Angelo Mozilo: “Back of the Bus”
Yet another example of how the sub-prime market was a creature of the profit motive, and not government mandates.
There is this fascinating little anecdote in Connie Bruck’s Angelo’s Ashes — about Angelo Mozilo’s experiences in Florida as a dark skinned NY Italian, and how that impacted his later venture into minority lending (early 90s) amnd subprime lending (middle 90s):
“The new company [Countrywide] sent Mozilo first to Virginia Beach and then to Orlando. He had never lived outside the Bronx, and years later he told friends that it had been difficult to be a darkskinned Italian-American in these communities. In Virginia Beach, the local club where businesspeople congregated refused to admit him, and in Orlando he had trouble selling mortgages until he met a group of Jewish homebuilders who couldn’t get financing. As his sister, Lori, told me, “Angelo said, ‘Nobody wants to work with you. Nobody wants to work with me. Let’s do it together.’
He was always this Italian guy people didn’t want to accept.” She went on, “When he tans he gets really dark. My mother told me that when he worked in Florida he was asked to sit in the back of the bus.”
And just what might have this done to Angelo’s world view later on? Alex, I’ll take pop psychology for $100:
Despite Mozilo’s ideals, Countrywide did not have a strong record of lending to minorities. In 1992, shortly after Mozilo became chairman of the Mortgage Bankers Association, the Federal Reserve Bank of Boston issued a report stating that it had found systemic discrimination by mortgage lenders against African-American and Hispanic borrowers. Robert Gnaizda, former general counsel of the Greenlining Institute, a nonprofit organization focussed on minority rights, sent the report to Mozilo and other mortgage bankers. “I received a harsh response from Mozilo,” Gnaizda told me.
Privately, however, Mozilo was appalled. He ordered that all Countrywide’s records on rejected minority applicants be sent to him, and he retroactively approved about half of them. Then he dispatched African-Americans, posing as prospective borrowers—he called them “mystery shoppers”—to Countrywide branches, and concluded that they were indeed treated differently from white borrowers.
Countrywide opened new offices in inner-city areas, created counselling centers, and loosened some lending standards, to include borrowers with less than pristine credit histories. Between 1993 and 1994, the company’s loans to African-American borrowers rose three hundred and twenty-five per cent, and to Hispanics they increased a hundred and sixty-three per cent. In 1994, Countrywide became the first mortgage lender to sign a fair-lending agreement with the Department of Housing and Urban Development.
“Countrywide went from close to the bottom in lending to minorities to near the top,” Gnaizda said. “I remember Mozilo telling me, ‘I don’t want to narrow the gap in lending to minorities, I want to end it.’ ”
Eventually, subprime loans became too attractive a business for Countrywide to resist. In September, 1996, it created a new subsidiary for these loans, called Full Spectrum Lending; if the loans performed poorly, the Countrywide brand would not be tarnished. “It was a careful entry, considered closely by those at the top of the company,” a former high-level Countrywide executive recalled. “We sat together and asked each other, ‘Would you make this loan with your money?’ ”
To offset the credit risk posed by subprime lending, the company required borrowers to make a substantial equity investment, ranging from fifteen to thirty-five per cent. . .”
It was the Private sector that saw a profit opportunity and went for it. They made the loans. The government’s role was to provide rhetoric . . .
>
Source:
Angelo’s Ashes
Connie Bruck
THE NEW YORKER, JUNE 29, 2009
http://www.newyorker.com/reporting/2009/06/29/090629fa_fact_bruck
June 26th, 2009 at 11:46 am
Exactly Barry. This is all in indictment of our culture. Nothing more, nothing less. To parse little teeny, tiny aspects of it is patently absurd (e.g. blaming subprime or the CRA, namely the poor/minorities, the oldest scapegoat in the toolbox), but we all know that most right-wing nut ideology basks in the absurd these days. It’s not even worth discussing.
June 26th, 2009 at 11:50 am
huh. makes sense about him always having a tan in his pictures if the psychoanalysis is correct. Kind of a ‘in your face’ to those that upset him.
not related – I keep seeing some stories about banks not foreclosing on people when they want to since they are upside down. Is this because the government now owns the mortgage through TARP slowing down the process? Just wondering. It would be a good case against the bailout.
June 26th, 2009 at 11:52 am
…and Countrywide was not under any obligation from the CRA…
…but, note what the article claims Mozillo did…
he copy catted the Clinton era test for minority lending (send people of color into apply for loans and determine that the loan approval criteria is not consistent) that led to the inner city CRA and then used it as a basis to expand his business model, and his sub-prime takes off like a rocket…
this is an even more egregious, cynical business plan than previously thought -
~~~
BR: This was not the government, it was a private corporations — publicly traded, owned by shareholders, trying to max out profits.
So somehow Countrywide is Clinton’s fault? I can smell the desperation of that argument from here.
June 26th, 2009 at 11:52 am
@GB: I think it’s mostly because the banks don’t want to take official ownership of all these homes because they don’t have the manpower to maintain them and sell them, and they don’t want to have to start paying the property taxes on them. I may be wrong though.
June 26th, 2009 at 12:01 pm
@Mannwich – good point I bet there are different reasons for each case.
June 26th, 2009 at 12:04 pm
“It was the Private sector that saw a profit opportunity and went for it. They made the loans. The government’s role was to provide rhetoric . . .” and the taxpayer’s monies when the loans went bad.
June 26th, 2009 at 12:08 pm
LOL. This story is a complete crock.
What a cynical bastard, dark-skinned Mozilo pretending to care about minorites… he isn’t black, he’s ORANGE. Ridiculous. I bet he grew up saying the N- word a LOT with his Guido buddies in the Bronx.
~~~
BR: Totally unsupported assumptions . . .
June 26th, 2009 at 12:11 pm
Spectacular punch line: “The government’s role was to provide rhetoric . . .” Ain’t it the way it works. Politicians don’t do things or fix things, they posture, trying to claim the most righteous high ground.
@GB: IMHO the main reason they are not foreclosing, in addition to those mentioned, is they’d have write those mortgages off and add the houses to their portfolio.
Mark to market might get a little tight depending on the appraisal moratorium. Market prices have probably put most defaulted mortgages under water. And yeah, property taxes probably become an additional negative cash flow factor.
From what I’m seeing, a foreclosed house is typically terribly run down, frequently to the point of being trashed, and would require considerable investment to be made salable at anything close to market price. But that’s a given.
They must be waiting for some favorable action or event. Otherwise, IMHO, they’d be better off pulling a Ritholtz: clear the slate, take the losses, get a fresh start.
June 26th, 2009 at 12:12 pm
@leftback: The Tan Man is his own race. Does he mark “other” on the Census (that Michelle Bachman won’t fill because she’s certifiable) or is there a category for “orange”?
June 26th, 2009 at 12:12 pm
yeah–I have a friend that does used car financing–just so happens most if not all his clients are minorities.
First they sell the car at a very high price–then they finance it at 30% interest.
As he says, as long as they pay several months and do not wreck the car, when they repossess it they do it all over again.
He is a liberal who believes in the principals of that view-until it comes to his own money -spending other peoples money is fine–ripping off minorities is fine.
I am stil trying to figure it all out.
June 26th, 2009 at 12:14 pm
@alfred e: Excellent point. They would have to finally mark those losses on their books and in doing so would reveal that most of the banks are still insolvent and would need more fed cash.
June 26th, 2009 at 12:21 pm
OT:
Jeff,
speaking of Bachmann, what’s your take on Klobuchar?
~~
Hal,
that’s a funny/sad/true story, same business model was enjoyed by 42 & Lady MacBeth during their “Whitewater” days..
June 26th, 2009 at 12:24 pm
On another note – had an interesting conversation with a friend of mine yesterday. He’s not one of those anti-tax crusaders, but he’s admitted to having honest, however fleeting, thoughts about not paying his taxes (or cheating) and thus engaging in some form of civil disobedience to protest the bank bailouts and grand misallocation of gov’t capital that’s going on right now. He’s also had thoughts that his own personal armageddon back-up plan would be to jack up his credit cards (has several with high limits that are unused) and walking away from paying if need be – - his own personal bailout, if you will. Mind you, like me, he has excellent credit and has never minded paying taxes that much, so he is not someone that would normally even think about doing things like this. My question is this – - if people like this are having serious thoughts (however fleeting they might be) like this, what do you think others who are far less responsible are thinking (and doing) right now? It sounds crazy, but a backlash of this sort against the gov’t (not paying taxes or cheating) and/or just walking away from debt, could be brewing against the feds and banks on a bigger scale than anyone expects. Why wouldn’t more people just look at it as their own personal bailout?
June 26th, 2009 at 12:26 pm
@Hoffer: I actually think Klobuchar is a good, sensible person. She seems solid overall to me. She doesn’t seem slick at all in the stereotypical politician mold, but then again she hasn’t been in office very long. Maybe we’re better off with only one Senator. Do you have any thoughts about her?
June 26th, 2009 at 12:29 pm
Remember all banks and lenders needed a time series to evaluate how subprime loans preformed. The seed for this data came from the CRA, then the lenders started a reflexivity process ( think Soros) of assuming prices of homes always went up in their pricing/risk models.
June 26th, 2009 at 12:32 pm
Was that the answer you were looking for, Hoffer?
June 26th, 2009 at 12:45 pm
Hal,
The bungee car. Talking to the average American about money is a nightmare. About 80% of the time their finances are a shambles. And lower income people’s money knowledge is even worse. Inflation is hitting those at the bottom especially hard and the sharks smell blood. Scammers thrive on desperation. Older people are especially vulnerable, and there are plenty of people that would sell their mother or grandmother down the river for a dime.
The true liberal disappeared years ago: now its kleptos all the way down.
June 26th, 2009 at 12:49 pm
The reason Angelo had to ride in the back of the bus was his suntan lotion smelled like warm coconuts.
June 26th, 2009 at 12:50 pm
OT-
LB- another shout out from that link from last night- too damned funny-
also- because you watch the $ closely- wanted your take on China’s new pitch for a new supranational currency and how that may effect the value of the USD-
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6wpxUuF4qWY
June 26th, 2009 at 12:52 pm
@Mannwich
“Exactly Barry. This is all in indictment of our culture. Nothing more, nothing less.”
What is our culture, then? And what went wrong with it?
And don’t tell me, “profit motive”. Short term profits are almost always bound to crash and burn.
It’s almost like these guys WANTED to DESTROY THEMSELVES.
Like they wanted to just gobble up everything quick, and then freeze time. But we all know that’s not possible. So what is the motive there?
-L
June 26th, 2009 at 12:52 pm
A bit OT, but on that topic of a “middle class revolt” Naked Capitalism….
http://www.nakedcapitalism.com/2009/06/will-americas-besieged-middle-class.html
June 26th, 2009 at 12:56 pm
tanman Says-
” Inflation is hitting those at the bottom especially hard and the sharks smell blood.”
I would say no jobs are hitting those on the bottom- but outside of the increase in gasoline- I have not seen inflation- for instance- I can now buy a doz eggs for .99 and that was almost $2 a year or so ago- I think food prices have in fact come down- where I shop- a Bloom supermarket- ground chuck is almost always on sale for $1.89 lb and chicken regualary on sale for .79 to .99-
pretty cheap if you ask me
June 26th, 2009 at 12:57 pm
@lburgler: I don’t have the time to list all the things that “went wrong” with our culture, but in corporate-land, those at the top of the food chain have been incented to loot their own companies at everyone else’s expense for obscene rewards any way they can, so how can we be suprised by any of this behavior?
Bottom line is honest business is hard. Dishonest business, fraud, and criminality are easier, especially when that’s the path to rich and there’s certainly no penalty for it.
We have a complete vacuum in real leadership today in this country. Sadly most of our leaders only look out for themselves. That’s not real leadership in my book. The rabble just follows their “lead”.
June 26th, 2009 at 12:58 pm
ahab – WTF? I wasn’t here last night (I was on the Appalachian Trail….. )
“LB- another shout out from that link from last night- too damned funny-”
???
June 26th, 2009 at 1:15 pm
LB-
you know what- your right!- it was another dude that reminds me of you- I get you guys confused-
so what’s your take on the China and the call for the supranational currency
June 26th, 2009 at 1:16 pm
Mannie – we are there together bro’
I forgot about the crazy bitch senator y’all have
jeeeeez
June 26th, 2009 at 1:20 pm
Agreed agreed a-greed.
Speaking of which, my point is just that, if we are going to simplify, and take the “zoomed out” view, I don’t think “profit motive” aka “greed” does it.
Even greed has foresight in order to be greed.
I think this was resentful suicide. Self-destruction? Hurtling towards death?
I think “greed” and “profit motive” need to be retired. Those words are practically compliments.
Let me put it this way:
*How did a bunch of middle-class bankers, previously the most boring and complacent of the walking dead, suddenly become heavy-hitting dick-slinging rockstars?*
June 26th, 2009 at 1:22 pm
Answer: They didn’t.
They’re still boring half-dead bankers.
And now we know the extent to which they truly hate themselves.
The rest of us are some variation on that theme.
June 26th, 2009 at 1:25 pm
Sorry Barry, this is a bit off-topic, but when news hits that a bunch of seniors “gang torture” anyone or anything, there is clearly something wrong, and it needs to be posted….
http://www.independent.co.uk/news/world/europe/oap-gang-tortured-financial-adviser-1716327.html
June 26th, 2009 at 1:31 pm
@ Left, Ahab:
Whatever Stillaway… we know your prints.
Oh… I feel so bad for Mozillo now… what a great guy, all the struggles he had to overcome as an up and coming Countrywide schlep in Miami and good old VA Beach… all the good he did getting the poor minorities into loans no one else w0uld give them… The guy really deserves a break from all the criticism and REALLY deserves a pat on the back.
PSYCH!!!
What a douche.
June 26th, 2009 at 1:33 pm
*How did a bunch of middle-class bankers, previously the most boring and complacent of the walking dead, suddenly become heavy-hitting dick-slinging rockstars?*
– about the time we let them steal from all of us in order to make way too much money and then let them sponsor everything from hospitals to ballet to baseball to Sheryl Crow concerts.
We all need to withdraw and divest, as we did with South Africa in the 1970s. Don’t bank with them or use their ATMs, go with the small local guys or Canadian banks instead, and don’t attend any event sponsored by the banksters – we should protest this like we did Vietnam and apartheid.
June 26th, 2009 at 1:35 pm
@leftback: And you forgot………nearly ruin the character of NYC.
June 26th, 2009 at 1:55 pm
Shhhsh. Next they will say it was all a case of affirmative action run amuck.
June 26th, 2009 at 1:59 pm
“How did a bunch of middle-class bankers, previously the most boring and complacent of the walking dead, suddenly become heavy-hitting dick-slinging rockstars?”
…the Banksters were jealous of the dot com dudes making the quick super money, so they found a way (securtization) to make the quick super bucks
the VC’s fed the dot com dudes, spread the risk around and rolled the dice
the Bankster were drinking out of Bubbles fire hose of money right at the nozzle, where you can gulp down the max amount…and they got the super bucks fast….now we all pay
June 26th, 2009 at 2:07 pm
But here’s the thing – is the absense of more outrage by We the Sheeple due in part to the fact that many of those same sheeple, if given the opportunity, would have done the same (or similar) thing(s) as the Tan Man, Stan O’Neil, Fuldie, Greenie, Sullie, and Blankie et al? Deep down in our fucked up culture, does much of our public secretly admire these scoundrels?
June 26th, 2009 at 2:27 pm
“…the Banksters were jealous of the dot com dudes making the quick super money”
That’s true. Silicon Valley and dot.com dudes was competing for their coke and hookers and driving up prices.
“does much of our public secretly admire these scoundrels?”
No. The public doesn’t know who they are.
Most of our public is asleep, watching American Idol or reading OMG! on line about Britney wearing no panties.
June 26th, 2009 at 2:34 pm
@leftback: I’m not sure which option I prefer but you’re probably right, although I do think there is a subset of our population that does indeed admire these scoundrels and would do (and maybe have) the same thing if given the opportunity. That’s what I mean by culture. It’s as if we almost expect everything today to be one big gamed gravy train after another and hope that we’re on board before “the music stops”. After all, slow & steady (and honest) is for chumps.
June 26th, 2009 at 2:46 pm
Sorry, Wes and LB, gotta set you guys straight. The IBs made a fortune during the dot.com days… they brought those companies public, nabbed choice shares for themselves at pre-ipo prices, were instrumental in talking up/manipulating share prices and sold with brilliant (i.e., inside) timing. So securitization was just the next thing for them.
June 26th, 2009 at 2:53 pm
Chalookas?
Wes, I don’t think it means what you think it means (been meaning to use that phrase for months).
I loved Britney with no undies. lefty did too. But that wasn’t his point.
June 26th, 2009 at 3:01 pm
Not a big fan of Britney – she seems slightly over-eager to self-mutilate, and no, that wasn’t my point.
Karen is correct, of course. I bet the IB desks also shorted pets.com on the way down as well.
June 26th, 2009 at 3:04 pm
CNBCS,
i know that wasn’t lefties point
it was mine
i was expressing my sudden awareness “our public is asleep, watching American Idol or reading OMG! on line about Britney wearing no panties” – awakened from my intellectual pursuits, re-inserted to my pod and had my brain reconnected to the matrix i saw brit emerging from a car with paparazzi flashes and motorized nikon clicks exploding in my ears
————–
oops you’re right – just looked it up, i thought i was making up a new word, did not want to offend Karen – i figured you would konw what i meant no matter what word i inserted…he, he, he
June 26th, 2009 at 3:09 pm
Oops, I should read these threads more carefully. Everybody on this blog seems to be largely in agreement that fundamental change needs to happen, and even the progressives and Libertarians (as much as I tweak them) seem more or less on the same axis. I have asked Cranky to run for the Senate because I am getting tired of discussing this crap on a blog and I want him and us to do something about it.
June 26th, 2009 at 3:17 pm
I totally DISAGREE that this was primarily the fault of the private sector. This example is anecdotal evidence. What about the fact that Fannie and Freddie were compelled to loosen all their standards and ratios in order to accomodate more and more subprime loans? If Fannie and Freddie weren’t compelled to buy all the junk loans from Countrywide, WAMU, etc, then this couldn’t have gotten THIS bad.
~~~
BR: FUnny, it was Angelo Mozilo who went to FNM/FRE and insisted they lower their standards and take his subprime junk. He threasteneed to take ALL of his biz elsewhere if they refused
June 26th, 2009 at 3:40 pm
@CNBC
“I have asked Cranky to run for the Senate”
You wouldn’t ask poor BR to go over to the “dark side” (political office) just for our sake would you?
Besides, such a move would make us DE FACTO “lobbyists” at that point…I shudder at the thought!
June 26th, 2009 at 4:03 pm
Seriously? Mozilo used pulled the race card? Give me a break. Like most CEO’s Mozilo cared only about the bottom line. Maybe “nobody wanted to work with” him because he was a crook.
June 26th, 2009 at 4:05 pm
@karen: And they’ll also be shorting THIS market on the next big downleg when the “all-clear” is given by Lispy Lloyd and the feds.
June 26th, 2009 at 4:07 pm
Also from Wikipedia:
On June 4, 2009, the U.S. Securities and Exchange Commission charged former CEO Angelo Mozilo with insider trading and securities fraud
June 26th, 2009 at 10:10 pm
The fact is, Big Government inflated the low-end, which set off a snowball of *move-up* buyers all the way to the high-end.
BR is dead wrong here, still.
The events of this past year or so, IMO, have proven that Big Business OWNS Big Government, i.e. they are one and the same.
Whether motivated by *profits*, *greed*, or *stupidity*….we’re only talking about one protagonist here.
By the way, I know plenty of people of all sorts of ethnicities that don’t *tan well*. You know what they do? They stay out of the sun.
June 26th, 2009 at 10:47 pm
I find this startling– the last thing I thought of Mozilo was that he had a very human side. It gives you pause on how complex lending is and dealing with baked in bias. Despite the wreckage– I would have never guessed that he was capable of self-reflective and concern for equality at a basic level. And within that bias of his front line loan officers a business could be built by serving folks.
I am dumbfolded– in this corner hats off to Mozilo.
June 26th, 2009 at 11:41 pm
Whether it is private greed or moronic social engineering (government), the aim is always the same, that is, to separate as much labor-power from the populace as is possible. Man and his nefarious institutions have come up with a million and one methods to this end, the housing bubble being the 1,000,002nd.
June 27th, 2009 at 12:16 pm
[...] Barry Ritholtz, who originally plucked out both of the above chunks from the article concludes that this all [...]