The Weekend That Changed Wall Street

to open up home ownership to a broad range of people. The question was, should they have had this opportunity if they did not have the means to be homeowners?
Was Mozilo putting a bright spin on a troubling situation? A later investigation uncovered e-mails that suggested Mozilo knew his lending program was deeply, even fatally, flawed. An April 17, 2006, e-mail, uncovered by federal investigators in 2009, found Mozilo complaining to Countrywide president David Sambol about the subprime lending program:
In all my years in the business I have never seen a more toxic product…. With real estate values coming down…the product will become increasingly worse. There has to be major changes in this program, including substantial increases in the minimum FICO.
So, although Mozilo knew back in 2006 that the subprime loans were, in his word, “toxic,” he was still defending them in 2007. He insisted that Countrywide did not arrange loans for unqualified buyers. He took a blame-the-victim approach, saying that no one forced consumers to sign up for the risky adjustable rate mortgages. Yet by the time we spoke a second time, in August 2007, almost one in four subprime loans that Countrywide serviced was delinquent. Critics were saying that Countrywide was determined to write mortgages at any cost—and while they weren’t alone in that, they were out in front. Ignoring the fault lines in his own company, Mozilo boasted to me that Countrywide would actually be a beneficiary of the subprime crisis, because all the bad players (presumably the competition) would be forced out of the lending business. He even spun a $2 billion cash infusion from Bank of America that summer as a sign of Countrywide’s strength. “We had a lot of people approach us over the months [wanting to invest], but Bank of America is the best—a marquee name. There’s only one Bank of America. For them to attach themselves to Countrywide is priceless.”
“Yes,” I pressed, a bit puzzled, “but why would they not want to do it? Look at the terms.” BofA’s stock purchase valued Countrywide at a paltry $18 a share. “Let’s face it, Angelo, people are saying, ‘Sure, it’s great for Bank of America, but the terms are not great for Countrywide.’”
“Yeah, they’re great for Countrywide,” Mozilo protested. “They’re fantastic for Countrywide!”
It didn’t help Mozilo’s case that he was busy dumping his own stock—reportedly $140 million worth in a matter of months. I asked him, “Don’t you worry that shareholders will say, ‘He’s selling. He must be losing confidence. Maybe I should sell?’” The suggestion angered him. “As a CEO, the only way to eliminate that issue is to never sell stock, just die. Die owning stock,” he snapped. He felt it was perfectly acceptable for a CEO to diversify and to cash in. That may have been true, but he ignored how the timing of the sale was sure to raise eyebrows.
By December, with conditions continuing to worsen, Mozilo was a bit chastened but still undaunted. He told me in an emotional statement, “Every day I’d wake up and say, ‘Okay, we’re through that problem.’ And then I’d go to work around four in the morning, and there was another problem, two problems, three problems. It was incredible because it began feeding itself. And what I’ve found out in this process—because I’ve never been through anything like this before—I’ve been through a lot in fifty-five years, but nothing like this—is that people are lemmings. They just keep on attacking because fear sets in. And everybody’s fearful. ‘I don’t want to be the last one left behind in this burning house, so I’m going to get out of here.’” He was angry at the media’s role in raising the alarm. “It’s like yelling fire in a very, very crowded theater,” he said bitterly.
At the beginning of 2008, shares were down more than 83 percent, and Countrywide had been forced to draw on its entire credit line of $11.5 billion in order to stay afloat. On January 11, 2008, Bank of America swept in with a surprise announcement that it would purchase Countrywide for $4.1 billion in stock, a rock-bottom price at only $7.16 a share. I asked Bank of America CEO Ken Lewis why he would buy such a troubled business since many analysts believed things would only get worse. Lewis was a measured guy, not the least bit flamboyant. Risk taking wasn’t his thing but deal making was. Steadily and quietly, he’d built Bank of America through a string of acquisitions, including Fleet and MBNA. Now his sights were on Countrywide. From Lewis’s perspective, Bank of America wanted a deal, and it got a deal. He figured that a year earlier his company would have forked over around $26 a share for Countrywide. So he was comfortable that Bank of America had done due diligence—more, he told me, than had ever been done before with other deals. And he stressed that Bank of America was not getting into subprime. There would be no more subprime business from Countrywide.
And what of Angelo Mozilo? Here Ken Lewis displayed a thin pretense of warmth. “I know there have been criticisms of Angelo,” he said, “but beneath the surface there is a wonderful human being. I think he’s gotten a bad rap at times.”
“But he won’t be staying with the company, right?” I asked.
“Right,” Lewis said. “He’s sixty-nine years old. He would like to see this through and spend more time with his grandchildren.”
But the picture of Angelo Mozilo, serenely retired with grandchildren perched on his knees, was not to be. On June 4, 2009, the SEC, in a civil suit, charged Mozilo, David Sambol, and former chief financial officer Eric Sieracki with securities fraud; Mozilo was also charged with insider trading, but as of this writing the court cases have failed to materialize.
Countrywide wasn’t the only early victim of subprime lending. Companies such as New Century Financial Corporation and American Home Mortgage Investment Corporation, leading subprime lenders, filed Chapter 11, with more bankruptcies anticipated. If