Vilified: What You Don't Know About My Brother, Angelo Mozilo

Let me start with a confession, well ... two confessions: First, I have always been a big fan of the sensational Congressional inquiry. Even as a child, during the Watergate hearings, I indulged in that secret smugness that comes from watching the rich and the powerful get theirs. Until recently, I have found few things as satisfying as the televised spectacle of some corrupt public figure, titan of industry, or scandalized bureaucrat withering under the relentless attack of my representatives on the Hill. Where the criminal justice system has been unable or unwilling to intervene, the Congress, at least, provided a public forum for getting to the truth and, by extension, stoking my sense of moral outrage. But that was before.

My second confession is that I am Lori Mozilo, youngest sister of Angelo Mozilo who, up until recently, was Chief Executive of Countrywide Mortgage. I am not employed by Countrywide, do not own Countrywide stock (I sold low, years ago), nor am I a recipient of money from my brother in any way. I haven't checked in with anyone - not my brother, not a lawyer, nor a public relations person, before writing this. I am writing because, although the Congressional hearings on the mortgage crisis did indeed stoke my sense of moral outrage, my anger, this time it has been reserved for Henry Waxman and the Democrats on his committee. As for the truth, it has been in very short supply. Like the reporters for a Beltway tabloid, Mr. Waxman and his partisans seemed to lose interest in the truth the moment it got in the way of the story they wanted to tell, a story characterized by handwringing, finger-pointing and shameless self-promotion. I have to admit, if I hadn't had the advantage of some firsthand knowledge about the subject, I might not have noticed.

At this point, it is probably worth mentioning that I am a life-long Democrat, an old school liberal, who has jokingly been called a "Communist" by a few family members for my lefty leanings. My brother and I sometimes do not agree when it comes to politics, but beneath the veneer of party affiliations, we share many core values. Angelo has always championed equal rights for all: blacks, whites, gays, women, immigrants. He has spent a lifetime trying to bring the dream of home ownership within reach of all Americans. This is a goal which has been championed by Democrats for decades, and which required the loosening of credit standards to include people who have historically been denied affordable loans.

When I was a kid, my brother explained to me why he was in the mortgage banking business. He believed that home ownership was a pillar to building neighborhoods, communities, and ultimately, a strong country. He explained that people care about their sidewalks, their schools, their neighborhoods, and their neighbors when their personal finances are tied to them. He believes in home ownership as a literal shareholding in our mutual destinies (my words, not his). He was ambitious and smart, but he was also idealistic. He believed every American could one day own a home and be a part of the shared experiment called America. I admire my brother. He's tough, a big thinker, and the staunchest believer in the American dream I have ever met.

When the mortgage crisis first broke, there was as flurry of innuendos and ill-informed allegations about Angelo, his compensation package, his stock options, and his roll in instituting predatory sales practices at Countrywide. It seemed that fact checking had become a thing of the past and reporters were merely recycling misinformation they had gotten from each other. How naïve it now seems that those of us who are close to Angelo looked forward to his getting a chance to set the record straight. After all, we thought, no one is more careful about following the rules than my brother. At family functions, Angelo refrained from even the most casual conversations about Countrywide for fear he might inadvertently reveal privileged information. When summoned to Washington, he arrived with copious documentation addressing all the issues that had been at the source of the rumors surrounding his part in the crisis: the expanded use of sub-prime mortgages during the Clinton administration to increase home ownership for lower income families, the details and rationale behind his compensation package with Countrywide and his extended tenure with the company at the behest of the board of directors. He brought documentation to show that when it came to liquidating his stock, he was on a payment schedule determined by the SEC itself, and he always sold within predetermined pay periods; to do otherwise would have been against the law.

The congress and the SEC had already seized and pored over more than thirty thousand of his emails, computer records, and documents. But even with no evidence of wrongdoing, Rep. Waxman and my fellow Democrats on the Committee had no interest in setting anything straight. Their purpose, in this election year, was to conduct a public flogging, to demonstrate that they were on the case, to express their righteous indignation on behalf of their party and their constituents. Also singled out in this choreographed ritual were E. Stanley O'Neal, former Chairman and Chief Executive of Merrill Lynch and Chuck Prince, his former counterpart at Citigroup. All three men shared the common experience of having risen from humble beginnings. All three had served for decades in their industry, and each was personally responsible for bringing the American dream within the reach of thousands of Americans.

Oh, and they were rich. Really rich. American's have a funny relationship with their wealthiest citizens, a love-hate dynamic that Mr. Waxman knew he could exploit to great effect in the midst of our current economic downturn. The subtext of these hearings was: "Look, it's okay to be successful, but not too successful." Politicians have no problem with the super-rich when they are soliciting them for campaign funds, or honoring them for their contributions to charitable organizations, or consulting them for advice on matters of public policy, but they will sell them down the river in a heartbeat for a few hours of quality time with a TV camera. I don't mean to suggest that every Congressional hearing is mere political theater. Henry Waxman's work on behalf of health care has been admirable, but he must have known going into these hearings on the mortgage crises that, in the absence of any hard evidence of malfeasance, the only thing he could hope to accomplish was to ruin the reputations of men like my brother. Is this really the climate we want to create for the innovators, entrepreneurs and big thinkers in our country? Look, I personally have issues with huge compensation packages. I can't really process the amount of money paid to top executives or, for that matter, movie stars or big name athletes, so if Mr. Waxman wants to convene a panel to discuss the complexities capitalism itself, I'll tune in.

But witch-hunts are not about problem solving, and I guess Mr. Waxman and other politicians figure that the reputation of a few rich men is a small price to pay to divert attention from their own failure of leadership because, after all is said and done, failure of leadership is the real crime here and, in that regard, there is plenty of blame to go around. Certainly, leaders of the banking industry share the responsibility, as does the media, in particular the financial press, and especially our elected officials whom we pay to watch out for our interests.

I've heard, "Mozilo had to have seen it coming and didn't say anything." Please. I'm no genius, particularly in financial matters. But I do own a home and I knew it wasn't worth what people were leaving notes on my porch telling me they'd pay me for it. I knew the real estate bubble had to burst one day, just as I knew a decade earlier that paying people a million dollars for the name of a website that didn't exist was probably not going to turn out that great, either. The Committee ignored much evidence that my brother was actually quite optimistic about the future of his industry. That he, in fact, did not see it coming, because if they had presented that evidence, perhaps they wouldn't have been able to facilitate a public catharsis for our collective frustration. Sure, Angelo and others in the mortgage banking industry should have seen it coming -- and the politicians, the borrowers, Alan Greenspan, and all the financial experts should have, too.

There is also the so-called "FOA (Friends of Angelo) scandal." Will all FOA's please stand up? They will include: strangers, Senators, neighbors, cab drivers, doormen, nannies, even a sister or two. FOA was the name given to Angelo's personal pipeline of loans because he didn't work out of a branch office. And yes, he did give deals. Not illegal, shady deals, just plain old American, good deals. People from all mortgage companies have room in negotiating mortgages -- it's a completely legitimate business practice. Nothing was illegal or unseemly. Angelo originated loans. He'd say to me, "If any of your friends are looking for a loan, tell them to call Countrywide, tell them to say they are an FOA." They did call, and some of them got rates better than those offered by other companies. Some of them did not, and went elsewhere. I myself did not have a Countrywide loan for many years because Washington Mutual beat the "FOA" rate I was offered. I know, it's not sinister or interesting, but it's the truth.

Two days ago IndyMac Bank was taken over by the Fed. Senator Charles Schumer's public release of a letter to the Office of Thrift Supervision and the FDIC expressing concerns about IndyMac's viability has been cited by the OTS as one of the major reasons for the bank's liquidity crisis and its subsequent take over. In the following 11 business days after the public's access to Mr. Schumer's letter, IndyMac customers withdrew over $1.3 billion from their accounts. Chuck Schumer vigorously denies his actions had any effect on the situation. Perhaps Rep. Waxman should convene another panel. The press can fire up the TV cameras and we can all start asking some questions. Surely someone else is ready for their close-up.

Comments

[lungfish]

Some food for thought here.....the Schumer comment was spot on and the failure of the Mortgage industry was compounded by failures in many peripheral institutions and businesses as well as in leadership by the likes of Waxman.
In 2006 I was thinking of buying a home. Had a good score, good income..... Shopped out a house in Santa Rosa. Had what I liked... in ground pool and hot tub, fully finished older two bedroom. In my hometown I could have bought it for less than half of the 650k that the guy was asking. By the end of the conversation he was asking 710k and at least every other day for several weeks after I was getting calls from a broker telling me how easily he could write paper for me.
However, it seemed to me that the house was over-valued and that the market was no longer even believable to me. Everywhere i looked I saw deals that didn't look right. Too much money for too old or too lame properties. It didn't look right and I opted not to buy a home. Right now the same homes I was watching are selling for a half to a third of their value. I am so glad I am not stuck with an over valued home and a huge mortgage... Now I am starting to watch the market for the right deal at the right price because this market is consistent and understandable....

[Godfearing]

Mortgage loan bankers and government officials should have read MICHAEL W. HODGES' detailed and definitive ECONOMIC REPORT and they might not have the problems they have today. The following contains the report, better late than never:

http://mwhodges.home.att.net/

[1will]

It does no good to get someone into a home that they can't pay for 2 years later. Too many loans were written for too many people that should not have qualified and obviously could not pay once the interest rates started to rise.
Mozilo was not being a humanitarian by writing these loans and American citizens will be paying for the mistakes of these bankers for years to come in the form of a weaker dollar, devalued homes and higher taxes.
Defend Mozilo all you want. There is a reason why people have credit scores and SHOULD have to be approved for loans.

[vippy]

Credit scores are not what we think they are. I have had a perfect record, paid mostly cash,
always on time,etc. and guess what, I cannot get credit. Not that I need credit but just for kicks
I applied and was turned down. Here I am 64 years old, never had a problem with purchases
but I cannot get credit for I don't have a history of loans. Balony I say!

[hoopesaz]

"citizens will be paying for the mistakes of these bankers for years to come in the form of a weaker dollar".

This is a two sided problem. while bankers shouldn't have made the loans, the borrowers were in the best position to understand how unqualified they were. They took loans they had no business taking. I qualified for loans I shouldn't have taken. And, I didn't take them.

We'll all be paying for the irresponsibility of those who did take those loans.

[marinara]

http://www.youtube.com/watch?v=V36yZJ7EPsE

waxman questions mozillo

[robinhood2]

Fear and greed have been driving the financial markets for as long as there have been financial markets. There is a lot of blame to go around. In another 20 years or so, there will be a new crop of MBA's working at banks and brokerage firms and there will be another scandal/crash of some sort. That's the way things are. You can no more repeal speculation than you can command the tide to roll back.

[OtayPanky]

For capitalism to work as an economic system, capitalists have to have a good faith agreement with society: they will only pursue profits that can be accrued as part of increasing the common good.

When capitalists violate that principle, they are raping society rather than supporting its betterment. Even though they and their shareholders might be happy with their profits, over the long haul society will suffer.

I'm not an insider here, but it looks to me like players on all levels in the money lending business gave into good old fashioned temptation, and did evil for filthy lucre (to borrow a phrase). They didn't have to make money available to people who couldn't afford to borrow it, and they did. They didn't have to set up their compensation plans so that their sellers would make loan-sharkish loans rather than sensible loans, but they did.

It's not enough to say that individual borrowers should have known better. Those bad loans got bundled and fed, in massive lots, into the financial system as bad paper. Our society ate the bad paper, and is now retching its guts out from economic food poisoning.

Insiders who knew better closed their eyes, and lined their pockets.

[letsgetsmart]

Let me first say that I respect the fact that you stand up for family. I do think that you should talk to a bunch of home owners that have done business with C-wide. C-wide was the largest conduit into fan/mae (wholesale) and huge numbers of loans moved through them to fan/mae. They also serviced these loans for fan/mae. C-wide also had a retail division that did some things that I didn't like. Since they were servicing fan/mae portfolios they solicited these loan customers and refinanced many of them into worse situations just to earn a commission. When investors offer a rate lower then the market, they generally add a prepay penalty to get you to keep it for a while. If one company refinances another's loan within this period then the consumer incurs the penalty as a cost for doing the refi. Since C-wide's name was on the monthly statement the consumer assumed this was an in house refi and many of them absorbed penalties that were not discussed with them. I always coached my clients to watch for this and even stopped sending paper to C-wide because of their business practices. I didn't want my clients abused.

[GBGB]

"I've heard, 'Mozilo had to have seen it coming and didn't say anything.' Please. I'm no genius, particularly in financial matters. But I do own a home and I knew it wasn't worth what people were leaving notes on my porch telling me they'd pay me for it. I knew the real estate bubble had to burst one day."
Why is your brother getting blamed when everyone should have known better? Because if I take out a loan that I can't afford and my house is foreclosed, that is a personal risk that doesn't significantly impact the economy or the lender. However, if I am the CEO of one of the largest mortgage lenders and I make thousands of bad loans to thousands of people that can't afford them, that does impact the economy and the company.
The people leaving notes on your doorstep just wanted to buy a house before they were priced out of the market. They were being priced out of the market because your brother was giving loans to anyone with a pulse.
As for his heart being in the right place, Mozilo only reluctantly forfeited his $37.5 million dollar severance package after getting intense pressure to do so. This is not much of a sacrifice since he still has another $50 million coming to him. Why was he going to get a $37.5 million severance package in the first place? I could have run Countrywide into the ground for much less.

[vippy]

Let us be fair it was not all his fault. Our congress and their Commodities Futures Modernization Act created this Enron Loophole, and they briefed by an Ex-CEO on the results of that act and
they decided to do nothing. They knew on 14 December what impact it would have on housing
and banking industry and the high energy prices yet they did not act on it and waited until it came
crashing down. And why would one think, because they made big bucks off it.
Can we fire them now?

[GBGB]

"The mortgage crisis is the little guys fault - shouldn't have taken a loan if he couldn't afford it. " I disagree. Each "little guy" is just one guy who wanted a house for his family (ok, some of them were greedy and just wanted a bigger house). Each lender, however, made thousands of loans apiece and did so to make money. I think the little guy's motives were more altruistic.
Sure, the lenders could give out negative amortization loans with no down payment on a stated income loan application when home values are going through the roof. [Duh, home prices were skyrocketing because the lenders made it so easy to borrow money.] But it is amazing to me that the lenders, with their high-paid, well-educated CEO's and MBA's couldn't predict that (1) home prices would not skyrocket forever, (2) people will lie on their loan applications if you don't verify their information, and (3) people who put nothing down and are paying interest only are not "homeowners" because they don't have any skin in the game. They are essentially "renters" who will walk away from the house when they can't make the payment.
There is a reason that lenders historically required 20% down, verified incomes, heeded the 28/36 debt ratio, etc. The mortgage crisis occurred when the lenders abandoned those standards. This mess is at least 90% the lender's fault.

[lionqueen]

You may not have considered the fact that mortgage lenders who did not want to abandon their 20% down, appropriate debt to income ratio, rational appraisal history, had loans paying off en masse, refinanced by other lenders. To not participate in that market was to risk losing the institution's loan portfolio.
When you consider this issue, perhaps the mess is less a fault of the lender than you previously believe.

[letsgetsmart]

So, if it is ok for the crooks to send cousin luigi to collect for them then it is ok for all businesses to have a cousin luigi on theirs staffs? What kind of logic are you using? Jumping on the band wagon of no money down for everyone is insane. If there were just a smidgen of ethics in the field of investors we wouldn't have our problem. Investors and the people who regulate them, plain and simple.

[Paprikapink]

It's a common, and potentially dangerous, misconception that only bad people do bad things or let bad things happen. You can be a great person in every way, but still not see the red light and mow down a car full of kids. We tend to believe that bad things were done by "some idiot" or "some greedy billionaire." It doesn't matter who did the bad thing; what matters is what was done, who is responsible, and what are the consequences.

[lafemme]

What you don't know about corporate law . . . . It doesn't matter how innocent of illegal conduct you think your brother may be. Even if your brother did nothing, and held his head in the sand throughout, it doesn't absolve him from fiduciary duties to ensure the company operated in the interest of its shareholders (and 401(k) holders). Yes, John Q should be more savvy about entering into specious loans, but when you have a banking and real estate industry pushing to close overvalued loans for their bottom loans and selling them to investors (including investing banks that did not do requisite due diligence), John Q is practically a bystander, witnessing economic implosion from the front row. Problem here is John Q is not a CEO with a well-lined pocket. Problem is Mr. Mozilo was obligated to ensure that the incentive to close properly collateralized loans wasn't lost in the securitization process. Bad loans are bad loans, and there are a battery of state and federal laws that monitor it. Even if Mr. Mozilo did not personally engage in or know about the process, he was duty-bound, and certainly paid, to know it was happening and put an end to it. He'll be lucky if he doesn't escape this scandal without at least being civilly liable.

[SpaceyG]

Haven't read through all of your post yet, but I will, and I should tell you that I have a mortgage with Countrywide, was happy to get it, am happy with it, and happy with the service provided by the company. Granted, I was given the mortgage when I didn't even have a "real" job, but what the heck! As, someone said, I did have "a credit score and a pulse." (Got that juicy quote here: http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355)

[falco]

The mortgage crisis is the little guys fault - shouldn't have taken a loan if he couldn't afford it. The little guy is mucking up the environment with his gas guzzeling SUV. Our cars and trash are causing global warming. The little guy will pay for all this through taxes. Bail out our banks, clean up the environment, fight global warming, and although the little guy hasn't been blamed yet, we will bail out starving nations. In the mean time, bankers siphon off millions and billions (how did they see it coming?), our corporations' emmision standards are hard to enforce and overseen by who? with what integrety? (fox watching hen house) and they move to China and Mexico for lower wages and emmision standards (putting us out of work as we continue breathing bad air). Money to third world countries for food/medicine gets divided up - a chunk to the elite ruling class (that we put in by hook or crook), a chunk to the politicians who passed the bill (could be direct or through some dummy company), and the last small chunk to the starving people. And so the show goes on...Why in the world, if we think all these people are criminals, would we trust them in another area? (ie election are on the up and up, drought and floods not caused by weather manipulation, etc)

[KillTheMessenger]

Falco, you are angry and anger is not a good adviser. And it certainly does not help that you make it a "me vs. them" issue. That is not how it works. And yes, you, the little guy, will have to pay for this mess. You can like it or not, it won't make the slightest difference.

[letsgetsmart]

Some times anger is good. The gravitation of wealth to a few is picking up speed and the number of people who are now also the little guy is increasing. Maybe if enough people get angry instead of remaining complacent, the little guys will do something about this. This might be what it takes to get more people to vote.

[babylonandon]

It amazes me (by now it shouldn't!!) how the very vultures at the forefront of creating major scandals - the United States Congress - are always the first to stand up and reinvent the Spanish Inquisition to go after "corruption" when the biggest cesspool of liars, thieves, cowards, and traitors in this whole country are the "esteemed" members of Congress...of both parties.

They come up with some idiotic idea that "redresses social iniquities" while enriching themselves and their bestest buddies (and always at the expense of JOHN Q PUBLIC working taxpayer) and when the rot of corruption spreads so far from the little clique that set it up as to become a newsworthy public nuisance, they turn around and scramble to find somebody(s) who are outside the clique to hang for a scapegoat.

Presto chango - billions out of our pockets to the "elect" few and a "scourge of society" is on the evening news being castigated by some pompous a## Congress puke.

This time was even worse as a bunch of "suffering little people" greedy (multimortgaged-to-pay-for-HDTV's, SUV's, boats, and other toys) scam artists managed to get in on the act as well even more enlarging the billions that every one of us working suckers are going to get taxed to pay back.

We should let the banks collapse, the stupid and greedy get booted out on the street, and arrest and try members of Congress AND the rest of the government for treason against the people.

[lionqueen]

My disagreement with Mozilo is not his compensation package. Rather, it is based in the way he compensated his loan agents. Higher commissions were paid to agents who sold loans with, not only higher adjustable rates, but also with "lock-in" provisions, which make it difficult for the borrower to refinance.
Generally, I think that both lenders and borrowers share in the responsibility for this situation, but in this particular case, these loans seemed to have been sold to those on the lowest rung of the economic ladder. It is analogous, in my view, to practices of "Rent to Own" and "Payday" Lenders.
Legal under the letter of the law, but despicable business practices nonetheless.