The passing of Angelo Mozilo on July 16 at age 83 inspired me to recall my in-person coverage of the former Countrywide CEO as the real estate's reigning entrepreneur in the early 2000s. I also witnessed up close the damage wrought by his reckless lending practices in stories examining the desperate campaign waged by Countrywide's acquirer Bank of America, and its new leader Brian Moynihan, to rescue the mega-bank from the wreckage. The Mozilo I knew boasted both the genuinely brilliant promotional skills that built what was once a outstanding company, and the unbridled hunger for size and profit, risk be damned, that brought it to grief.
In the summer of 2003, this writer was mining our Fortune 500 list for overlooked companies attaining spectacular feats when a little-known California mortgage lender caught my eye. Countrywide Financial, a comer I'd never heard of and wasn't even a bank, had jumped from outside the 500 club to the 209th spot in just four years. Its stock was surging even faster than its sales, leading me to examine its long-term performance. To my amazement, that exercise unearthed a heretofore unnoticed achievement: Countrywide had notched the highest shareholder returns of any financial services enterprise since the start of the great bull market in 1983.
Over those two decades, Countrywide had delivered total gains of 23,000%, or 30% a year, even beating Berkshire Hathaway's record of 15,000%. Of all the companies feasting from the hot housing market from the early-1990s through the mid-2000s, the biggest beneficiary by far wasn't a big name lender like Washington Mutual, or a renowned homebuilder such as Toll Bros., but Countrywide. Exemplifying its sudden ascent from the minor to the big leagues: In 2022, Countrywide earned as much as Dell and Monsanto, and beat McDonald's and Walt Disney.
I had to learn how Countrywide made magic, and who was stirring the elixir. A week later, I was driving to its headquarters in Calabasas, an hour north of Los Angeles, to meet its co-founder and CEO, Angelo Mozilo.
Conversations with Angelo
I greeted Mozilo in an imperial setting. His office occupied a circular tower atop a former Lockheed headquarters that then housed the Countrywide brass, and featured sweeping views of the sunbaked surrounding hills. Covering the walls were Hudson River School paintings from the mid-1800s, including works by such legendary artists as Thomas Moran and Thomas Cole. It was a personal collection he'd started decades before, he explained, when these rustic renderings weren't yet recognized as great art. The bantam-sized chief sported his signature look: A mahogany-toned perma-tan, pinstriped suit, and a white-collared blue shirt festooned loudly accented by a deer-hunter orange tie.
For color, his stories matched his garb. Mozilo related that his first job, at age 12, consisted of chopping chickens at his father's Bronx butcher shop. He first encountered home loans as a teenaged messenger for a Manhattan mortgage company, then studied philosophy at Fordham University, an experience that instilled a love for Jesuit learning. "My kids can go any any school they want, as long as it's run by Jesuits," he quipped. Mozilo told me how he and co-founder David Loeb had launched Countrywide with three total employees and a $500,000 investment in 1969. By coincidence, the then retired Loeb died the day that I visited Mozilo in Calabasas. It's instructive that Mozilo warmly described Loeb to me as a forensic student of the mortgage game, a "quant" who took extreme care in protecting the credit quality of the Countrywide portfolio.
As Mozilo tacitly admitted, he and Loeb were something of an odd couple. By contrast, despite his intellectual grounding, Mozilo in our meetings exuded the same flamboyant salesmanship that, he maintained, hadn't waned since his early career. An early loan home source, he said, was the Veterans Administration. "The uptight people at the VA would turn some of my people down," he remembered, "So I'd bring in vets with wheelchairs, medals, and artificial limbs, and they'd hang out in the VA lobby until the reps got to embarrassed they changed their minds and approved my folks!" If this unstoppable glad-hander brandished a credo, it might have been, "Mortgages for all!" Mozilo proudly recounted that he'd secured home loans for bartenders, golf pros and sundry members at his country club, boasting that "I never give up on anyone." Away from the turreted office, Mozilo hung with another swashbuckler showman, legendary movie mogul Jerry Weintraub, producer of the "Ocean's Eleven" series.
Mozilo first succeeded because his team reined in risk
From the start, Countrywide forged a highly original model. It engaged in every part of the mortgage spectrum, underwriting loans, selling title insurance, providing servicing to borrowers, and even running a bank funded by property taxes and insurance payments that it held in escrow. Countrywide was also a pioneer in securitizations. Rather than holding the loans on balance sheet, it rolled the mortgages into securities that it sold to investors. Countryside owed its success to combining highly fast, efficient origination, mainly via call centers, with—until the late stages—excellent credit controls. Mozilo's top lieutenants exerted the same restraints as did Loeb prior to his retirement. His top team consisted chiefly accountants who ensured that although Countrywide grew quickly, it never it also only wooed only high-quality customers. For example, until the early 2000s, Countrywide did no subprime lending, leaving the field to the venturesome likes of the Money Store and Guardian S&L. Mozilo even lambasted the mortgage mavericks as "crooks." The formula proved sorcerous. By 2003, one in eight homebuyers were getting their home loans through Countrywide.
But as the housing boom rocked into its peak years of 2005 to 2007, the jump in prices, as well as mortgage rates, made homes less and less affordable. As a result, Countrywide's competitors targeted its huge origination machine by deploying low initial "teaser" rates that enabled families to carry the monthly nut for a year or two, then would reset at several points higher, often forcing the borrowers to default. Mozilo wanted to keep growing and maintain Countrywide's dominant market share. But doing so would require lowering credit standards to counter the madcap competitors—and Mozilo was all-in. In 2006, Mozilo had planned to step down as CEO by year end, to be replaced by COO and heir apparent Stan Kurland. But Kurland was a cautious numbers-man who wanted to go in the opposite direction by scaling back Countrywide to avoid what he viewed as a looming wave of defaults. After clashing with Mozilo, Kurland departed to found and run the highly successful home loan platform PennyMac.
Mozilo remained as CEO, and now unchecked by dissent, pursued an expansionist policy by lowering standards for everything from income verification to down-payments. By 2007, almost half of its originations were adjustable-rate, and nearly 50% went to borrowers in California, a state where prices had exploded and were now buckling. Countrywide had also shifted from zero subprime underwriting to granting one in ten mortgages to low-credit borrowers. As the resetting ARMs hobbled the borrowers ability to pay, a bigger and bigger share of Countrywide's portfolio fell delinquent. By late 2007, a full one-quarter of its customers had stopped paying.
Countryside sells to B of A, and hammers the megabucks results for years
In January of 2008, B of A bought the beleaguered lender for $4.1 billion, one-fifth of its market cap a couple of years earlier. The Charlotte behemoth figured the buy was a bargain that would greatly enlarge its footprint in what its leaders viewed as a market that though now troubled, promised a strong future. Instead, the deal proved a disaster, moving the board at the start of 2019 to name a new CEO. It was now Bran Moynihan's job to stanch the bleeding. For at least two years, analysts speculated on whether B of A's real estate losses, mostly a legacy of the Countrywide acquisition, would sink the fabled institution. The crisis prompted Moynihan to establish an extremely high-cost workout arm to restructure troubled loans and handle foreclosures. B of A incurred big expenses as the servicer responsible for covering delinquent tax and insurance payments. The bank reached gigantic settlements with investors who charged that Countrywide had portrayed the securitized loans as much safer than they really were. All told, those expenses plus penalties paid to federal and state authorities, totaled well over $40 billion. Fortunately, Moynihan's steady hand, and the power of B of A's giant retail footprint, ensured a strong comeback.
In October of 2010, as Moynihan struggled to rescue B of A, Mozilo reached a settlement with the SEC over securities fraud and insider trading. The $68 million in fines amounted to the biggest penalty arising from the 2008 to 2009 housing collapse. The accord banned banned Mozilo from ever again serving as an officer or director of a public company.
Two or three years later, Angelo Mozilo surprised this writer by calling with a request. He asked me to write a story based on his recollections of the management practices, and the pivotal decisions, that had once made Countrywide a great company—and generated those multi-thousand percent returns that first attracted my fascination. I told Mozilo, whom I'd always found extremely personable, that the glory part wasn't the big story. I stopped there. He knew what I meant, and signed off politely.
What I didn't say: The big story was the the historic collapse that wouldn't have happened had he'd kept heeding the sober voices that kept Countrywide from harms way. And that's the cautionary tale Angelo Mozilo never acknowledged, and didn't want to tell.
