled by some other person or by the internet. A number of e-mails indicate that he was disconcerted by the way the company was operating. In the first quarter of , H. Frankly, I consider that product line to be the poison of ours. Nonetheless, it was at about this time that he seems to have decided that he wanted Sambol, not Kurland, to succeed him.
And, in January, , in an e-mail cited in the S. Charges of insider trading may be the most difficult legal issue that Mozilo faces. As he prepared for retirement, he arranged to sell stock through what is known as a 10b plan, under which corporate executives must set the dates of their trades in advance, to protect against allegations of insider trading.
Starting in late , Mozilo made several changes to his stock-trading plans, to increase the number of shares he could sell. Related: 10 years after the crisis, have we learned anything? For his twin roles at Countrywide and IndyMac, two of the most notorious names of the crisis, Mozilo is remembered as one of the villains of Time magazine named him one of the 25 people to blame for the financial meltdown.
Yet, like other major figures in the crisis, Mozilo largely evaded tough penalties from the government. For years, the Justice Department considered bringing criminal and civil charges against Mozilo.
Neither brought a case. While Mozilo was telling shareholders that Countrywide mostly lent to healthy borrowers, the SEC said, he was sounding the alarm inside the company with a "series of increasingly dire assessments" about the dangers ahead. In a separate email that month, Mozilo said that he had "personally observed a serious lack of compliance" within Countrywide's process of documenting mortgages and a "deterioration in the quality of loans.
Mozilo also said that Countrywide was "flying blind" because it had "no way" to predict the performance of pay-option ARMs. Related: My road back from the Great Recession. At an industry conference just weeks later, in May , Mozilo said Countrywide viewed the pay-option mortgages as a "sound investment. The SEC hailed it at the time as the largest penalty ever against a senior executive of a public company, but Bank of America paid two-thirds of the fine.
Mozilo wasn't targeted by Bank of America, despite the mountain of legal problems the bank inherited from Countrywide. Reached by phone in California, the year-old Mozilo declined to speak. His lawyer did not respond to a request for comment. Bank of America declined to comment. Even two years after Countrywide's collapse, Mozilo maintained that his company was an enormous force for good.
One former senior executive at Countrywide told CNNMoney that "Angelo really believed he was doing wonderful things for American housing. Of course, Mozilo is hardly the only person deserving of blame for the mortgage debacle. Other subprime lenders such as New Century Financial, Ameriquest and American Home Mortgage either failed or were acquired in fire sales. Constant banging on our door, breaking of windows — the things that went on were unbelievable. Ultimately, Bank of America absorbed Countrywide as the company lost astounding amounts of money and its shares plunged.
Although the company faced accusations that it duped borrowers into mortgages they didn't understand, Mozilo was never charged with a crime. It affected my reputation, it affected my family, it had a profound impact on my entire life. So I cared," he said. There other things more important in life. The audience at SALT, made up mostly of hedge-fund managers and other wealth management pros, applauded.
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