Countrywide Financial has not enjoyed the best
of publicity in recent weeks. The biggest mortgage lender in
the US, led by controversial chief executive Angelo Mozilo, has
attracted a series of difficult headlines.
Recently, it has been caught up in
reports of sweetheart loans to "friends of Angelo", including
former Fannie Mae executives, a story that even dragged in US
presidential hopeful Barack Obama.
Ex-Fannie Mae chief executive James
Johnson resigned as part of Obamas team screening
potential vice-presidents after the Wall Street
Journal reported that he and another former CEO, Franklin
Raines, among others, received discounted rates on mortgage
loans from Countrywide, a big seller of home loans to Fannie
This followed on from an incident
in May when Mozilo, who the New York Times once
described as "the butchers son from the Bronx" pressed
the wrong key on his computer and inadvertently made public his
view that a borrowers plea for help, prompted by a
website, was "disgusting".
Mozilo had intended to forward to
colleagues the email from one Daniel Bailey Jr, asking
Countrywide to change the terms of his adjustable-rate loan,
but instead hit reply and so sent his thoughts into the public
Bailey had used a form letter from
www.loansafe.org, which offers advice to struggling borrowers.
Countrywide has been flooded with similar emails, giving the
company an administrative headache and clearly frustrating
Mozilo, whose email said: "This is unbelievable. Most of these
letters now have the same wording. Obviously they are being
counselled by some other person or by the Internet.
Following the revelation, the
company issued a statement saying: "Countrywide and Mr Mozilo
regret any misunderstanding caused by his inadvertent response
to an email by Mr Bailey. Countrywide is actively working to
help borrowers, like Mr Bailey, keep their homes."
Baileys email has sparked a
heated public debate between those that think borrowers
struggling with repayments have every right to ask for help,
and those who say they must face up to their
But the debate will be stoked by
the concern that well-connected people in positions of power
can get preferential treatment over the general public who are
struggling to keep their heads above water in the current
Mozilo and Countrywide, which is set to be acquired by Bank of
America for a knockdown $4 billion price tag, have a
diminishing reputation for the way they regard borrowers
struggling to keep up with their payments.
Countrywide Financial's chief executive, was
'disgusted' by pleas for help
And given its rush to the top of
the lending volume charts, and the way it got there
pushing just the sort of loans that helped spark the sub-prime
crisis it now has a lot of disgruntled borrowers to deal
with, as the market squeezes. Any stories of unfair treatment
only stir up further resentment.
Before the mortgage market went
belly up, Countrywide was a very flexible lender. Before the
crisis broke last year it was offering so-called piggyback
loans that permitted borrowers to buy a house without putting
down any of their own money. Piggyback loans are now more or
less extinct, having been downgraded to junk status and worse
by the rating agencies.
Countrywide also sold loans of more
than 95% of a homes value without asking for
documentation of a borrowers income.
Until July 27 last year, it would
lend $500,000 to a C-minus rated borrower (the second
riskiest). And borrowers could still get a loan, even if they
were 90 days late on a mortgage payment twice in 12 months, if
they had filed for personal bankruptcy protection, or if the
borrower had faced foreclosure or default notices on their
Everyone turned a blind eye to this
sort of hand-over-fist lending while times were good.
Countrywide, although now the notorious figurehead for the US
sub-prime lending problems, was not alone in touting for
business wherever it could.
And while the markets surged
everyone was happy. Sub-prime loans were highly lucrative to
the lender, and investors paid more for pools of them because
they were likely to bring in higher cashflow.
However, after the mother of all
parties, the US is now inevitably suffering the mother of all
hangovers. The regulators have taken it upon themselves to
administer the painkillers and the harsh words.
There have been a plethora of bills
passing through the legislature in recent months. This reached
a head in May when the Senate banking, housing and urban
affairs committee approved compromise legislation designed to
help homeowners in danger of foreclosure by expanding the
availability of government-insured mortgages.
The deal was put together by
senator Christopher Dodd, a Democrat, and chairman of the
committee, and senator Richard Shelby, the senior Republican on
the committee. Dodd has subsequently also been listed by the
Wall Street Journal as a "friend of