All the Devils Are Here [18]
Almost overnight, mortgage originators like Countrywide began to dominate the home lending business. From a standing start, the market share of nonbank mortgage companies rose to 19 percent by 1989. Just four years later, it stood at an astonishing 52 percent, according to Countrywide’s financial statements. By buying up the mortgages of companies like Countrywide, the GSEs made that growth possible, something Mozilo never forgot. As he once told the New York Times, “If it wasn’t for them, Wells [Fargo] knows they’d have us.”
Under the rules, Mozilo could sell only so-called conforming loans—those that met the GSEs’ strict underwriting criteria. Loans were underwritten based on what was known in the business as the four Cs: credit, capability, collateral, and character. If you had late payments on a previous mortgage, and maybe any other debt, you didn’t get a mortgage. The monthly payments for your home—the principal, interest, taxes, and insurance—couldn’t exceed 33 percent of your monthly income. All of which was fine by Mozilo. It was the way he’d always done business.
On the other hand, Mozilo also pushed Countrywide to begin using independent brokers instead of relying on its own staff to make loans. This was decidedly not the industry norm. It was also one of the rare times Mozilo had an open disagreement with his mentor, Loeb, who protested that if Countrywide began relying on independent brokers, it would be hard to control the quality of the loans. In the days before the collapse of the S&Ls, says one industry veteran, “brokers’ stock-in-trade was falsifying documentation.” At least, that was the rap. And nonstaff brokers had no skin in the game; once they’d sold their loan to Countrywide and gotten their fee, they were out. “I think it’s going to be a big mistake,” Loeb said, according to Chain of Blame.” But with S&Ls closing down by the hundreds, there was a cheap, ready-made workforce: out-of-work loan officers. Using them could help Countrywide grow faster. Loeb’s resistance faded as brokers’ reputation began to change, and as the company got aggressively behind this idea, all its competitors began using independent brokers as well. It soon became standard practice.
By 1992, just twenty-three years after its founding, Countrywide had become the largest originator of single-family mortgages in the country, issuing close to $40 billion in mortgages that year alone. Just as rising rates had crushed the S&Ls a decade before, so did falling interest rates now turbo-charge Countrywide’s growth. Lower interest rates helped more people afford homes, of course. But Countrywide began advertising a technique that allowed people who already owned their home to take advantage of lower rates. Refinancing, it was called. Often borrowers didn’t just refinance their home, they pulled out additional cash against the equity in their homes. For the fiscal year ending in February 1992, refinancings accounted for 58 percent of Countrywide’s business; two years later, they accounted for 75 percent of its business. Although refinancing allowed consumers to take advantage of lower interest rates, it really didn’t have much to do with homeownership. Countrywide wasn’t putting people into homes so much as it was making it possible for homeowners to use their homes as piggy banks.
During 1991 and 1992, Mozilo served as the chairman of the Mortgage Bankers Association. It was a sign that whatever lingering resentments Mozilo still felt, Countrywide was now part of the in-crowd.
What everyone remembers about Mozilo was how passionate he was about the business, about its success. He cared deeply about every aspect—he wanted to know everything, had to know everything. If he walked into a branch and saw that a fax machine was broken, he would stop everything and try