Here’s a story I’ve ignored for some time on the sole basis of how scary the Countrywide CEO looks. The thought of Angelo Mozilo gives me nightmares. Perhaps worse than his name, is what he’s responsible for. Countrywide used to be the largest seller of sub-prime loans. They weren’t dumb enough to keep the loans that were likely to default, and sold them off. To sell a loan, its often packaged in with other loans and sold has a mortgage backed security. Fannie Mae and Freddie Mac often buy these loans. Well, they don’t buy sub-primes, can’t touch-em. But people like Matthew Tannin and Ralph Cioffi were more than have happy to.
Now that’s all fine and dandy. Sub-prime loans are riskier so the reward can be greater. Well when you are allowed to lie about your income to qualify for a loan, that loan becomes riskier still. Its also fraud. It would appear this practice was quite common at Countrywide. People caught on to this practice last year and Countrywide stock tanked. Bank of America offered $2 billion in cash to help them out last year but it wasn’t enough. Captain Orange Head called up the BofA CEO and asked to be bought out. The price? $4 billion. A year prior the price would have been more like $24 billion. So BofA got a great deal, remember Countrywide does do some good loans too, but this deal must be approved.
And it was, at the end of June. The same day they were sued by the states of California and Illinois. The lawsuits allege Countrywide engaged in false advertising, racial targeting, and fraud among other claims. The best example of what they were doing would be to advertise very low rates in poor communities and not explain the rates would change in a short number of years making payments much higher. They are seeking restitution for those effected and of course civil penalties.
Its great the the states are taking up for their citizens, but I have two problems with what’s been done. I think its a bit wasteful for the states to seek money from the Countrywide. Obviously they waited to file the lawsuits until after BofA took over because they knew Countrywide couldn’t afford it and BofA could. That sounds more like something NBC Universal, CBS, ABC and Viacom would do for copyright infringement after Google bought Youtube (they did sue). But those are for profits trying to get money back they believe they lost. The states should not be filing suit on behalf of their citizens. Criminal? Maybe, I don’t know what if any laws were broken. Leave the civil cases to the class action lawyers, stop trying to look like the good guy AFTER the fact.
Problem number B. Once again the citizens refuse to take responsibility for their own actions. Yes the loan practices were deceptive, yes the loan guys probably ignored some details when approving loans, and yes they probably let the home buyers exaggerate their income to qualify. But yes, these people were dumb enough to fall for it, its called “stupid tax”. Money that’s lost because you were stupid.
Countrywide was perhaps the biggest player in the sub-prime game, making the orange face above the mascot for our current credit crisis. But every Tom, Dick, Jane, Shaniqua, Manuel, Tiffany, Helen, George Michael, and Frodo out there dumb enough to buy into these schemes without reading the fine print quite frankly deserves to lose their house. You never should have had one. Like the Great Depression, we are going to see a new generation of more conservative spending, so thanks Angelo ‘Tropicana’ Mozilo.
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Bloomberg
 By The Weakonomist |
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