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

[lifeinfullcolor]

I think the plan was laid in order to squeeze the last drop of water from a failing economy, that no one is really talking about, they, the real powers that be, the masters of the universe are just waiting to get their hands on China. Once China takes over the lead in consumerism, then they won't have any need for us, for the middle class here who brought them their wealth. The whole real estate bubble kept quite a few industries going, Home Depot, the lumber industry, etc... etc.. Now there's no incentive, no money, no raise in pay, fear of jobs being outsourced, cost of living that jumped. I find it interesting that the fuel prices waited to take their leap until the bubble burst.

[dkst]

1. These companies were forced to lower their standards in order to help people buy homes. Socialism at it's best and guess what, one more example of liberal policies, it feels good but doesn't work. I took advantage of lower rates, I wouldn't be living where I live with out it. How ever, I based what I have on what I could afford. Helping people own a home starts with them earning, working, saving and doing what it takes to own a home. Lowering standards so more people can take advantage is destroying our education system, our health care system (sure let the gov be in control), and our quality of life.

2. Why do we pick on the rich, why is everything their fault? I wonder how many jobs were created because of these rich people? Sure a lot of jobs have been lost, but it was because people got into contracts they couldn't afford and now can't pay. We want to bail these people out, the ones that can't pay the bills, that's nuts. Once again, punish those that make opportunity (pursuit of happiness) and reward those that create a burden.

Where have we seen this very logic recently: Capital Gains, Dividend, estate tax, all based on helping the greater good, just because it isn't fair. This should be a lesson to both sides, we need to strive for the highest standard, not lower our goals to the lowest denominator.

[SonnyBono]

"1. These companies were forced to lower their standards in order to help people buy homes. " - so I guess the profit motive had absolutely nothing to do with actions of companies like Countrywide?

Say, Bucky, are the sunsets pretty on your home planet?

(Private industry like the mortgage business always complains about government regulation and then we get results like we see in the sub prime mortgage crisis - don't you think a little regulation would have prevented this current meltdown? Even Teddy Roosevelt, a Republican believed in government oversight - not the hands off policy promoted by hired guns like Phil Gramm that gave us Enron and the sub prime mess. No body forced the mortgage companies to lower their standards - they did it for the MONEY.)

The government shouldn't pick on the rich - just the crooks that get rich at the expense of others or can't you tell the difference?

[fishwanda]

Oh yes, these companies and their CEOs were "forced" to lower their standards... also they had to twist their arms to get their fat paychecks, bonuses and shares... and now they got caught with their hands in the cookie jar while "creating opportunity"....

Please spare me...these CEOs made money by screwing lots of people and creating enormous chaos and burden on our economy . Now they are getting the final bill. By your own logic - we should not bail them out and forgive their debts...

[csavage]

America has always looked for a scapegoat when things are not going well. Look at how the defense industry was and is still vilified and the public didn't know, didn't bother to find out and still doesn't know how governmental contracts are procured. I sat thru watching my dad's former employer get raked over the coals by Congressional committees looking for a TV spectacle in the mid-80s

The big mess now is the mortgage industry. As a friend to a former Countrywide loan officer, though, I can tell you Countrywide is not as innocent as you would make it out to be. My friend got sick of the corruption a full year before the proverbial poo hit the fan and left the company.

Finally, in my profession, I regularly find myself having to explain the conduct of others, not my employees, to patients. I voiced my frustration one time to my boss and his response was "You get paid the big bucks to deal with it". My 6 figure salary pales in comparison to most big company CEOs but the philosophy still holds. The CEO is where the buck stops that why he gets paid the big bucks

[bazokbros]

Lori, it's good you are defending your brother. The questions I have for you::

Did Countrywide purchase what were considered bad debt loans, even against people who never missed a payment, and increase their interest rates to the highest amount allowed by law?

Since your brother was the captain of the ship, wasn't he responsible for encouraging and setting the strategy for what many would consider predatory lending by Countrywide?

Are you saying your brother is completely innocent of all the accusations against him and Sen. Waxman is really to blame for people losing their homes?

[Henry]

I can answer your questions. (I did not work there nor do I have any specific knowledge)

1) They did have bad debt loans. However, the terms of the paper governed with respect to rate. I mean, if the borrower defaults and the dafault rate provision in the contract is "max the law will alloe"... it conforms to the contract. Devil is in the detail. It is not the perogative of the servicer of the paper.
2) The Captain of the ship is the Captain. However when Ronald Reagan deregulated it was to provide credit to everyone..not thought of as predatory except in hindsight.
3) Let's say for example that Countrywide had a lot of fraudulently assembled "broker" paper... and that they took the paper at face value (without secondary investigation). You could call this negligent.... and at some point you could even become aware of it. But... it would not be a crime. It would be a business model that was externally abused.. and time exposed the weakness.

[bazokbros]

Henry, with all due respect your answers imply that Mozilo was a victim of circumstances. He had to have known what was going on and I just don't agree with a Ken Lay -- Enron defense he was somewhat "idealistic" about his company.

I appreciate your points, however I'd like Lori to respond specifically to the questions I asked, or simply at what point was her brother responsible for what happened and not a victim of circumstances?

[MichaelBlomquist]

Loan fraud is a crime!

Angelo had in each and every file; IRS form 4506, which could have timely and inexpensively verified incomes. He chose not to.

http://www.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001014----000-.html

[LuckyBlessed]

Hi Bazokbros,
You layered a lot in your questions. Trust me I'm not defending the man, but detail is important.

"bad debt loans" not sure what you mean by this, but if it's that he set up programs like Option Arms where people qualified on an interest only adjustable rate and in addition had the "option" to borrow against their home for an even lower payment (until they went into neg amoritization) then yes.

"Never missed a payment'- if this was the case lawyers would have already made a bundle.

"Highest amount allowed by law"- sure, and there were pre-payment penalties, which could amount to thousands if someone choose to pay early.

"Setting the strategy"- I've been in the strategy board rooms, Absolutely. Jamie Dimon, CEO of Chase, I'm sure had the opportunity to do these interesting "option arm" loans and to my knowledge passed. At least I never saw them on a rate sheet along with some other interesting loans others had.

"Completely innocent"- Do you mean legally or morally??? No I have never worked for Chase, but to paraphrase Jamie Dimon from a recent Charlie Rose interview, "If I have to teach you integrity, I don't want you."

[Henry]

I think you are right about this. We are a country that worships prima dona and glitteratti. It's a person, take General Patreus, the current day John Wayne figure. It's also true that there has to be the blame doll, the personification of evil. The truth of the matter has little relevance. The euphoria of the subprime lending era starts with the President(s) and is the direct responsibility of the Federal Reserve Bank and the related regulatory agencies. Waxman needs to "drill and grill" the heads of each of the regulatory agencies(FED, OTS, OCC, FDIC). Just like the Savings & Loan crisis of the 80s, the regulatory agencies knew (they knew) yet they did nothing! And to stick it on aggressive entrepreneurs is a large part of the immaturity of America. By the way, you know about brothers.... aggressive veers in and out of bounds. But that is for all of America.

[redjacket]

Isn't the issue really what did Mozillo know when he dumped all his stock? The loans, the favorable treatment, the intent to make as much money as possible even at the expense of those who don't know better, I don't think that's the stuff of crimes. (It may be the stuff of criminals and politicians, but necessarily a crime.)

Insider trading. That's a crime and worthy of vilfication and jail time. This is the first I've heard about Mozillo dumping stock for anything other than personal gain. If that's true . . . well that may be the one thing worth having some more hearings about.