The Mozilo Method: Rob, Get Caught, Cut Deal, Die Rich

In General Interest by Jonathan Tasini0 Comments

We are missing part of the anger that I think cuts across the political spectrum–and it goes right to the question: why is Angelo Mozilo not going to jail for a very long time? Because the political system still is not willing to jettison our coddling of the vast array of people who committed deep economic crimes on the country and round them up and put them behind bars.

  I meant to write about this when the deal Mozilo cut with the government was announced almost two weeks ago:

Angelo R. Mozilo, the former chief executive of Countrywide Financial, once the nation’s largest mortgage lender, agreed to pay $67.5 million on Friday to settle a civil fraud case brought by the Securities and Exchange Commission last year.        

Countrywide itself is paying $20 million of Mr. Mozilo’s $67.5 million payment as part of an indemnification agreement he has with the company.

As part of the settlement, Mr. Mozilo, 71, also agreed to be permanently banned from serving as an officer or a director at any public company.  


Mr. Mozilo and his colleagues neither admitted nor denied the government’s charges. The payment by Mr. Mozilo will consist of $22.5 million in civil penalties and $45 million in disgorged stock profits… Bank of America has been paying Mr. Mozilo’s legal fees, and the $20 million Countrywide is paying on his behalf applies to stock profits he was forced to give up.[emphasis added]

  This guy is a crook. He was a central player in the mortgage scam that has rocked our country and the world, causing millions of people to lose their jobs and their retirement.

  Here is a little about Mozilo from my book "The Audacity of Greed":


On the backs of desperate homeowners, Mozilo made himself a fortune, mainly on huge annual stock option grants; from 1984 through 2007, he pocketed $406 million by cashing in those options.

  However, he never showed much faith in his own company, failing to buy a single share in Countrywide after 1987. Instead, he was simply a leech on the company’s equity. Indeed, as the company hit the rocks during the mushrooming subprime crisis in 2007, Mozilo was making sure that he would not personally take the financial hit that hundreds of thousands of his costumers were facing, as he pocketed a third of his $406 million overall stock options in 2006 and 2007.

  Mozilo, in fact, kept up his personal enrichment even as his company was falling apart. By the end of 2007, as the Countrywide crisis was spiraling out of control, Mozilo had tucked away $121.5 million by exercising stock options. He also banked $22.1 million in pay in 2007—a year when the company lost $704 million, its shares slid 79 percent and it cut 11,000 workers from its payroll. So, while the customers, shareholders and workers of Countrywide were drowning, Mozilo was flying high.

In his defense, Mozilo offered the usual argument of the failed CEO: that he was just the innocent victim of a market gone bad. "It’s easy to have hindsight" he said in an interview with National Mortgage News in October of 2007. "No one saw this coming. No one."

  That, however, is either an outright lie, or the height of selfdelusion.

"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, in 2007. "And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail." More importantly, in many ways Countryside was the mortgage market, since, as the biggest player on the field, it set the standard that other companies followed. As one former executive with the company said, "Countrywide said it was meeting market conditions. But they were the largest mortgage originator in the country. How can you say that

it is not you that is causing it, if in fact you dominate the market?"

It went even deeper than that, as Mozilo encouraged so-called "affordability" loans that helped his company seize greater market share. These types of loans ginned up huge profits for Countrywide, raked in mainly from regular people who had to pay commissions on loans that they should not have been eligible for in the first place. The company was like a drug dealer, hooking people on something they desperately wanted, with no way out once they were addicted.

Among the kinds of loans in this vein that the company gave out where "interest-only loans, which required borrowers to only pay the interest on the loan—they did not have to pay back the principal until later in the life of the mortgage." Countrywide was the number two originator of these loans in 2006 and 2007 (The top originator was Wells Fargo).Countrywide also provided its customers with what were known as "pay option adjustable rate mortgages" which permitted borrowers to pay only a small percentage of the interest— and none of the principal—during an "introductory" period.

While these loans lured borrowers in, they had serious repercussions. For

example, if a borrower made just the minimum payment on his or her loan, their "mortgage would grow in size rather than fall. Another possible negative was that the borrower could eventually owe more than the home was worth." Pay option A.R.M.’s accounted for just 6 percent of Countrywide’s mortgage originations in 2004; that figure had climbed to 19 percent by 2005. And these loans were where the big money was, as Countrywide made "gross profit margins of more than 4 percent on such loans, compared with 2 percent margins earned on loans backed by the Federal Housing Administration."

You actually had Countryside salespeople handing out these types of loans to borrowers even if they had twice failed to pay a current mortgage on time or were in bankruptcy or foreclosure on a previous property.

All this was driven by Mozilo’s greed—-as well as the greed of his board members. While Countrywide was snaring consumers, shackling them into unaffordable mortgages, the company’s board made no move to harness the clearly out of control Mozilo. Wonder why? In 2006, the directors on Countrywide’s board earned between $345,000 to $539,000 each in cash, stock and other compensation— an incredibly generous payoff that most people would find a sufficient reason to keep their mouths shut.

  The day after Mozilo’s deal was announced on October 15th, Gretchen Morgenson of The New York Times–who was one of the only critics of Mozilo in the early says before the collapse–wrote this:

And in September 2006, Mr. Mozilo wrote an e-mail saying the company had no way to assess the risks of holding pay-option A.R.M.’s on its balance sheet. "The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales," he wrote.        

Another Countrywide product that concerned Mr. Mozilo was its so-called 80/20 loan, named for the fact that the combination allowed a borrower to receive money covering 100 percent of a home’s purchase price.        

Mr. Mozilo had become worried about these loans in the first quarter of 2006, when HSBC Bank, a buyer of Countrywide’s 80-20 loans, began forcing the lender to repurchase some that HSBC contended were defective.        

"In all my years in the business, I have never seen a more toxic product," he wrote to Mr. Sambol in an April 17, 2006, e-mail cited by the S.E.C. "With real estate values coming down … the product will become increasingly worse."        

Such e-mails suggest that by mid-2006, Mr. Mozilo had recognized how reckless some of his company’s lending had become. And just three months later, according to the S.E.C. complaint, he met with his financial adviser to increase the amount of Countrywide shares he could cash in under a planned executive stock-sale program.


  He clearly knew what was coming–and his only thought was: how do I make sure my own wealth is covered by chasing in stock?

  The man was a cancer.

  Rather than serving out the rest of his days in prison, however, Mozilo will pay a fine–a large part of which will be paid by the shareholders of Countrywide!!!–and live the life of stupendous wealth–while most of his victims struggle to make ends meet.

  Now, it is true that much of the anger bubbling up as anti-government rhetoric is laden with diatribes against "Obamacare" and "big government". These are ideas that we must fight against.

  But, a question worth asking is this: if regular people, who have been hurt deeply by the Mozilo-type scams, had been able to see CEOs like Mozilo led away in shackles, consigned to a future that every regular, non-insider person would face had they perpetrated a vast scam, would that have made a difference in the way people view who is fighting for them, and who isn’t?

  Cutting deals with crooks and allowing them to not even admit their guilt simply exacerbates the deep feeling among people that something has gone deeply wrong in America.

  And letting Mozilo off the hook is pretty vile proof that the people are right.


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