I always perk up when I see the name "Countrywide Financial" in a business news headline. Not only is the company the biggest mortgage lender in the United States, but it also happens to be my mortgage lender. The enormous dent inflicted on my monthly finances by the checks I write that name on wreaks serious psychological havoc, leading to an unseemly obsession with the company's affairs.
Countrywide spooked the housing market bears -- and sent the Dow Jones Industrial Average swooning by more than 200 points -- on Tuesday morning by announcing that net income was down 33 percent, year on year, in the second quarter of 2007. Co-founder and CEO Angelo Mozilo blamed the housing bust, and warned that the second half of the year was going to be "increasingly challenging." Especially perturbing to investors was the news that delinquent payments on "prime" loans were ticking slightly upward. That news suggests that the subprime "contagion" is spreading beyond the not-quite-prime "Alt-A" mortgage loan sector, and beginning to infect blue-chip borrowers -- people who actually provided documentation of their creditworthiness and ability to make mortgage payments.
I wonder how many of the prime delinquencies can be traced to option-ARM mortgage products, the loans that allow borrowers to choose how much to pay each month, oftentimes without even requiring that the amount of interest owed on outstanding principal be covered (meaning that the total amount owed could actually grow month after month, a state of affairs known as "negative amortization"). During the height of the housing boom hysteria, Countrywide was one of the biggest sellers of option-ARM mortgage loans. I know this viscerally, because it took me years to persuade Countrywide that I really, really meant it when I told its telemarketers, night after night after night, that I did not want to refinance my mortgage into an option-ARM gizmo. (This had more to do with my hatred of telephone solicitations than my understanding, at the time, of what an option-ARM mortgage actually was, but regardless, I held the line.)
Countrywide was also something of a pioneer in "low documentation loans for prime lenders" -- now commonly referred to as Alt-A loans. Incidentally, I learned today that a couple of decades after co-founding Countrywide, Mozilo co-founded another mortgage lender, now known by the name of IndyMac Corp. IndyMac is the seventh largest originator of mortgage loans in the country, and has long been a specialist in Alt-A loans. Last Friday, IndyMac laid off 400 employees.
As the co-founder and CEO of the largest mortgage lender and the co-founder of the seventh largest, two companies that were among the biggest cheerleaders for and purveyors of exactly the kinds of mortgage products that helped to fuel the housing boom way past economic rationality, it would seem to me that Mozilo bears some personal responsibility for the mess that the U.S. housing market is in now. But I doubt he's all that worried. According to a Reuters article published in May, Mozilo earned $387 million in pay and stock options over the past five years.
He'll ride out this bumpiness quite nicely, I think.
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