Your Circuit's Dead, There's Something Wrong!
The above advertisement was e-mailed to me this morning. When I read it, the immortal words of the great Yogi Berra sprang to mind,
“This is like déjà vu all over again!”
For starters, just read the left hand side of the advert slowly:
“Low Monthly Payments”
“4 out of 5 approved”
“No Up-Front Costs Or Obligation”
“Loans For Homeowners With Less Than Perfect Credit”
Pardon me, but did I miss something? Have I lost the plot? Does Countrywide not yet get it? Have they heard there's a wee crisis in the mortgage market, especially in sub-prime? Apparently not.
Unfortunately, it does not end with this advertisement. Countrywide, one of the main underwriters of the sub-prime crisis, rather than pleading mea culpa to the banks, the Fed and the market are busy trying to build their "dominance" of the sub-prime market even picking up sales people that are being let go by their failing competitors. In an internal memo released to the press on Monday, 20 August, they stated,
"Countrywide continues to recruit and hire sales professionals in its pursuit of profitable market share growth. The success of our strategy to expand our retail and wholesale market share relies heavily on our ability to recruit and retain talented people as they become available during the industry's consolidation."
But I suppose I should not be surprised given that the hand on the Countrywide tiller is that of CEO Angelo Mozilo whose ambition for continued growth knows no bounds.
You have to hand it to Mr. Mozilo (who, by the way, was recently ranked by Forbes as the 7th best compensated CEO in the US, 1st among all CEOs in the financial industry,"earning" $142 million in 2006 / $296 million over the last five years), for sheer audacia - that's Italian for chutzpah.On the one hand he attacks industry's regulators, telling The America Banker yesterday that the Office of Federal Housing Enterprise Oversight are "endangering the safety & soundness of the mortgage market" because they have refused to raise the portfolio caps and conforming loan limits for Fannie Mae and Freddie Mac. He goes on to state,
"The mandate to the American people in creating both of these entities was to provide liquidity that the public sector could not and to cap them at a time when there's no liquidity in the private sector seriously impacts the people, the borrowers, who need them the most."
On the other hand, Mr. Mozilo has sold off (some would say "dumped") 15.5% of his shares of Countrywide - 85 million out of 545 million - in 2007, almost 60 million of which he sold between January and June. I guess his liquidity takes precedence over "the people, the borrowers, who need "him" the most."
But thanks to Mr. Mozilo I now understand the root cause of the crisis! The problem is not of Mr. Mozilo and Countrywide and their ilk's making, rather its the fault of the US Government for not opening the flood-gates and pouring more taxpayer money into the market thus allowing Mr. Mozilo to continue business as usual whilst gobbling up his competitors.
Mr. Mozilo actually started his offensive on "The Call Show" on CNBC on Thursday 23 August. He began his attack by going after Kenneth Bruce of Merril Lynch, not only for his sell recommendation but also his comment that were circumstances in credit markets to worsen sufficiently, Countrywide could face a cash crunch serious enough to make bankruptcy a possibility. Mr. Mozilo condemned him saying,
"the irresponsible behavior on part of that analyst from Merrill Lynch to yell fire in a very crowded theater in environment where you had panic already setting in the overall markets. It was totally irresponsible and baseless. And it, affected the lives of 61,000 people here at Countrywide our employees and more importantly, or as important, senior citizens who stood on-line (removing their deposits) frightened to death that Countrywide would go bankrupt and lose their money. "
Mr. Mozilo went on to decry the panic in the present market whilst engendering more himself:
"Panic has to go away. Confidence has to return to the market. What is driving this is form it's not real. A lot of what is driving this lack of confidence, this panic. This is, one of the greatest panics I’ve seen in 55 years financial services. And, so something has to be done to restore the confidence the market. If we turn that around. Most of that was driven by form not substance. But form has become substance. Fear has become real. What you have a two handle on one year t-bill, the other day, that means, all the liquidity is going into it. Bills. That's how panic this market is."
Not content with stirring an already roiling pot, Mr. Mozilo, when asked directly by Maria Bartiromo if he thought the housing crisis would lead the US into recession, decided to turn up the flame, stating,
"I still think so. I've not been proven wrong so far. I can't believe when you're having level of delinquencies; equity is gone; tide has gone out that this doesn't have material effect a on psyche of American people and eventually on their wallet."
Is this how a senior banker should behave when faced by the regulators refusal to act as he or she wishes - you throw the cat amongst the pigeons? You tell the world that the present housing crisis could lead to one unless the Feds do more to create liquidity in the mortgage market. In other words, when at fault blame the Government - hey it worked for Charlie Keating, almost.
I am not trying to demonize Mr Mozilo; he truly has had an Horatio Alger-like rise from the son of immigrants, the poor boy from the Bronx, whose great ambition was to make housing affordable for the average family - to help them be part of the "American Dream" of owning their own home. I grew up just a few blocks from him in similar circumstances and I know how my parents dreamed of owning their own home. I am sure that he was focused, throughout a good part of his career, on what he told The Graziadio Busines Report of Pepperdine University were the theree basic principles underlying Countrywide's success:
1. Improve technology to lower the cost of home financing.
2. Lower the barriers of entry for home-owners
3. Educate potential buyers to their rights & opportunities
These are all good intentions, noble aspirations; the problem is that somewhere along the way they got lost in the pursuit of market share and the bottom-line. Principle number two has been achieved by dropping the underwriting requirements below a sensible risk threshold and, as in the case of number three, has become driven, indeed overwhelmed, by the needs of their business model. Their model is simple, quickly issue mortgages then securitise them and flip mortgage-backs into the market. However, it's Achilles' heel is that without a steady stream of mortgages there is no growth in market share and in the bottom-line. Now the bottom-line is in jeopardy, as is the whole enterprise. So now he looks for the Feds to bail him out and allow him to re-float his game of "Find the Lady" ("Three card Monte" to my friends in the States, "Bonneteau" à mes amis français).
Rather than point fingers it would do the market, his customers - present, and future - good to hear Mr. Mozilo tell the truth and simply say,
"We screwed up. We lost sight of the downside and over-sold some mortgage products, especially those to people who are only marginally able to maintain themselves. We need to go back to basics and work to get things right."
Those would be the words of a true leader and visionary. One who can help to restore confidence, not only in his company and its products, but to a market and a nation in need of honesty and accountability. What do you say, Mr. Mozilo, will you rise to the occasion?
Cassandra
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