Banking

Countrywide Financial (Subsidiary of Bank of America)

Last edited by lenazun on November 25, 2009 - 8:58pm
Company Snapshot: 

If there is a company that is the face of the recent subprime mortgage fiasco, it is Countrywide and its CEO Angelo Mozilo. On July 1, 2008 Bank of America announced that it completed a full takeover of Countrywide after receiving approval from the Federal Reserve's Board of Directors on June 5. On October 16, 2008, Countrywide announced it would delist its stock.

Number of employees worldwide: 
50,600
Chief executive officer: 
Angelo Mozilo
Website: 
My Countrywide
Tel: 
1-818-225-3000
Net Income: 
(703 million)
Total revenue: 
25,111 million
Corporate accountability
Accountability overview: 

Subprime Mortgage Leader

Reports indicate that the firm's staff steered customers toward products with the highest fees, even when much better alternatives were available.

As the crisis in residential mortgages exploded in the summer of 2007, Countrywide lost access to repo financing, a standard form of overnight bank-to-bank lending. Its repo borrowings outstanding dropped by $30 billion between June and September. If Countrywide had not replaced those lines, it likely would have been insolvent, or would have been forced into a fire sale of its remaining good assets.

The Atlanta Federal Home Loan Bank stepped up with loans totaling $22 billion, raising the total credit it had extended to Countrywide to $51 billion. The loans are secured by mortgages, which the home loan bank can discount up to 50 percent. The lendor stipulated that non of the collateral can "exhibit predatory characteristics."

Anti-competitive and consumer protection: 

Predatory Lending Lawsuits

For a comprehensive list of lawsuits filed against Countrywide, go to Countrywide Watch, a project of the Center for Responsible Lending.

On June 25, 2008 California Attorney Jerry Brown Jr. sued Countrywide Financial, CEO Angelo Mozilo, and president David Sambol, "for engaging in deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose of reselling the mortgages on the secondary market." (See People v. Countrywide, Los Angeles Superior Court case number LC081846. Read the complaint to learn more about the specific schemes that Countrywide allegedly used to mislead and deceive borrowers into taking out risky, costly and complex subprime and adjustible rate mortgage (ARM) loans that were inappropriate for most homeowners. According to a report by Investor's Business Daily, Countrywide charged some borrowers large upfront fees before it would even discuss a loan modification. ("Need to Modify Your Countrywide Loan? Pay Now, Talk Later," IBD May 22, 2008)

A 2008 survey of housing advocates by the California Reinvestment Coalition found that Countrywide was the "most difficult to work with in trying to keep borrowers in their homes."

For a critical reaction to Brown's settlement of the suit, see The Greenlining Institute, which has called for a foreclosure freeze.

Critics of Countrywide aired their views at a Federal Reserve Board hearing about BoA's takeover of Countrywide. (Becky Yerak, "Countrywide ripped at hearing," Chicago Tribune, 4/23/2008) See the hearing transcript, as well as transcripts of the hearings in San Francisco,

"Paying More for the American Dream"

A March 2007 report on higher cost home lending practices released by a coalition of leading low-income housing and community rights advocates found that African-American and Latino customers of Countrywide and other banks in six major cities were at least 3.5 times more likely than white borrowers to receive a higher-cost home purchase plan.

Political influence (national and international): 

Countrywide's spent $706,000 on lobbying in 2008, down from a $883,000 peak in 2005. Their lead lobbyists wereGordon Mills and Angie Garcia Lathrop, who lobbied the U.S. Treasury Office of Thrift Supervision on behalf of the company's interests in the HOPE NOW initiative, as well as Congress (H.R. 5679 - Foreclosure Prevention and Sound Mortgage Servicing Act; and HR 3221 - Housing and Economic Recovery Act). Other lobbyists working for Countrywide (with Mills) include Corey C. Carlisle and Jimmie L. Williams. (To view the company's lobbying records go here.

One of Countrywide's compliance department employees described the firm to two reporters as a "sweatshop" with a high turnover rate. "She -- and others -- learned that the idea was to produce as many loans as humanly possible." (Between 2004 and the end of 2007 the company originated $150 billion in mortgages rated A- to D. Of these it was doing the monthly processing (servicing) on $100 billion, collecting fees from the investors to hom it had sold the loans. Countrywide even securitized its own subprime loans through its capital markets group, which acted more or less like an investment banker -- like a Merrill Lynch or Bear Stearns." (Chain of Blame, pp 123-124).

Under pressure to maintain its leadership position, Countrywide approved and signed up 38,000 of the 44,000 loan brokers registered to do business in the U.S. Some of the company's background checks were outsourced to a contractor in India.

Coiuntrywide followed others into the business of originating stated-income loans (where home buyers stated their income and the lender believes them as long as their FICO score checks out). Countrywide also originated another type of loan pupular at the endof the housing bubble (2004 to 2007): payment option adjustable-rate mortgages (ARMs). By 2006 Countrywide was the largest payment option ARM lender in the nation. One employee in the company's compliance department said that when it came to underwriting, the company wasn't doing its homework.

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History

Bronx-born Angelo Mozilo built the company from scratch to the point where -- after forty years it was the biggest in the business. The company, which went public on the NYSE in 1969. In its early years it was a nondepository (nonbank) mortgage company that lent money to consumers not by using deposits but by borrowing money from larger money center banks (lines of credit called "warehouse" loans). The company's creditors included Bank of America and Chase Manhattan.

As a nondepository mortgage banker, Countrywide was in competition with 6,000 S&Ls that had an inside track on the business of originating first mortgages. S&Ls could also sell them off to Freddie Mac or Fannie Mae. (At the time, Countrywide did not have the ability to sell its mortgages to Fannie or Freddie).

By 1991 Countrywide had become the largest residential lender in the country, picking up a large influx of business after hundreds of S&Ls -- especially in California -- had failed. Countrywide was also the largest originator of home mortgages using loan brokers. In 1992 Countrywide funded $30.5 billion in mortgages (in part through the use of loan brokers), becoming the largest originator in the country. Mozilo was elected president of the Mortgage Bankers Association. (The group was constantly battling to defend the tax deductibility status of mortgage interest payments).

Countrywide opened up a trading desk to trade jumbo loans (loans over the loan limit amount that Fannie and Freddie were limited to making based on the average median home price in the nation) and Community Reinvestment Act (CRA) loans. Countrywide originated such nonconventional loan types and sold them to the highest bidder -- in effect securitizing the mortgages it extended. Instead of going to Bear Stearns, Merrill Lynch, Lehman brothers or other Wall St. firms to perform the trade, they did it themselves. The company followed others into the subprime business in the mid-1990s.

By 2004 Countrywide was funding $40 billion a year in subprime loans. (Its share price more than doubled over the previous two years). It eventually wrote more subprime loans than anyone else. The company had a 15 percent market share -- i.e. it wrote 15 out of every 100 loans closed in the U.S. So that when it was pointed out that he had cashed in $140 million stock options as the stock began to slide, he replied: "I started this company with my own money. I have created $25 billion in value for shareholders. It's been one of the best-performing stocks on the NYSE. I gave them 98 percent and took 2 percent . And they didn't have to do the work. I did it for them." (National Mortage News, quoted in Chain of Blame)

In 2008, as Countrywide's stock continued to slide, CEO Mozilo worked the phones and convinced an old friend, Ken Lewis (president and CEO of Bank of America) to invest $2 billion of BoA's money in a special class of preferred stock that was convertible to common stock and paid a 7.25 percent divident. BoA got the shares for $18 each, giving the bank a 16 percent stake in Countrywide. Although the deal initially drove Countrywide's shares up, its stock soon continued to slide downwards. The deal came decades after BoA had bailed Mozilo out by buying a Florida bank that had a $75,000 outstanding loan to Countrywide and extending the loan instead of calling it in.

Financial information
Fiscal year: 
2007
Fiscal year: 
2007
Sources
Watchdogs and related campaigns: 
Countrywide Watch (Center for Responsible Lending)
Mortgage Lender Implode-O-Meter
HousingWire.com
Consumer Federation of America
FDIC Loss Sharing Proposal
Center for Responsible Lending
Mortgage Insider
ACORN
Greenlining Institute
RealtyTrac.com (foreclosure rate info)
California Reinvestment Coalition
Related reading: 
The Trillion Dollar Meltdown by Charles R. Morris
Chain of Blame by Paul Muolo and Mathew Padilla
Greed, Fraud & Ignorance: A Subprime Insider’s Look at the Mortgage Collapse
The Subprime Solution by Robert Schiller
Financial Shock: A 360 Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis By Mark Zandi
Dollars & Sense Predatory Lending Page
Paying More for the American Dream
Specialized Information
More detailed market share/concentration data: 

According to the SourceMedia Inc., in early 2008 five companies held about 55 percent of all housing receivables: CitiMortgage Inc. (MO); Chase (NJ); Washington Mutual (Seattle, WA); Countrywide (CA); and Wells Fargo (CA). (Neil J. Morse, "Damage Control," Mortgage Banking, February 2008).

More detailed description of business strategy: 

Countrywide is now infamous as one of the nation's biggest predatory lenders.

The company played a very high-risk game, bleeding cash for years and making it up by borrowing. From 2003 through the third quarter of 2007, Countrywide's operating cash flow deficits totaled $38 billion. None of those years left the company in the black. During the same time, its federal loans increased by $44 billion, effectively financing all of its cash flow deficits.

Countrywide has also moved billions of dollars in mortgages from its trading account to permanent loan status, presumably to avoid further mark-to-market writedowns.

After getting bailed out by Bank of America, Countrywide announced a “homeownership retention program” for Countrywide customers. The agreement resulted from negotiations 11 state attorneys general (who have been investigating Countrywide’s allegedly predatory lending practices) and promises to provide relief to homeowners. For details and an analysis go here.

The loan modification programs imposed by the states on Countrywide and other companies is expected to provide relief to roughly 400,000 borrowers in the form of reduced interest rates and/or loan balances. In addition, Sheila Bair (Chair of the Federal Deposit Insurance Corporation) is pushing for a plan that would enable the FDIC to guarantee mortgage loans modified according to standardized loan modification practices to lower monthly payments by borrowers—so that lenders would not run the risk of default on the modified loans. However, the securitization of residential mortgages has made the implementation of this approach very difficult.

Shareholder resolutions: 
AFSME "Say on Pay" resolution
List of largest shareholders: 
Bank of America (parent company - Countrywide Delisted)
Summary data on executive compensation and director compensation: 

Angelo Mozilo, the CEO of Countrywide, was paid $48 million in 2006. Following news reports that Mozilo also dumped 4.9 million Countrywide shares - worth more than $138 million - between November 2006 and August 2007, shareholders called on the SEC to investigate.

Mozilo's cash-out prompted sharholders to call for the resignation of Harley Snyder, Countrywide's lead director and chairman of its compensation committee, along with two other directors that make up its compensation committee -- Oscar Robertson and Robert Donato -- who together cashed out $15 million in Countrywide stock.

The SEC is looking into CEO and co-founder Angelo Mozilo's accelerated sales of Countrywide stock under a 10b5-1 plan. (Laurie Kulikowski, "Countrywide Critics Call for Change," TheStreet.com, 11/08/2007).

On March 8, 2008, the U.S. House Oversight and Government Reform Committee, chaired by Rep. Henry Waxman (D-CA) held a hearing on CEO Pay and the Mortgage Crisis. Countrywide CEO Angelo Mozilo testified at the hearing.

Connecticut Treasurer Denise L. Nappier led a coalition of 21 institutional investors representing more than $1.4 trillion in filing a resolution with the Securities and Exchange Commission (SEC) to require greater disclosure of information on the independence of board compensation consultants, allowing shareholders to better understand and evaluate pay packages to top executives.