If at first you don’t succeed, CRIME, CRIME again.
Last week, the Justice Department decided to end the criminal investigation of former Countrywide Financial CEO Angelo Mozilo. People close to the case say that the overall collapse in the mortgage market has made it too difficult to prosecute the actions of any one particular executive.
So, in other words, Mozilo got off for his role in creating the housing market bubble and sub-prime implosion that fed into the global financial meltdown of 2008, precisely because the meltdown was so large? Well, that’s certainly nice to hear, don’t you think?
I’m not going to attempt to write some scathing or potentially insightful commentary about Mr. Mozilo, I’m sure that’s been done many times before, and frankly… he bores me to no end. But, at the same time I felt like I had to say something about a financial criminal of his stature picking up a get out of jail free card… it simply could not go by without at least a mention.
So, here’s sort of a highlights reel in print… I give you Angelo Mozillo, the man behind Countrywide, IndyMac, two of the most spectacular banking and mortgage industry failures in U.S. history. And not only that, but he also managed to eviscerate Bank of America as he made his way to the exit, retiring in 2008.
Here we go… join me, it’ll be quick, and then you’ll want to throw-up, so stay close to a bathroom is my best advice.
Mozilo co-founded Countrywide in 1969, and spun off Indy Mac Bank in 1995, and we all know what a success story Indy Mac was.
When the mortgage crisis started in October 2006, Mozilo filed a stock trading plan to sell 350,000 shares a month. He revised the plan twice, first in December so he could sell 465,000 shares per month, and then on February 2, 2007, the day Countrywide stock it a record high of $45 a share, he revised it again to sell 580,000 shares per month. En total, Mozillo sold 5.8 million shares for roughly $150 million between November 26, 2006 and the end of 2007.
Mozillo claimed he was only selling shares of his company’s stock according to a prearranged retirement schedule, but during that same time period, Countrywide’s shareholders lost all of the $2.5 billion the company had just spent on repurchasing shares.
The man has impeccable timing, no question about that. Countrywide’s exceptionally high 18% mortgage payment failure rate first appeared in 2006.
In the fall of 2007, Democratic Senator Chuck Schumer wrote a letter to the Federal Housing Finance Board warning its chairman, Ronald A. Rosenfeld about the Federal Home Loan Bank’s $51 billion in cash advances to Countrywide that were collateralized by $64 billion in bad mortgages.
In that letter Sen. Schumer wrote:
“I find these numbers alarming as reports continue to emerge about how Countrywide’s reckless and predatory lending practices were a leading contributor to today’s foreclosure crisis.”
Last October, Mozilo agreed to pay $67.5 million to settle the U.S. Securities and Exchange Commission’s accusations that he misled investors about Countrywide’s health and risk-taking, and generating roughly $140 million of improper gains from insider stock sales. Mozilo neither admitted nor denied any wrongdoing… (Want the actual SEC complaint, CLICK HERE.)
Mozilo’s internal emails, obtained by the SEC, show him referring to a sub-prime product as “toxic” and saying “the company was flying blind.” (Want to read the rest of the emails obtained by the SEC, CLICK HERE.)
California recently settled a predatory lending case against Mozilo (and another ex-Countrywide executive) for $6.5 million.
When the deal to sell Countrywide to Bank of America was struck in mid-January of 2008, Countrywide was valued at $4 billion and Bank of America’s share price was $38.50. Two weeks later, Countrywide posted a loss of $422 million for the fourth quarter of 2007. By the time the acquisition was completed on July 1, 2008, the deal’s value had fallen to $2.5 billion.
After eight months, $46 billion of TARP funds, $118 billion in government-backed asset guarantees, and an incredibly stupid merger with Merrill Lynch, Bank of America was $3.14 per share in March of 2009.
By then, Countrywide was being sued by everyone imaginable… homeowners, shareholders, municipal employee pension funds, and they were alleging everything from insider trading to inflated fees being charged to homeowners, to unlawful actions, collusion and mortgage fraud, and let’s not forget deceptive advertising having to do with a variety of predatory lending claims brought by Attorneys General from 11 states and led by Illinois and California on October 6, 2008.
Countrywide ultimately settled by agreeing to modify $8.4 billion in principal and interest rates on over 400,000 loans it had initiated, but the company neither admitted nor denied any wrong doing and no fines were levied. Following that, the company settled other predatory lending claims for about an additional $3 billion. But, these settlements led to a class action lawsuit brought by investors who argued that Bank of America didn’t have the right to modify Countrywide’s agreements.
Between July of 2003 and June 30, 2008, Mozilo had taken home more than $470 million in compensation and stock sales, which represents the third highest pay package of any financial or homebuilding executive during that time. If you’d like to see Mozilo’s employment agreement, as taken from the company’s 8K filing with the SEC in 2004, CLICK HERE.
“Mozilo’s fingerprints are all over the economic catastrophe we are living. He was the Typhoid Mary of the mortgage business, spreading the exotic-loan disease far and wide,” said Dan Pedrotty, director of the AFLCIO’s Office of Investments. “He was also grossly overpaid, especially considering the fact that he drove his company off a cliff.”
Time Magazine called Mozilo the #1 Culprit of the Financial Crisis.
Mozilo’s lawyers argued that “Countrywide’s problems were caused by the general collapse of the mortgage market nationally and not by any misdeeds by company executives,” according to the Wall Street Journal.
Best of all, I was dumbfounded to learn that Bank of America is writing the checks for all of these settlements… including one for $22.5 million, another for $45 million, a $60-some million settlement, and even $600 million to settle a class action suit brought by shareholders… even the recent $6.5 million to the State of California… all because BofA agreed to purchase Countrywide, indemnifying Mozilo and his ace lieutenants against legal costs.
So, very well done there.
Okay, that’s all I can take… I just learned something that I had always hoped wasn’t true… Crime Pays!