March 10, 2008

A Bad Week for Countrywide

Countrywide CEO Angelo Mozilo traveled to Washington last week to defend his enormous 2007 compensation package to a Congressional committee investigating excessive executive pay.  In case you haven’t heard, Mozilo took home around $120 million last year, despite the fact that Countrywide’s irresponsible lending practices are contributing to a nationwide recession and that the company itself is pretty much bankrupt. 

Naturally, Mozillo defended his pay.  In his bloated prepared remarks to Congress, he said in its 39 years the company has provided “homeownership opportunities” for more than 20 million Americans. (Is that minus the hundreds of thousands who are defaulting?) And, of course, poor Countrywide was caught unawares by the housing crash. Here is his explanation for the housing crisis:

The foreclosure and default problems in general are due to the decline in housing values caused by an unprecedented series of economic shocks to the housing and capital markets.

That’s right — a “series of economic shocks.”  Such as:  Countrywide making untold numbers of ridiculous loans that would explode like grenades into huge monthly payments in six months, a year, two years.  Such as:  Countrywide assuring people that they could just refinance in a few months, after their homes went up in value.  Such as:  Countrywide raking in the money from these awful loans and continual refinancings, creating a frenzy and driving up prices to unreasonable and unaffordable levels.

Kudos to California Congressman Henry Waxman, chairman of the House Oversight and Government Operations Committee, for calling the hearings.  Waxman told the audience in the hearing room: “It looks like when you’re a CEO, you get paid for failure.”

Waxman, quoting research, said that in 1980, the average CEO was paid 40 times what the average U.S. worker earned.  Today, CEOs are paid 600 times the pay of the average worker.  This is a statistic that should alarm the hell out of everyone.  We are becoming a society of haves and have-nots, and the haves are making a killing on the backs of the have-nots.   

Back to Countrywide.  The other bad news for the company is that it’s being investigated by the FBI for possible securites fraud, according to a Wall Street Journal story that broke over the weekend.   The story quotes “people familiar with the matter” saying that the company may have misrrepresented its financial position and the quality of its loans.

Regardless of what happens with the FBI, there’s no doubt that Countrywide played a huge role in the housing meltdown.  I believe Mozilo when he says the crisis was “unanticipated.” The company did not anticipate the extent to which its practices would damage the country; it did not anticipate that it would be blamed or held accountable.  It thought it could just take the money and run.  Unfortunately for Countrywide, the severity of the collapse has Congress searching for culprits. 

Recent Redfin posts:
$200K:  Pasadena and Surrounds
Note to Seller:  Buy a Mop

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