Angelo's Many "Friends"

Very interesting article in the August issue of Conde Nast Portfolio magazine:
Angelo's Many "Friends"

According to the article, Angelo Mozilo, former Chairman and CEO of Countrywide Financial, gave preferential loan terms, via a "V.I.P." program (aka "Friends of Angelo"), to members of Congress, Senators, influential lawmakers, CEOs, etc.

This includes two former CEOs of Fannie Mae, the CEO of KB Homes, the chairman of the Senate Committee on Banking, Housing, and Urban Affairs, two former secretaries of HUD, etc...

Conflicts of interest, code of conduct violations, and Sarbanes-Oxley?

Mozilo's moral code seems pretty shady...

You must check out the list of those involved:
The Countrywide Lineup (from Porfolio.com)


Related articles:
Countrywide's Many 'Friends' (from Portfolio.com)
Countrywide Friends Got Good Loans (from the Wall Street Journal Online)

FBI Investigating Countrywide (from AP)

FBI Investigating Countrywide (from AP)

From the article:

Congressional figures showed that Countrywide lost $1.2 billion in the third quarter of 2007 and another $422 million in the fourth quarter. The company's stock fell 80 percent between February and the end of the year.

During the same period, Mozilo received a $1.9 million salary, $20 million in stock awards contingent upon performance and sold $121 million in stock.

The big winner in the Countrywide deal?

Is Bank of America getting an incredible deal for Countrywide or a toxic company?

I'm sure this guy would definitely say it's a fantastic deal:

Angelo Mozilo, CEO of Countrywide
(Photo from L.A. Times/Reuters)

Either way, I think the risk for BofA is pretty minimal. The $6B investment ($2B from their previous investment plus the $4B offer) is only a drop in the bucket for these financial behemoths. Just think about this - Citigroup is reporting earnings next week and they may announce write-downs of up to $11B!

It's going to be very interesting to see how this investment plays out. Whatever happens though, one guaranteed winner is going to be Countrywide CEO Angelo Mozilo. I've read reports that he could leave with a severance package of up to $83M. Very nice...

Straight Talk on the Mortgage Mess from an Insider (Herb Greenberg's MarketBlog / Marketwatch.com)

A great read from Herb Greenberg's MarketBlog (Marketwatch.com):
Straight Talk on the Mortgage Mess from an Insider

The posting includes commentary from Mark Hanson (the "insider"), VP of Mortgage Funding at Freddie Mac. He says that the Government and market are primarily blaming sub-prime loans for the mess, while in fact, sub-prime is only a small piece of the mess.

Here's a snippet:

"One final thought. How can any of this get repaired unless home values stabilize? And how will that happen? In Northern California, a household income of $90,000 per year could legitimately pay the minimum monthly payment on an Option ARM on a million home for the past several years. Most Option ARMs allowed zero to 5% down. Therefore, given the average income of the Bay Area, most families could buy that million dollar home. A home seller had a vast pool of available buyers.

Now, with all the exotic programs gone, a household income of $175,000 is needed to buy that same home, which is about 10% of the Bay Area households. And, inventories are up 500%. So, in a nutshell we have 90% fewer qualified buyers for five-times the number of homes. To get housing moving again in Northern California, either all the exotic programs must come back, everyone must get a 100% raise or home prices have to fall 50%. None, except the last sound remotely possible."

I highly recommend reading the entire post.

Homeowner bailout is a lousy idea (Jon Markman/MSN Money)

Great article from Jon Markman (MSN Money):
Homeowner bailout is a lousy idea

"It's as if the Federal Reserve and U.S. Treasury believe the best way to treat heroin addicts is through long-term, government-supplied crack. To be sure, lower interest rates and a mortgage-rate freeze might ease borrowers' pain temporarily, but they do nothing to solve causes or habits -- and without a doubt launch a new cycle of abuse and dependence."

"Postponing the undeniable anguish involved in making participants own up to debt-fueled losses is exactly why it took Japan more than a decade to shake off the bursting of its own credit bubble back in 1990. Interest rates were cut essentially to zero, but because moribund banks and real-estate tycoons were given government stipends, they drew funds and attention away from more-productive uses, and the country entered a recession that haunts Japan to this day."

I completely agree!

BTW, I do have to say that Bush is one slick character...he has very conveniently deflected the mess to the next President.

The carnage continues

The "big dogs" of finance are falling one by one...

Last week it was Stanley O'Neal (Merrill Lynch CEO) who "resigned" due to a much larger than expected write-down due to the mortgage related losses. This weekend, Charles Prince (Citigroup CEO) has also resigned due to similar (mortgage) losses. On top of that, the company is also warning of a possible $11B write down. Ouch!

Who will be the next to go?!?

Read more about the Citi news here.

Is the "Tan Man" going down?

(Photo from L.A. Times/Reuters)

Finally! The SEC has begun investigating the stock sales of Countrywide CEO Angelo Mozillo. Since the beginning of this year, Mozilo has sold over $130 million in Countrywide stock. Employees of the company (especially those w/ CFC stock in their 401(k)s) must really love him now. In various interviews, he's also been changing his story as the housing/mortgage industry tanks.

This guy just seems shady. Kind of like Kenneth Lay and Enron.

Read more about the SEC investigation here.

Here are some great comments and articles about Mozilo:

• Howard Lindzon observations here (make sure you read the mock letter from "The Fly" - it's hilarious)
• Brett Arends/TheStreet.com article here
• Maria Bartiromo's (Business Week) interview w/ Mozillo here
  

Here's a great comment from a Business Week reader regarding the Bartiromo/Mozilo interview:

Angelo Mozilo says: "Remember, we didn't reach out to home buyers. They came to us." Countrywide is still running commercials saying: "No points! No documentation fee! No title or escrow fees! Absolutely no closing costs, so you end up with more cash." Either Mozilo defines "reaching out" as "grabbing the arms of people walking by our offices" or he thinks readers are stupid enough to believe Countrywide did not push no-cost cash-out loans. Either one is insulting.

Paul Manoogian
Denver

I was thinking the exact same thing when I read the interview...

Have fun w/ the SEC, Mr. Mozilo!

Ouch! It's only going to get worse from here...

Here's a graphic from this week's Business Week (September 17, 2007 issue):


If you think the housing/mortgage mess looks bad now, it's going to be much uglier in the coming months!