Former Countrywide CEO Blames Homeowners for Housing Crisis

by 18 Dec 2012

Countrywide Financial was a mortgage lender that became synonymous with subprime lending even before Bank of America agreed to its acquisition back in 2008 –the same year that saw Wall Street investment banking firm Lehman Brothers come to a precipitous end due to heavy losses on securities backed by subprime mortgages. 

Three years later, former Countrywide CEO Angelo Mozilo sat down to a sworn deposition involving Bank of America and mortgage bond insurer MBIA. The insurers claims that Countrywide, now owned by Bank of America, committed systematic fraud when it packaged loans it originated as investment-grade. Statements made by Mr. Mozilo on that deposition have only recently been made public, and some of them are quite off-putting. 

"They Left Their Homes"

Commenting on the housing market crash, the credit crunch and the global financial crisis, Mr. Mozilo referred to the situation as unprecedented and cataclysmic. He also said that when home values dropped by 50 percent, "(they) decided that they were going to leave their homes because the value of their home was below the mortgage amount."

Mr. Mozilo added that the classic causal agents associated with home foreclosures, loss of employment, illness and divorce, did not prompt the avalanche of foreclosures. According to the June 2011 deposition:

"They left their home because the values went below the mortgage. That's what caused the problem. So I have no regrets about how I -- how Countrywide was run. It was a world-class company."

The MBIA attorney conducting the deposition reiterated a question to Mr. Mozilo about regretting the way Countrywide was administered, particularly after the sheer number of foreclosures, several lawsuits and lives that have been ruined. He deemed that particular question as lacking common sense and categorized it as insulting. 

The Theory of Walking Away

Contrary to Mr. Mozilo's deposition, the numbers of American homeowners who abandoned their homes in light of the housing market downturn and financial crisis that did away with millions of jobs are not as significant. In fact, a research study cited by John Carney of CNBC found out that borrowers actually tend to stay in their homes and do everything they can to make monthly mortgage payments, even when they are underwater. They walk away only when the negative equity is at a very deep level. 

In his amazing deposition, Mr. Mozilo assured that Countrywide only originated home loans that borrowers could repay, even the subprime products. A 2009 lawsuit against Mr. Mozilo filed by the U.S. Securities and Exchange Commission found him engaged in insider trading during a particularly difficult time for the company. He later settled these claims with $67.5 million, an amount he now claims to have paid to protect his children.


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