Angelo Mozilo
| Angelo Mozilo | |
|---|---|
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| Mozilo in 2002. | |
| Born | Angelo Robert Mozilo December 16, 1938 The Bronx, New York, United States |
| Died | July 16, 2023(aged 84) |
| Nationality | American |
| Citizenship | United States |
| Education | Fordham University |
| Alma mater | Fordham University |
| Occupation | Mortgage banker |
| Years active | 1953–2008 |
| Employer | Countrywide Financial |
| Company | Countrywide Financial |
| Title | Co-founder, chairman and chief executive officer of Countrywide Financial (1969–2008) |
| Known for | Building the largest mortgage lender in the United States; his role in the subprime mortgage crisis |
| Salary | About US$470 million in total compensation, 2001–2006 |
| Criminal charge | Charged by the SEC in 2009 with insider trading and securities fraud (civil) |
| Status | Settled in 2010 for US$67.5 million and a lifetime bar from serving as an officer or director of a public company, without admission of wrongdoing; criminal investigation dropped in 2011 |
Angelo Robert Mozilo (16 December 1938 – 16 July 2023) was an American mortgage banker who co-founded Countrywide Financial in 1969 and led it as chairman and chief executive until 2008, building it into the largest mortgage lender in the United States and, in the judgment of many contemporaries, into a central cause of the subprime mortgage crisis.
The son of a Bronx butcher and the grandson of Italian immigrants, Mozilo began working for a mortgage broker as a messenger at fourteen and founded Countrywide Credit Industries at thirty with his former mentor David S. Loeb. The firm pioneered nationwide non-bank mortgage lending, operating outside the deposit-taking banking system and funding itself in capital markets, and by the mid-2000s originated roughly one in five American home loans.
Mozilo's own account of his career placed access to home ownership at its centre, particularly for minority and low-income borrowers whom conventional lenders had underserved, and for much of his career he was hostile to subprime lending, privately describing the subprime operators of the 1990s as crooks. Countrywide entered the market in the early 2000s, after losing share to lenders that had, and by 2006 was originating adjustable-rate, low-documentation and payment-option loans in volume.
Countrywide was sold to Bank of America in a transaction valued at about US$4.1 billion in stock, completed on 1 July 2008; Mozilo retired the same day. Bank of America's losses on the acquisition, through write-downs, settlements and litigation, ultimately exceeded US$40 billion and it is frequently described as the worst corporate acquisition in modern American history.
Mozilo became the individual most closely identified with the crisis in American public discussion. CNN listed him among the ten most wanted culprits of the 2008 collapse and he featured prominently in the Academy Award-winning documentary Inside Job. The Securities and Exchange Commission charged him in June 2009 with insider trading and securities fraud, alleging that he had sold hundreds of millions of dollars of stock while publicly promoting it and concealing what he knew about the quality of the loan book. He settled in October 2010 for US$67.5 million and a lifetime bar from serving as an officer or director of a public company, without admitting wrongdoing — the largest settlement reached with any individual over the housing collapse. The Justice Department dropped its criminal investigation in February 2011.
Background: American mortgage lending
Understanding Mozilo's career requires the structure of the American mortgage market, which differs from that of most other countries and which changed fundamentally during his working life.
The savings and loan system
For most of the twentieth century American home loans were made by savings and loan associations and by banks that held the loans on their own books until repayment. A lender that kept a thirty-year mortgage bore the credit risk for thirty years, which gave it a direct interest in whether the borrower could pay.
The system was local, heavily regulated, and constrained by the deposits an institution could gather. It collapsed in the savings and loan crisis of the 1980s, at a cost to the taxpayer of well over US$100 billion.
Securitization
The arrangement that replaced it separated the making of a loan from the holding of its risk.
A mortgage originated by a lender could be sold to Fannie Mae or Freddie Mac, the government-sponsored enterprises, or to an investment bank, which would pool thousands of such loans and issue securities backed by their cash flows. Those securities were sliced into tranches of differing seniority, rated by the credit rating agencies, and sold to investors worldwide.
The consequences were substantial. Capital for mortgage lending became effectively unlimited, since it came from global bond markets rather than local deposits. Non-bank lenders, which took no deposits and were therefore outside banking regulation, could compete directly with banks — this was Countrywide's opportunity, and Mozilo took it earlier and more completely than anyone.
And the originator's incentive changed. A lender that sells a loan within weeks of making it is compensated on volume, and bears the consequences of default only to the extent of representations it has made about the loan's quality. The interest in whether the borrower can actually pay is attenuated, and at the margin it disappears.
Subprime
Subprime lending — to borrowers with impaired credit, at higher rates — grew from a small speciality in the late 1980s into a substantial industry by the mid-2000s, supported by rising house prices, by investor appetite for higher-yielding mortgage securities, and by the assumption embedded across the system that national house prices did not fall.
The product range expanded correspondingly: adjustable-rate mortgages with low initial teaser rates that reset sharply; stated-income loans requiring no verification of earnings, known in the industry as liar loans; payment-option mortgages permitting payments smaller than the accruing interest, so that the balance grew; and loans at or above the full value of the property.
These products were viable so long as prices rose, because a borrower who could not pay could refinance or sell at a profit. American house prices peaked in 2006.
Early life
Angelo Robert Mozilo was born in The Bronx on 16 December 1938. His grandparents were Italian immigrants; his father was a butcher. He attended Catholic schools and helped in his father's shop from the age of twelve.
At fourteen he took work as a messenger for a mortgage broker, beginning an association with the industry that lasted the rest of his life. He graduated from Fordham University, working his way through.
The background mattered to how he understood his business. Mozilo described himself throughout his career as an outsider to the Protestant establishment that ran American finance, and framed Countrywide's mission as extending home ownership to people whom that establishment declined to serve — a framing his critics regarded as sincere in origin and as having become, over time, a justification for lending that harmed the borrowers it claimed to help.
Countrywide Financial
Founding and growth
In 1969 Mozilo and his former mentor David S. Loeb founded Countrywide Credit Industries in New York. The headquarters moved to Pasadena, California, and later to Calabasas in Los Angeles County.
The firm's model was to originate mortgages nationally without taking deposits, funding itself through capital markets and selling the loans it made. It was among the pioneers of non-bank mortgage lending and grew over three decades into one of the largest lenders in the United States.
Mozilo and Loeb also co-founded what became IndyMac Bank, originally Countrywide Mortgage Investment, which was spun off as an independent institution in 1997. IndyMac was seized by federal regulators on 11 July 2008 in one of the largest bank failures in American history; Mozilo held no managerial, executive or board position there at the time.
The turn to subprime
Mozilo's early reputation rested on credit discipline. He was, by contemporary accounts and by his own, closely concerned with the quality of borrowers and of loans, and Countrywide declined to participate when subprime lending emerged through operators such as Guardian Savings and Loan in the late 1980s and The Money Store in the 1990s. He described those lenders privately as crooks.
The commercial consequence was that Countrywide lost business to them. Faced with a choice between competing on their terms and ceding market share, Mozilo chose to compete, and from the early 2000s Countrywide originated subprime loans in increasing volume.
By the middle of the decade the company was among the largest originators of adjustable-rate, stated-income and payment-option mortgages in the country, and it was pursuing an explicit strategy of matching any product a competitor offered. Internal communications later disclosed in litigation showed Mozilo describing certain of the company's own products in severe terms — characterizing one category of loan as toxic and observing that the company was originating loans it did not understand the risk of.
Those communications are central to the case against him, because they establish that his private assessment of the loan book differed from the assurances the company was giving investors.
Sale to Bank of America
Countrywide's funding position deteriorated through 2007 as the market for private mortgage securities closed. Bank of America invested US$2 billion in August 2007 and agreed in January 2008 to acquire the company outright; the transaction, valued at about US$4.1 billion in stock, completed on 1 July 2008. Mozilo retired the same day.
The acquisition became the most damaging in Bank of America's history. Losses on Countrywide's loan book, together with regulatory settlements, investor litigation and mortgage repurchase claims, are generally estimated to have exceeded US$40 billion — many times the purchase price.
Compensation
Mozilo's pay became one of the most examined executive compensation records of the period.
Countrywide listed on the New York Stock Exchange in 1984, and over the following decades Mozilo sold about US$406 million of its stock, most of it acquired through option grants. Of that total, US$129 million was realized in the twelve months ending August 2007 — the period in which the mortgage market was deteriorating and in which the SEC subsequently alleged he was in possession of information investors did not have.
His total compensation during the housing bubble years of 2001 to 2006, including salary, bonus, options and restricted stock, approached US$470 million. It also included equity memberships and annual dues at the Sherwood Country Club in Thousand Oaks, The Quarry at La Quinta and the Robert Trent Jones Golf Club in Virginia — details that received disproportionate attention when disclosed, as a compact illustration of the distance between the executive and the borrowers.
Mozilo testified before the House Committee on Oversight and Government Reform on 7 March 2008. He called reports of his pay grossly exaggerated in some respects, pointed out that he had also lost a great deal as the share price collapsed, and defended the compensation as a function of the company's performance in the years before the crisis.
Regulatory action
The SEC charges
On 4 June 2009 the Securities and Exchange Commission charged Mozilo with insider trading and securities fraud, together with Countrywide's former chief operating officer David Sambol and former chief financial officer Eric Sieracki.
The allegation had two parts. The fraud claim was that Countrywide's public disclosures had described its underwriting as conservative and its loan book as high quality while its executives privately understood otherwise. The insider trading claim was that Mozilo had sold large volumes of stock under trading plans established and repeatedly amended while he was in possession of that information, and while the company was simultaneously using shareholder funds to repurchase shares in support of the price.
Settlement
Mozilo settled on 15 October 2010, agreeing to pay US$67.5 million and accepting a lifetime bar from serving as an officer or director of any public company. It remains the largest settlement reached with any individual executive over the 2008 housing collapse.
Robert Khuzami, director of the SEC's Division of Enforcement, said that "Mozilo's record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite."
The settlement permitted Mozilo to avoid any acknowledgment of wrongdoing, and Countrywide — by then Bank of America — was to pay US$20 million of the penalty under an indemnification provision in his employment contract, so that his personal payment was US$47.5 million against realized stock sales of some US$406 million.
By settling, he avoided a trial that might have produced evidence supporting criminal charges. In February 2011 the Justice Department dropped its criminal investigation into the same conduct. A further civil investigation reported in 2014 was also closed without charges.
The absence of any criminal prosecution of Mozilo, or of any other chief executive of a major mortgage originator, became one of the standing criticisms of the American legal response to the financial crisis.
The Friends of Angelo programme
In June 2008 Condé Nast Portfolio reported the existence of a Countrywide VIP lending programme, known internally as Friends of Angelo, under which favourable mortgage terms were extended to people of political or commercial value to the company.
Reported beneficiaries included Senator Christopher Dodd, chairman of the Senate Banking Committee, who received a reported US$75,000 reduction in mortgage costs on homes in Washington and Connecticut at allegedly below-market rates, and who had nonetheless called for stronger regulation of mortgage lenders; Senator Kent Conrad, chairman of the Senate Budget Committee; James Johnson, former chief executive of Fannie Mae; and Franklin Raines, Fannie Mae's chairman and chief executive from 1999 to 2004, who twice refinanced a seven-bedroom house using VIP loans of nearly US$1 million each in 2003.
Others reported to have received Countrywide mortgages included Alphonso Jackson, then acting Secretary of Housing and Urban Development; Clinton Jones III, senior counsel to the House Financial Services Subcommittee on Housing and Community Opportunity; Paul Pelosi Jr.; Senator Barbara Boxer; Representative Adam Putnam; Richard Holbrooke; Representative James Clyburn; and Donna Shalala. CBS News obtained a list of Fannie Mae employees identified to investigators as VIP loan recipients.
The programme's significance lay less in the value of the discounts, which were modest by the standards of the sums involved elsewhere, than in what it indicated about Countrywide's relationships with the people responsible for regulating it and with the government-sponsored enterprises that bought its loans. Senate ethics investigations concluded that Dodd and Conrad had not violated Senate rules, while criticizing their judgment.
Mozilo donated to both parties during the Clinton administration and was reported to be a registered Republican.
Public reception
Mozilo became, more than any other individual, the public face of the subprime mortgage crisis in the United States.
CNN named him among its Ten Most Wanted culprits of the 2008 financial collapse. He appeared prominently in Charles Ferguson's Inside Job (2010), which won the Academy Award for Best Documentary Feature. His deeply tanned appearance was a recurring feature of caricature, and became a shorthand in press coverage.
Henry Cisneros, the former Secretary of Housing and Urban Development and a member of Countrywide's board, told The New York Times in October 2008 that Mozilo was "sick with stress — the final chapter of his life is the infamy that's been brought on him, or that he brought on himself."
Mozilo maintained for years afterward that the subprime mortgage industry bore no responsibility for the crisis, attributing it instead to a credit crunch and to the collapse of liquidity in the securitization markets. He gave few interviews after 2010 and did not publish an account of his career.
Assessment
Assessments of Mozilo turn on a question about causation that his own defence raised: whether Countrywide drove the deterioration in lending standards or followed it.
The case against him is that Countrywide was the largest originator in the country and therefore set the standard others met; that its executives, on the evidence of their own communications, understood that particular products were unsound and continued to sell them; that its public disclosures described underwriting the company did not practise; and that Mozilo realized some US$406 million from stock sales, including US$129 million in the twelve months before the collapse, while those disclosures were being made.
The case in his defence is that the products Countrywide sold were sold by everyone; that a lender which declined to offer them would have lost its business to those that did, as Countrywide had begun to before it changed course; that the loans were bought willingly by the world's most sophisticated investors and rated highly by the agencies paid to assess them; that Fannie Mae and Freddie Mac purchased them under government policy directed at expanding home ownership; and that a system in which every participant was rewarded for volume cannot be reduced to the culpability of one originator.
The narrower question of his own conduct was never adjudicated. He settled the civil charges without admission, the criminal investigation was closed, and no court ruled on whether the disclosures were fraudulent or the share sales unlawful. What is established is the size of the settlement, the permanence of the bar, and the fact that Bank of America's purchase of his company cost it more than ten times what it paid.
Mozilo died on 16 July 2023, aged 84.
See also
References