8.26.2007

New York Times jumps on anti-Countrywide bandwagon

We knew they were stupid and made ridiculous loans that were certain to default. The New York Times (free registration required) tells us they were also evil and screwed their customers.
[P]otential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.

Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.

...

“In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.”

...

[Orange midget Angelo] Mozilo has ridden this remarkable wave to immense riches, thanks to generous annual stock option grants. Rarely a buyer of Countrywide shares — he has not bought a share since 1987, according to Securities and Exchange Commission filings — he has been a huge seller in recent years. Since the company listed its shares on the New York Stock Exchange in 1984, he has reaped $406 million selling Countrywide stock.

As the subprime mortgage debacle began to unfold this year, Mr. Mozilo’s selling accelerated. Filings show that he made $129 million from stock sales during the last 12 months, or almost one-third of the entire amount he has reaped over the last 23 years.
Their commission structure rewarded brokers for putting borrowers into subprime loans, or loans with huge prepayment penalties, etc., even when borrowers qualified for better terms. They gave loans to borrowers that would leave them little money for food in the monthly budget. Even borrowers who got reasonable loans got raped with multiple documentation, appraisal, and other fees, all much higher than industry averages. It goes on and on. It's a huge, five-page article.

There's not much here that will surprise followers of the mortgage industry, but such a prominent and negative story may start to change Countrywide's "best in the industry" and "too big to fail" public image. Enron and WorldCom were pretty big, too, but no one shed a tear for them.

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