All the Devils Are Here [26]
Mozilo felt that he and Countrywide were helping to democratize the housing market. “He always felt like he was compelled to help people get into homes,” says Howard Levine. Once, during the administration of the first George Bush, Jack Kemp, Bush’s HUD secretary, tried to scale back some government assistance for the mortgage market. Mozilo publicly denounced him as “the worst person who could possibly have been put in that position.” It was a very impolitic thing to say, but Mozilo couldn’t help himself.
When Clinton announced his housing initiative, Mozilo was an enthusiastic supporter. In 1994, he signed a pledge—part of an agreement between the Mortgage Bankers Association and HUD—to increase lending to minorities. He pushed hard to get Fannie and Freddie to guarantee mortgages with lower down payments, because the traditional 20 percent down payment, he believed, was the single biggest barrier preventing people from owning their own home.
And early on, Mozilo had made a commitment that his company would fund $1.25 billion of loans explicitly tailored to meet the needs of lower-income borrowers. But this program was a long way from subprime lending. The standards were fairly strict. The mortgages were all thirty-year fixed-rate loans. The losses were low. And it was a tiny percentage of Countrywide’s business.
Mozilo, in truth, was horrified by the rise of subprime lending. It was a business, he groused, that made its money overcharging unsuspecting customers. Most subprime executives were “crooks,” he railed to friends. But the growth was so dramatic that stock analysts started asking why Countrywide wasn’t part of it. Meanwhile, the company’s program aimed at lower-income customers, small to begin with, started to shrivel: loan volume dropped from $1.3 billion in 1996 to $600 million in 1997 to $400 million in 1998. Where were those customers going? There wasn’t much doubt. They were going to companies like Long Beach.
In 1995, Countrywide hired Paul Abbamonto, himself a former executive at Long Beach, to help establish a subprime lending business at Countrywide. The new business was named Full Spectrum, and its goal, executives said, was to be less aggressive with margins than other subprime lenders were—meaning it would push its way into the business by charging less, even if it meant making smaller profits. “There was plenty of skepticism when Countrywide started Full Spectrum,” recalls McMahon, the Wall Street analyst. “But I thought it was wise. Mozilo said that the mortgage business was morphing from one where there was prime and subprime into a home loan industry. There were borrowers at both ends of the spectrum, and Countrywide, being this company with a grandiose name, wanted to offer a product that filled all needs.”
Countrywide didn’t officially launch Full Spectrum until 1997, and the new division didn’t make any loans until 1998. That year, it did $140 million in mortgage originations and home equity loans—which didn’t even qualify as a drop in the bucket of subprime lending.
Much later, Countrywide’s critics would claim that the company was responsible for starting the business of subprime lending. Some would even say that Mozilo did so out of a do-gooder’s desire to get people who couldn’t afford mortgages into homes. Neither of those things was true. Countrywide didn’t start it, and Countrywide didn’t get in because Mozilo wanted to do good. He got in because he felt he had no choice. If he stayed out of subprime, Countrywide would never be number one—and that was unacceptable.
As Howard Levine told Business Week in 1992: “Angelo will do whatever it takes to be number one.”
3
The Big, Fat Gap
In 1991, David Maxwell retired as the chief executive of Fannie Mae. He was sixty-one years old and had held the post one day short of ten years. He walked away with a lump sum of $27.5 million, most of it accrued retirement benefits but still a shocking sum of money for Washington during that era. (He also