Mortgage mogul knew how to play his victims

As banks, money markets and stock exchanges convulse over a sinking American economy, we see the folks sprawled at the bottom of the smoking rubble — debt-crushed American consumers. It is they whose reckless or trusting natures enriched so many, at least for a while, and whose troubled loans have sent markets into panic.

But let us also note the real-estate operators creeping away from the disaster they helped create with their millions intact. None made a bigger pile off the pile than Angelo Mozilo, former head of Countrywide Financial.

All the planets lined up for Mozilo.

The government could have stopped the excesses of Mozilo and other pushers of ugly mortgages. But the Bush administration was never overly burdened by a conscience. If little people were being tricked into abusive loans — which were then unloaded on unsuspecting investors — well, that’s the “free market” for you. The mortgage mongers were important. They kept the housing bubble going.

The American Dream propaganda machine provided the background music Real estate was played a “must own” for all respectable families and an investment that never fails. Foes of regulation defended the exorbitant fees and delayed-explosive interest rates as socially desirable. Without them, they argued, low-income people — read “minorities” — could not enjoy the blessings of homeownership.

Mozilo understood the rhetoric perfectly. In a Countrywide brochure titled “Working Together to Achieve the Dream,” Mozilo pledged “our unflagging dedication to helping lower the barriers to homeownership.” The pictures were a parade of American diversity, alongside references to black churches and Countrywide’s extensive Spanish-language resources.

Despite Countrywide’s slogan, “the best loan possible,” the sales force was trained to sweet-talk customers into high-cost mortgages. The company software was rigged to steer borrowers with good credit into subprime mortgages — a trick played with considerable success in black and Hispanic neighborhoods. Salespeople were discouraged from offering Federal Housing Administration loans, which are generally the best deal for low-income borrowers.

The name of the game for mortgage makers was to pocket big fees upfront. Countrywide and others loaded borrowers with a plethora of fees — for flood certifications, appraisals, preparing the papers … even for e-mailing documents.

Shabby lending practices were a given. Many of the mortgages required no downpayment or proof of income. None of this mattered, because Step Two was to pass the risky loans onto the next sucker.

So the mortgage brokers sold the mortgages to investment banks. The investment banks then packaged the loans into securities (and collected their own fees), which they palmed off onto investors. (To make their loans more appealing to investors, Countrywide insisted on big prepayment penalties, making it hard to refinance and trapping borrowers into the high interest rates.)

The party couldn’t last. When housing turned bad last year, Countrywide stock lost more than half of its value. But that didn’t affect the estimated $414 million Mozilo had already made selling his Countrywide shares from 2004 to 2007.

You say the borrowers should have been more careful, but suppose, for example, you were an ordinary Latino working guy and saw Countrywide listed on the Congressional Hispanic Caucus Institute’s “Hogar” (means “hearth”) Web site as a “trusted friend.” (Countrywide had paid $50,000 for that mention.) Wouldn’t you have assumed its mortgages were fair?

Did we forget to add that Mozilo was named the National Housing Conference’s “Man of the Year” in 2004? Or that the venerable American Banker newspaper gave him its 2006 “Lifetime Achievement Award”?

If Countrywide gets sold to Bank of America as planned, Mozilo could walk off with another $115 million in severance pay — and not give another look at the wreckage he left behind. That’s how things work in the Age of Bush.

Froma Harrop is a Providence Journal columnist. Her e-mail address is fharrop@projo.com.