At that time, no company owned more than 13 percent of market share. This required an aggressive approach to sales, and the firm implemented a commission-based sales system that it had long resisted. Many sales representatives made millions of dollars a year pushing mortgages that were of lower and lower quality.
And yet, Mozilo publicly insisted these were not issues for Countrywide. Countrywide also overcharged more than , African-American and Hispanic homebuyers. Black customers were more than twice as likely as white customers to be offered subprime loans. A federal jury found Countrywide liable. Bank of America assumed these liabilities and many others. Mozilo left Countrywide in In , he was charged by the Securities and Exchange Commission with securities fraud and insider trading.
In , the DOJ dropped prior charges of mortgage fraud against Mozilo. Countrywide was the largest issuer of private mortgage securities in the run-up to the subprime scandal and financial crisis, which caused an economic meltdown in the U. These days, Mozilo, who is seventy, spends most of his time at home, in a large Spanish-style house in a guarded, gated community at the Sherwood Country Club, near the golf course where Countrywide used to co-sponsor the Target World Challenge with Tiger Woods.
The ranks of his friends have thinned, and some who remain tell him that they nearly get into fights defending him. He has received numerous death threats. At fourteen, he got a job as a messenger at a small mortgage firm in midtown Manhattan and was soon promoted.
He saw the job as a way to escape from the life intended for him. His father, who was the son of an Italian immigrant, and who had not graduated from high school, wanted him to join him in the butcher shop rather than attend college.
But his mother had been an avid student, and never got over the day her father took her out of the ninth grade when a schoolmate became pregnant, and sent her to work in a factory, sewing zippers into skirts.
She was determined that her children go to college, and all five of them did. Mozilo graduated from Fordham, in the Bronx, in That year, he met David Loeb, who owned a mortgage company that had merged with the firm that had employed Mozilo since he was a teen-ager. The new company sent Mozilo first to Virginia Beach and then to Orlando.
He had never lived outside the Bronx, and years later he told friends that it had been difficult to be a dark-skinned Italian-American in these communities. Nobody wants to work with me. My mother told me that when he worked in Florida he was asked to sit in the back of the bus. In , Loeb, who was fifteen years older than Mozilo, proposed that they create a new mortgage company together. Loeb sent Mozilo to Los Angeles—then, as now, about twenty-five per cent of all mortgages were issued in California—to open a small office on Wilshire Boulevard.
In the first few years, Mozilo could not afford to bring his wife and small children out from the Bronx, and the fledgling company, incongruously named Countrywide, barely survived. But Loeb and Mozilo took a fresh approach to the business of mortgage banking, and by the late seventies their efforts were beginning to pay off.
Countrywide was a mortgage bank, and, unlike commercial banks and thrifts, was not licensed to take deposits, so it funded its home loans by borrowing money, short term. It originated mortgages, quickly sold them to other institutions—for many years, its biggest buyers were Fannie Mae, Freddie Mac, and Ginnie Mae—and continued to service them. By eliminating a commissioned sales force, Countrywide was able to lower the price of its loans.
In the eighties, it automated much of the loan process, using computers at a time when few other lenders did; Mozilo liked to say that Countrywide was a technology company that did mortgage banking. Unlike the reticent Loeb, who rarely came to the office, preferring to communicate with his lieutenants by phone, Mozilo enjoyed motivating employees, delivering speeches, and talking to analysts and the press.
He ran the company as though he were its sole proprietor, even keeping track of employees who arrived late to work. In the mid-nineties, after losing first place, Mozilo saw his company as being engaged in a fierce contest for industry dominance. Mozilo and his wife, Phyllis, met in the Bronx and married when they were in their early twenties; they have five children and nine grandchildren.
Mozilo sometimes remarked that many of his friends in business had second or third wives who were tall and blond, and he had trouble telling them apart. But Loeb controlled much of the company.
He was its strategist and risk manager, and Mozilo its chief salesman. The company, he believed, should make special efforts to lower the barrier for minorities and others who had been excluded from homeownership, arguing that this was not just altruism but a sound business plan; once the company was about more than making money, it would make money.
Loeb was unmoved, but he did not object. In the thousands of speeches that Mozilo gave over the years, he almost always described himself as the son of a Bronx butcher whose family was too poor to own a home. In , shortly after Mozilo became chairman of the Mortgage Bankers Association, the Federal Reserve Bank of Boston issued a report stating that it had found systemic discrimination by mortgage lenders against African-American and Hispanic borrowers.
Robert Gnaizda, former general counsel of the Greenlining Institute, a nonprofit organization focussed on minority rights, sent the report to Mozilo and other mortgage bankers. Privately, however, Mozilo was appalled. Countrywide opened new offices in inner-city areas, created counselling centers, and loosened some lending standards, to include borrowers with less than pristine credit histories.
In , Countrywide became the first mortgage lender to sign a fair-lending agreement with the Department of Housing and Urban Development. Eventually, subprime loans became too attractive a business for Countrywide to resist. In September, , it created a new subsidiary for these loans, called Full Spectrum Lending; if the loans performed poorly, the Countrywide brand would not be tarnished.
There was a wide variety of borrowers out there, but they all, within reason, needed to be serviced. So why not make them a loan and charge them a higher rate? He wanted to have a product set that would serve everybody.
In some ways, Countrywide seemed to be moving closer to the big companies whose methods Mozilo had scorned. He proposed reviving the use of a commissioned sales force. Anderson knew that challenging Mozilo was a dangerous proposition.
In , Mozilo had instructed his managers to cut costs, and Anderson wrote a memo suggesting that several branch offices be closed. Mozilo had summoned him to the boardroom, where he rolled up the memo and, brandishing it, berated Anderson, saying that closing an office was a public acknowledgment of weakness. Then he left the room, telling Anderson to wait there. Hours passed. Eventually, Anderson learned that Mozilo had left the building.
In , Loeb was seventy-six, and was suffering from neuropathy. Mozilo was tired of waiting to assume full control, according to a company insider, and he and Loeb quarrelled. Loeb was dying, and Mozilo went to see him. He later told friends that Loeb said that he was proud of him—something that he had never said in the forty years they had worked together. By , Countrywide had become a leading U. Where you have forty-seven per cent Hispanic homeownership, that is where the economic opportunity is.
For Mozilo, market share had become an imperative. In , he and his senior executives held a series of strategic-planning sessions with Eric Flamholtz, a U. Flamholtz told them that, if they expanded their market share, analysts would raise their rating of the stock. He argued that most industries eventually evolve into classic oligopolies, with one company commanding more than forty per cent of market share, a second controlling more than twenty per cent, a third having ten per cent, and the rest being boutiques.
That year, Countrywide had a market share of almost ten per cent, and no one in the industry had more than thirteen per cent. Mozilo liked the idea. In subsequent sessions, the executive committee agreed on a private five-year goal of about thirty per cent. Mozilo and some of his executives believed they were in a new era, in which limits had become obsolete. The lender is now owned by Bank of America , and the decision marks the first time a bank has been found by a US court to be responsible for wrongdoing tied to its dealings in the financial crisis.
Countrywide was found guilty of defrauding federal mortgage giants Fannie Mae and Freddie Mac as the height of the housing crisis.
The jury also found former Countrywide executive Rebecca Mairone guilty of fraud. Mairone was the only individual named as a defendant in the government's lawsuit. Countrywide was bought by Bank of America in as the housing market spiralled towards a collapse driven by bad lending and speculation. Prosecutors in the office of Preet Bharara, the US attorney for the southern district of New York, alleged that Countrywide ran a scheme called "Hustle" before the collapse, aimed at funnelling a rapidly deteriorating portfolio of home loans on to Fannie and Freddie.
Even loans in which the borrower's income wasn't independently verified went unreviewed by underwriters, Bharara alleged.
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