Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ======Angelo Mozilo====== Angelo Mozilo was the co-founder, Chairman, and CEO of [[Countrywide Financial]], a company that, under his leadership, grew into the largest [[mortgage lender]] in the United States. He is one of the most infamous figures from the prelude to the [[2008 Financial Crisis]]. Often described as the charismatic and perpetually tanned face of the housing boom, Mozilo aggressively pushed for market share, championing risky loan products like the [[subprime mortgage]] and the interest-only loan. His philosophy was to put a "home in every pot," but this was achieved by dismantling traditional [[underwriting]] standards and creating products like [[NINJA loans]] (No Income, No Job, or Assets). While he became fabulously wealthy, his company's practices fueled an unsustainable housing bubble. The eventual collapse of Countrywide and its disastrous sale to [[Bank of America]] made Mozilo a poster child for corporate greed and the reckless risk-taking that brought the global financial system to its knees. His story serves as a powerful cautionary tale for investors about the dangers of chasing growth at any cost. ===== The Rise and Fall of a Mortgage King ===== Mozilo's career is a dramatic story of ambition, hubris, and an eventual, spectacular downfall. He co-founded Countrywide in 1969 and, for decades, built it into a formidable lending powerhouse. However, it was in the early 2000s that the company's growth went into overdrive, driven by a fateful combination of low interest rates and a cultural obsession with homeownership. ==== The Countrywide Machine ==== Countrywide's business model was deceptively simple: originate as many mortgages as possible and then sell them off. This "originate-to-distribute" model was supercharged by two key factors: * **Aggressive Lending Standards:** Countrywide became famous for approving loans that traditional banks would reject. They specialized in [[Adjustable-Rate Mortgage (ARM)]] products with low "teaser" rates that would later balloon, trapping borrowers. * **Securitization:** The company didn't hold onto most of these risky loans. Instead, it packaged thousands of them together into complex financial instruments called [[mortgage-backed securities (MBS)]] and sold them to investment banks and institutional investors around the world. This process, known as [[securitization]], transferred the risk from Countrywide's books to the wider financial system, creating a "pass the parcel" game with toxic debt. This machine was oiled by a high-pressure sales culture. Mozilo famously set astronomical growth targets, creating an environment where loan officers were incentivized to close deals by any means necessary, often with little regard for a borrower's ability to repay. ==== The Unraveling ==== When the U.S. housing market began to cool around 2006 and interest rates rose, the entire house of cards collapsed. Homeowners with ARMs saw their monthly payments skyrocket and began defaulting in record numbers. Suddenly, the mortgage-backed securities that were once rated as safe investments were revealed to be filled with worthless loans. Countrywide, sitting on a mountain of loans it couldn't sell, faced a liquidity crisis. Its stock price plummeted, and in a panic, it was sold to Bank of America in 2008 for a fraction of its former value—a deal that would end up costing BofA tens of billions of dollars in legal settlements and losses. In 2010, Mozilo was charged by the [[U.S. Securities and Exchange Commission (SEC)]] with securities fraud and insider trading. The SEC alleged that he and other executives had deliberately misled investors about the immense risks in Countrywide's loan portfolio while personally cashing out hundreds of millions of dollars in stock. Mozilo settled the case for $67.5 million without admitting or denying the charges. ===== Lessons for the Value Investor ===== The saga of Angelo Mozilo and Countrywide offers timeless lessons for any prudent investor. As [[Warren Buffett]] famously said, //"Only when the tide goes out do you discover who's been swimming naked."// Mozilo was a prime example. * **Beware "Growth at Any Cost":** A [[value investor]] seeks sustainable, profitable growth. Countrywide's explosive growth was a giant red flag, as it was achieved by sacrificing credit quality and taking on immense, hidden risk. When a company's growth seems too good to be true, it probably is. * **Scrutinize Management:** Mozilo was a smooth-talking CEO who projected confidence while quietly selling his own stock. This highlights a classic [[principal-agent problem]]. Investors must always analyze management's incentives, their track record, and whether their public statements align with their private actions (like insider selling). * **Complexity Hides Risk:** The securitization model was deliberately complex. It allowed Countrywide to originate bad loans and quickly sell them, making the risk someone else's problem. For an investor, if you cannot simply explain and understand how a company makes its money, it is best to stay away. * **Demand a [[Margin of Safety]]:** Investing in a company whose entire success is pegged to a single, favorable economic condition—in this case, a perpetually rising housing market—is the opposite of safe investing. A margin of safety means ensuring a business can withstand adversity. Countrywide had none.