Critics Claim Mortgage Giant Countrywide Played a Huge Role in Housing Crisis

Countrywide Fast Facts

• Countrywide has been charged with steering borrowers towards high priced loans, asking exorbitant fees, and being the overall 'worst lender' during the boom.
• In 2006, Countrywide claimed $11.4 billion in revenue with 4.3 billion in pretax income.
• CEO Angelo Mozilo earned nearly $43 million in 2006, and, according to Business Week, has made over $100 million in the past year.
• 45% of the loans made by Countrywide in 2006 were non-conforming loans.
• As of last year, 45% of the company's mortgage loans had adjustable rates.
• One out of every four subprime loans made by Countrywide were in some stage of default by June of 2007
• Countrywide shares are down 50% this year.
• Countrywide claims they didn't reach out to borrowers, instead, borrowers came to them. But this company spends more money on online and TV advertising to draw customers in than does any other lender.
• CEO Angelo Mozilo says that the media outcry is unfair to him and to his company, because the press is allowed to say anything it wants without retribution.

Countrywide Under Fire

There have been many stories in the media about Countrywide. One of the most recent stories was a New York Times article that exposed some of the dirtier secrets of the mortgage giant.

Former employees of Countrywide told the Times that the mortgage company's commission structure rewarded selling high-cost, risky loans. Example: Brokers received $30,000 commissions on $1 million pay option ARM loans that carried 3-year penalties.

'The whole commission structure, in both prime and subprime, was designed to reward salespeople for pushing the programs that made Countrywide the most money in the secondary market,' a former sales representative told the New York Times recently.

In addition to steering borrowers towards these types of bad loans, Countrywide has also been accused of making borrowers pay exorbitant loan fees, paying sales reps more than double the commission for selling a subprime loan versus a prime one, and approving loans to people who could not afford them.

But it isn't just former employees who are spilling the beans on Countrywide's practices; advocacy groups have also jumped on the bandwagon, and one of them even accuses the mortgage company with being 'the worst lender' during the boom.

'In terms of being unresponsive to what was happening...and continuing to justify that garbage they were selling, Countrywide was the worst lender,' said Ira Rheingold, executive director of the National Association of Consumer Advocates. 'And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.'

U.S. Senator Charles Schumer, serving on the Senate Banking Committee, recently asked Countrywide in a very public fashion to do something about its lending practices.

'I am calling on Countrywide, as our nation's largest lender, to bury it's bad business practices and reverse some of the damage it's already inflicted on our housing market,' the New York Democrat said.

Countrywide Responds

In an interview with Business Week that was published on August 29, 2007, CEO Angelo Mozilo responded angrily to all of the criticisms made against his own person as well as against Countrywide, telling reporter Maria Bartiromo that in his eyes the press is losing credibility.

'I've seen article after article that have no basis in fact, but there's nothing anybody can do about it,' Mozilo said. 'The press can say anything it wants, without retribution.'

In the interview, Mozila indicated that he took offense to the New York Times article that accused his company of predatory lending practices, and stated that Countrywide never steered borrowers to higher-cost mortgages if they could have qualified for lower ones under traditional standards.

Mozilo also responded to claims that Countrywide was one of the main drivers of the mortgage boom.

'Remember, we didn't reach out to home buyers. They came to us,' Mozilio said. 'As prices went up, and interest rates were at palatable levels, we began to tailor our programs to see if we could assist these people in getting into homes.'

This, however, is a point that can be disputed. If you haven't seen a number of different Countrywide TV ads promoting various mortgage products over the last couple of years, then you don't watch very much TV.

Of course, the television isn't the only media outlet utilized by mortgage lenders. Countrywide is also one of the Internet's biggest advertisers, accounting for 12.5 percent of the cash doled out by the top ten spenders.

Netratings estimated that Countrywide spent $34.8 million on Internet advertising just for the month of May 2007. In comparison, Nielsen/NetRatings estimates that all mortgage companies combined spent $378 million on Internet display ads during the first six months of 2007.

If nothing else, it makes you wonder about what planet Mozilio is from. On earth, spending all of that advertising money falls under the category of 'reaching out to home buyers'.