Countrywide Bank CEO Charged With Fraud – Mazilo’s Emails Reveal Complete Understanding Of Pending Mortgage Crisis & Its Causes

The following emails from Countrywide Bank CEO Angelo Mazilo, released as part of a report concerning the charges brought by the SEC against Mazilo, clearly show that Mazilo understood the causes of the current mortgage crisis before it occurred ……

Excerpts of E-Mails From Angelo Mozilo

Sept. 26, 2006 – following up a meeting with Sambol the previous day about the Pay-Option ARM loan portfolio:

We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. The only history we can look to is that of World Savings however their portfolio was fundamentally different than ours in that their focus was equity and our focus is FICO (Credit Score). In my judgement [sic], as a long time lender, I would always trade off FICO for equity. The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.

… pay options are currently mispriced in the secondary market, and that spread could disappear quickly if there is an foreseen [sic] headline event such as another lender getting into deep trouble with this product or
because of negative investor occurance [sic].

“timing is right” … to … “sell all newly originated pay options and beginrolling off the bank balance sheet, in an orderly manner, pay optionscurrently in their port[folio].”

April 17, 2006 – to Sambol concerning Countrywide’s subprime 80/20 loans:

In all my years in the business I have never seen a more toxic prduct [sic].

It’s not only subordinated to the first, but the first is subprime. Inaddition, the FICOs are below 600, below 500 and some below 400[.]

With real estate values coming down…the product will become increasingly worse. There has [sic] to be major changes in this program,including substantial increases in the minimum FICO. … Whether you consider the business milk or not, I am prepared to go without milk irrespective of the consequences to our production.


April 13, 2006 to Sambol, Sieracki, and others to address issues relating to the 100 percent subprime second business in light of the losses associated with the HSBC buyback:

Loans had been originated … “through our channels with disregard for process[and] compliance with guidelines.”

He “personally observed a serious lack of compliance within our origination system as it relates to documentation and generally a deterioration in the quality of loans originated versus the pricing of those loan [sic].”

“[i]n my conversations with Sambol he calls the 100% sub prime seconds as the ‘milk’ of the business. Frankly, I consider that product line to be the poison of ours.”

On March 28, 2006 – to Sambol and others:

Directed them to implement a series of corrective measures to “avoid the errors of both judgment and protocol that have led to the issues that we face today caused by the buybacks mandated by HSBC.” …

… The 100% loan-to-value subprime product is “the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the

McAuleys World: At the insistence of Fannie Mae and The Federal Reserve these “toxic loans” continued for another 2 years after these emails, right up until the collapse of the financial system last fall. These very same loan products have been repackaged, renamed and continue to be marketed today.

You might note that at the same point in time that Mazilo prepared this email, Senator Chris Dodd was “accepting” “special treatment” in his loan processing with Countrywide Bank. Senator Dodd was one of a select few to belong to a group called the “FOAs” or “Friends Of Angelo”, referring, of course, to Angelo Mazilo.    

For more info on the “Friends of Angelo” watch this NBC report:

 If you want to understand the history of how the Federal Government “mandated” the creation of the “toxic mortgage products” discussed in Mazilo’s emails read these articles:

1) From The Boston Globe:

2). Article by John Lott, Senior Research Scientist at the University of Maryland.

One Response

  1. I worked for Countrywide’s Full Spectrum Lending Division (Countrywide’s subprime lending institution) from 2/05 – 08-07. I was fortunate enough to have more than 10 years experience in the industry before going over to Countrywide and it was because of this that my clients didn’t fall into the issues related to this market. In most cases I put together loan options that were fixed rates and didn’t go above 80% of the value of the home. In the case that I included a 2nd mortgage option I would in most cases keep it down to 90% of the value. This however was not the culture of our company. It was encouraged to get the loans as close to 100% of the value of the home and to put homeowners into adjustable rate mortgages.

    I can tell you in one case I refinanced a women within two years after she had refinanced with another loan officer out of our Portland, OR. office. Here’s the scenario: Her husband who had been a police officer passed away a year earlier. She was now on a fixed income from his pension and life insurance policy. Her husband had handled all the financial decisions and she didn’t know which direction to go in. The other loan officer had put her into one of these Pay Option ARM loans mentioned in the above email. I need to explain exactly how these loans work for a moment, the rate is adjustable every month based on the LIBOR market, you have 4 different payment options you can make a minimum payment that is only 2.5% interest (the balance of the unpaid interest rate usually starting at 6.5% or 7.0% gets added back on the loan meaning your loan balance will increase). That’s right this is a negative amortizing loan. You can make a payment that is interest only covering just the base interest rate (remember this adjusts monthly). You can pay the interest and the principle balance like it was a 30 year term or you can pay the interest and principle balance as though it was a 15 year term. This woman had no clear idea what a negatively amortizing loan could do to her. When I talked to her about how she was adding to her principle balance every month by making that minimum payment she began crying. I did refinance her into a 20 year fixed rate mortgage and lower all the costs as much as possible in order to try and make up for the recent waste of a refinance she had done previously. My managers tried to get me to offer her another 2 year fixed adjustable rate mortgage so that she would be a candidate to refinance again in a couple of years. I refused and was treated poorly for it.

    This brings up another issue that was important to how the mortgage crisis was encouraged to continue within companies like Countrywide’s Full Spectrum Lending Division. I was one of two people in my office who had any real previous mortgage experience. All the managers I worked for had much less. In fact the last manager I had at Countrywide was a Subway (the sandwich fast food restaraunt giant) manager before coming to work at Countrywide. He had been working for the company for about the same amount of time I had but with no previous lending experience of any kind. He was completely trained by Countrywide to work up loan program options in ways that would convince people to go with adjustable rate mortgages. There was no fiscal accountability from the position of the “account executives.” These people had no idea in most cases what would happen to these home owners if the market were to fall out. They really didn’t know. With all my experience in the industry as a loan procssor, loan officer and in underwriting mortgage loans I was passed up for promotion on 3 different cases simply because my loan production didn’t include enough of these “toxic loans.” The Regional Vice President actually spent a lot of time trying to get me fired by telling my managers to “find a reason for me to quit.” I took this to my HR department but finally I did quit in August of 2007. I considered filing a lawsuit but with the events that began to unfold shortly after I figured the company would go down before the lawsuit would get through the courts… I was right.

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