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Spectacular Failures Podcast

Spectacular Failures - Subprime times at Countrywide Financial (Transcript)

Read the transcript for our episode “Subprime times at Countrywide Financial.”

Listen to the episode: Website | 


On a soupy August weekday, I asked my friend Clare to meet me at the zoo. 

Lauren: Hi! How are you?

Clare Fieseler: Only for you Lauren Ober, do I come in the middle of a goddamn pandemic to show up in front of a tiger cage.

Lauren: But we're gonna have fun, aren't we?

I mean, it was 300 degrees, a thousand percent humidity, and my face mask felt like it was suffocating me—so fun? ...I don’t know, debatable. But I had an important mission. Clare was going to teach me about predators. 

Clare, or Dr. Fieseler to you, is an ecologist formerly of Georgetown University, soon to be of the Smithsonian. So… she knows some stuff.

We started in front of the Great Cats enclosure. Pavel, one of the Smithsonian National Zoo’s tigers, was cruising around, scratching his behind on some bushes and doing a bit of vocalizing. 

[Pavel the Tiger vocalizing]

Scattered throughout the enclosure were enormous raw animal bones, picked clean by the giant kitty. 

Clare Fieseler: So, people don't notice like, they serve up carcasses. They throw carcasses in there because that is how predators eat. 

Yeah, you can’t exactly give a fierce jungle cat a hundred pounds of Whiskas and call it a day. 

Clare Fieseler: They’re predators. They need to like, shred a carcass. It's good for their teeth. It's good for their muscles. It's good for their coordination, like the process of ripping apart a carcass is like, good for the animal.

The rest of the zoo’s tigers, as well as the lions, weren’t out and about, which I think was extremely rude of them. Clare’s two-year-old, Remy, was stunned into silence by the snub. 

Clare Fieseler: Hey, Rem. What does the lion say? Can you do it? 

See, she’s totally over it. 

Anyway, given the lions and tigers’ general impudence, we moseyed over towards the cheetahs. 

Lauren: Ok, so as we’re walking, give me a definition of a predator.

Clare Fieseler: No, the formal definition in like college textbooks is an organism that kills and eats other organisms referred to as its prey. That's it. 

Lauren: So it's a basic definition.

Clare Fieseler: Yeah. 

Lauren: But within that it’s very complicated. Or at least there are multiple layers of like, how they do it.

Clare Fieseler: Yeah, there's a lot of ways to be a predator.


Indeed there are. Like, you can be a creepy stalker predator like an alligator. Or you can be a bro-y pack predator like a wolf. Or…

Clare Fieseler: You can be an ambush predator where you essentially kind of just like sit and you have super awesome camouflage and you just kind of boom, come out of nowhere.

Like a pit viper or our friends, the cheetahs, who were way more polite than those “great cats.”

Remy: Cheetah. Cheetah.

But you want to know the real tea about predators like sharks and hyenas and Abyssinian ground hornbills? Sure you do. They got nothing on us. 

Lauren: Humans are predators.

Clare Fieseler: We are the ultimate predator. We predate in all sorts of crazy ways. Most predators, they just have one you know, they're one-trick pony. We found a million ways to predate on things as humans.

It’s true — humans are extremely creative and resourceful predators. But not just in the obvious ways — hunting with guns, fishing with nets, raising farm animals for slaughter. Some humans use pens and paper and adjustable-rate mortgages to feed themselves. Also, forgery, fraud, and racially biased lending. 

Which are exactly the types of predation that occurred in the runup to the 2008 housing collapse. That was when millions of homeowners fell into the trap of predatory lending, signing their names on one garbage mortgage after the next. 

And in that world, there was no greater beast of prey than the mortgage giant, Countrywide Financial Corporation. In the animal kingdom, Countrywide would be considered the ultimate apex predator. But in 2008, it went extinct. 

I’m Lauren Ober and from American Public Media, this is Spectacular Failures, the show that would never foreclose on failure. 


PART ONE

Angelo Mozilo’s early years were quintessential immigrant New York. He was born in the Bronx in 1938 to Italian emigre parents. His father was a butcher and while it was a respectable profession, it was also grueling. And it never gave the family any financial stability. 

Mozilo couldn’t see himself elbow-deep in offal for the rest of his life. So, at 14, he got a job as a messenger for a small mortgage company in Manhattan. He worked there for years, doing any job that was needed, in order to put himself through college.

Eventually, Mozilo graduated from Fordham University in the Bronx. But...

Bethany McLean: He always had a chip on his shoulder because he went to Fordham, not to an Ivy League university, and he couldn't get a job on Wall Street.

That’s Bethany McLean. She’s the co-author of “All The Devils Are Here: The Hidden History of the Financial Crisis.”

Bethany McLean: He grew up in the era where Italian Americans weren't going to get hired at the white-shoe investment banks. So had this sense that people were looking down on him and it turned into this almost maniacal obsession with what he called his baby, which was Countrywide.

But before we get to Countrywide, there’s something important you need to know about Mozilo. He grew up in a rental apartment. His family could never afford their own home on his father’s butcher’s salary. And that was a motivator for young Mozilo. 

Bethany McLean: He was a true believer in homeownership as the key to a better society, the key to wealth for a lot of people, really the key to life. 

After college, Mozilo worked for a guy named David Loeb, who ran a mortgage servicing outfit. In 1968, the company was bought out and the pair left to start their own company. But not some rinky-dink local mortgage servicer. They wanted to be coast-to-coast mortgage brokers. They called their company Countrywide. 

Bethany McLean: It was really part of this whole idea that no, it doesn't have to be a bank making your mortgage, it could actually be a company that specialized in just making home mortgages, because that company, in turn, could turn around and sell the loans that they had made to investors through this process known as securitization. 

Basically, securitization is the practice of pooling debt (like a bunch of mortgages), packaging them up nice and pretty, and then selling those packages to investors. If you heard the term mortgage-backed securities being tossed around in the late aughts, that’s what it means. Phew, glad we got that out of the way. 

At the time that Mozilo and Loeb started Countrywide, this idea of going to a place that wasn’t a bank to get a home mortgage was kind of cuckoo. People just went to their local bank to help them buy a home.

But by the mid-90s, mortgage originators like Countrywide had snatched up more than half of the nation’s mortgage market. And that’s due to some big changes that had taken place — the savings and loan crisis had successfully killed off thousands of their competitors; and government-sponsored enterprises Fannie Mae and Freddie Mac had given non-bank mortgages their tacit seal of approval. Which made those mortgages more attractive for Wall Street investors. 

You better believe it was about to rain money for these mortgage companies. 

Bethany McLean: Mozilo and Countrywide were the institution that probably took the biggest advantage of the fundamental changes in the way the mortgage system operated.

Twenty-three years after it got off the ground, Countrywide had become the largest mortgage originator in the country. It was issuing tens of billions of dollars worth of mortgages a year. The company co-founded by the son of a Bronx butcher was now backstroking in cash. 

But according to this video from a business association award ceremony, Angelo Mozilo’s satisfaction didn’t come from counting dollars. It came from transforming lives. 

CLIP [Angelo Mozilo Award Video]: Mortgages are special because they do make such a difference in people’s lives. I witnessed that every single day. And I particularly witnessed that when I took loan applications and saw the excitement of people with the opportunity of getting into a home. 

So it was all lining up. Countrywide was making the loans, Wall Street was buying them and millions of new homeowners were able to live their American Dream.

But then, a little wrinkle. Everyone wanted a piece of the action and some fly-by-night operations started offering people with less than sterling credit some very non-traditional home loans. Perhaps you may have heard of them? They were little things called subprime mortgages. 

Gwen Ifill: The next question is to talk about the subprime lending meltdown. Who do you think was at fault? / Alan Greenspan: The U.S. subprime mortgage grew rapidly in response to this demand. / Barack Obama: Subprime loans, loans with high rates and complex terms that often concealed their costs... / George W Bush: To help those with subprime loans refinance or modify their mortgages.

But buddy, I can’t explain this mess by myself. So our pal Patricia McCoy is going to help. She’s a law professor at Boston College. But more importantly for our purposes she’s the co-author of the book “The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps.”

Patricia McCoy: Starting in the late 1990s, and really taking off in 2002, the lending industry invented this new type of loan, the subprime loan. And what subprime refers to are loans to people with lower credit scores, people who may have had some trouble paying one or more of their bills in the past.

Basically, before 2002, potential buyers with credit scores of 620 or higher were considered prime borrowers. Anyone with a credit score below that would be hard-pressed to get a mortgage. 

But then all these non-banks started making more and more exotic loans to riskier and riskier borrowers. Which they could do because Wall Street was super into buying those loans. And what Wall Street wants, Wall Street gets.  

Patricia McCoy: And that meant that there was a lot of money from investors available to make subprime loans.

The best way I can explain prime versus subprime lending is through my own experience. Because I’m all about me. A couple of years ago, I — a white woman in my whateverit’snotimportants — wanted to buy a little condo and I was able to put the standard 20 percent down. So my realtor hooked me up with a mortgage lender to see what I could afford. Using a combination of my credit score (which is dope) and my income (which is livable), the lender determined how much of a loan I qualified for. And the loans were super traditional —  prime 15- and 30-year fixed-rate mortgages. Meaning that the interest rate was locked in. It wouldn’t change over the term of the loan. 

But let’s say I had less than dope credit. And I had no ability to put any money down. And my income was spotty. My mortgage lender wouldn’t touch me with a 10-foot pole. I’d be way too risky for their bank to take on because there’s a high probability that I’d default on the loan. 

So I’d have to go to a mortgage lender that was offering subprime mortgages. And those lenders would say...

Patricia McCoy: Don't worry. We're not going to ask you your income. We're not going to ask you to document that you have a job. We're not going to ask you for your bank account balances or other assets. So don't worry about that we can approve you, even though we don't know what your income is, or we don't know how low your assets are. 

But wait! It gets better. Even if I didn’t have employment or money coming in and I didn’t own anything of value, I could STILL get a loan. And those little financial products were called…

Patricia McCoy: Ninja loans. No income, no job, no assets. And yet, the lenders would make these ninja loans and investors would buy them.

Now to me, Stingy McTightwad, if a friend asks to borrow $1000, but doesn’t have a job or any prospects on the horizon, I’d say there’s a high likelihood that I’m not getting my money back. So knowing that’s a serious risk, I have to figure out if I feel ok about losing a grand. And likely I do not. 

But in the subprime lending market, a person’s ability to repay was never really an issue. Because once subprime lenders made the loan and tacked on a million different fees, they’d almost immediately sell the loan to Wall Street. So that risky transaction was off their books and onto someone else’s. In other words, not my problem anymore.  

Now there’s a heap of subprime loan configurations that mortgage lenders used in the early 2000s to get people without a lot of credit into houses. And we’ll unpack all that shadiness in a minute. But first, it’s important to note that our pal Angelo Mozilo wasn’t all that l into these subprime products. At least not when they first hit the scene. 

Bethany McLean: He was actually somewhat of a skeptic of subprime loans for many years and was slow to get into the game of making so-called subprime loans.

McLean writes in her book: ‘It was a business, [Mozilo] groused, that made its money overcharging unsuspecting customers. Most subprime executives were “crooks,” he railed to his friends.’

So how then did Countrywide become the nation’s single largest originator of subprime loans? I like to think of it a bit like road cycling. Stay with me. 

As performance-enhancing pharmaceuticals became more widely available, a handful of dirty cyclists began using them. And they started to win and get rich and famous. And in order to compete with dirty cyclists getting juiced up blood transfusions, formerly clean cyclists had to get dirty, too. And pretty soon, any cyclist who wanted to compete at the highest levels had to dope. Because there were never going to be two Tour De Frances — one for dopers and one for non-dopers. Just ask Lance. (Get ‘im Oprah!)

CLIP [Oprah with Lance Armstrong]: In your opinion, was it humanly possible to win the Tour De France without doping… seven times in a row?/ Not in my opinion. 

Bethany McLean: It's really interesting, because the idea that competition leads to excellence. That competition leads to a race to the top where everybody's trying to be better than the other person. But too often, it seems that unbridled competition, particularly in the financial arena, leads actually to this race to the bottom, right, where at least for a period of time, those who continue to engage in good behavior get penalized. And those who go to the bottom of the barrel and engage in the worst behavior appear to win.

And so when others went low, so did Countrywide. Stock analysts had begun to get fussy about the fact that Countrywide didn’t offer subprime loans. And the company's program for low-income customers had become anemic. High-risk borrowers were getting subprime loans elsewhere. So if Mozilo wanted Countrywide to stay on top, he had to get down with subprime. 

Bethany McLean: And that's where Mozilo's aspirations got in the way of his fundamental ethics, by which I mean, he'd always had this desire for Countrywide to be the biggest mortgage lender in the country. And if you're going to be the biggest mortgage lender in the country, then you can't let shoddy lenders who are getting away with their bad behavior take away your market share, right.

No you cannot! You have to employ your own bad behavior!

Bethany McLean: So Countrywide embraced what it called the supermarket strategy, which meant that if a shoddy lender down the road was making any kind of loan, Countrywide would offer that same kind of loan. And for a bunch of years, no one cared. You could sell this stuff to Wall Street. And then Fannie and Freddie began to give into the pressure and they too loosened their credit standards and then it was Katie, bar the door.

Katie, bar the door. Meaning oooh buddy, it’s about to hit the fan. And by hit the fan I mean the entire economy is about to collapse. 

We’re going to take a quick break. When we come back, what it means to own a home when you’ve been historically denied the opportunity. And what it means to have it taken away. Plus, how a tacky vanity license plate foretold the 2008 housing crisis in just six letters.  


PART TWO

In 1976, Cloyed Miller moved to Rancho Cucamonga, California with his wife Maxine. The city is located squarely in the state’s Inland Empire, just south of the San Gabriel Mountains and east of Los Angeles. It was named for the Kukamongan people, upon whose ancestral lands the city was founded. 

Cloyed worked as an educational consultant and Maxine did the lord’s work, serving as vice-principal for a junior high school in the area. The couple was solidly middle class and when it came time to figure out a place to settle, Rancho Cucamonga ticked a lot of their boxes. 

Cloyed Miller: Well, I mean, it was inviting, just from the standpoint for the opportunity to be able to get a house in the area that was considered affordable and a good neighborhood.

Plus, the city had one other thing going for it. 

Lauren: What was it that was appealing about it?

Cloyed Miller: Well, getting the opportunity to purchase a home without being redlined.

The Millers are Black. And as Cloyed explains, racist practices such as redlining and restrictive covenants — basically forced segregation — kept the couple out of neighborhoods they otherwise would have been interested in. 

Cloyed Miller: We first were looking at some homes in Upland... 

...the city next door…

Cloyed Miller: ...but neighbors had influenced the neighbors not to sell to us. 

Now, even though we only had a little phone chat, I’m pretty convinced Cloyed would be a great neighbor. He’s a low-key dude, he's super friendly and warm, and he’s a shaman. Plus, he’s got amazing style and a magnificent head of long silver locks. I mean, not that cool hair makes you a good neighbor, but whatever. Cloyed could live next to me any day. 

In 2005 after years of renting, Cloyed and Maxine finally found a house that could be theirs — no redlining, no crap neighbors. At least not immediately. The home was a four-bed, three-bath, Tudor-style-meets-the-desert kind of situation tucked up into a hill overlooking historic Route 66. 

Cloyed Miller: Some people say it's like a gingerbread house in terms of the color. It's a tri-level, 2,700-square-feet. Sits on about a little more than a half-acre land. 

Cloyed and Maxine put an offer on the house — $610,000 — and with a few pen strokes, the house was theirs. They financed it with two mortgages — a fixed-rate loan to cover the down payment. And to cover the rest, an adjustable-rate loan… from Countrywide.

With their purchase, the Millers were manifesting their American Dream. 

Mehrsa Baradaran is a law professor at UC Irvine. She studies the intersection of banking, housing, and inequality in the U.S. And she says that homeownership in the U.S. has forever been an indicator of achievement. 

Mehrsa Baradaran: I think owning a home has been the American sort of path toward security and community and, you know, having arrived. And, you know, I do think that the norms are changing, but not as much as some would say they've changed. I mean, I really do still think that owning a home is the, you know, the largest sort of marker of stability for a lot of people. 

Homeownership isn’t just a nice way for people to get a leg up in this country. It’s the way we’ve chosen to fund communities. Home property taxes pay for our schools and our roads and our emergency services. But it wasn’t always like that.

Mehrsa Baradaran: We were not a home-owning mortgage-holding nation until the New Deal. The New Deal created the 30-year fixed-rate mortgage, it mandated the terms, right, 6% interest, you know, here's a loan to value ratio is 30-year amortized, here's exactly what we're gonna do and then they guaranteed it. 

Now, let’s not go crazy thinking that homeownership was open to everyone in America. It most assuredly was not. See back in the day, in order to pass any sort of progressive housing legislation through Congress, you had to have ‘Gone With The Wind’-loving white Southern Democrats on board. And they weren’t all that interested in giving Black and brown families access to those new government-backed mortgages and housing assistance programs from the Federal Housing Administration.

So Congress and FDR tossed the interests of the nation’s Black families right under the bus, denying them a path to generational wealth and community stability. 

Mehrsa Baradaran: Essentially what that meant was no black homeowners could get the FHA-guaranteed mortgage, which means that they were cut off from that wealth building asset from the creation of the middle class, right? There was no, you know, middle class the way we see it now. There was no American suburb, there wasn't just this homeownership society. And then there was, and black communities were left out.

But that’s not all! Over the years, White Americans have devised so many gross ways to keep people of color out of the housing market, and more specifically out of their white neighborhoods. Like homeowner associations with oppressive fees and rules, and racially restrictive covenants that allowed homeowners to discriminate against any buyers they wanted to exclude — mostly Black people, but also Asians, Latinos and Jews. Also Irish and Italians. I recently learned that my own neighborhood was once advertised as part of the “largest restricted white community” in Washington, D.C. Yuck. 

So it was against that backdrop of historic housing discrimination that Angelo Mozilo’s Countrywide Financial Corporation began to take shape. 

As the son of immigrants who were never able to afford their own home, Mozilo was determined to make housing accessible for everyone. And to be number one. Mmm, mostly to be number one. Once he got over his initial squickiness with subprime loans, Countrywide was off to the races. 

Bethany McLean: So, if you want to convince yourself that your processes are better than other people, and that somehow you're making subprime mortgage loans, yes, but you're only making them to people who are going to pay them back. You can believe that on some level.

Lots of folks at Countrywide believed deeply that somehow their subprime loans were better than their competitors’. But at the end of the day, it didn’t really matter who believed what. All that mattered was that there was an ample supply of borrowers who needed loans and a steady stream of Wall Street investors ready to snatch them up.

Michael Winston took an executive job at Countrywide in 2005, the same year that Cloyed Miller bought his first home. His mandate at Countrywide was to make it a more diversified financial services company. Because Mozilo wanted more for his corporate baby than just mortgage origination. 

Michael Winston: I was hired by Countrywide to help them build Goldman Sachs on the Pacific.

FYI, Winston had cancer in his throat and talks with the help of an electrolarynx. 

Michael Winston: They even put a plaque on my desk, saying, ‘Don't ever take your eyes off this — Goldman Sachs on the Pacific.’ We want to have not just, you know, a real estate or mortgage company, we want to have a global integrated services company. We want to be a one firm firm.

But Countrywide’s bread and butter was still home loans. Specifically of the nonconforming or subprime variety. 

This became agonizingly clear to Winston one day while walking through the employee parking lot. 

Michael Winston: I saw a vanity plate that said “fund ‘em” and I said “fund ‘em” what do you suppose that means? And he said, Oh, it's Angelo Mozilo's growth strategy. And I said, How can “fund 'em” be your growth strategy? What does that mean? Oh we’ll fund all loans. My response was, you'll fund all loans? What if the guy doesn't have a job? What if he's a heroin addict, you know, getting hits sitting on the street? And he said, you don't understand. As long as they can fog a mirror, we’ll give him a loan.

Now, my dog Raf could fog a mirror. But I’m pretty sure that doesn’t make him a great candidate for a loan. But what Winston learned early in his tenure was that Countrywide wasn’t concerned about the quality of the potential borrowers or the quality of the loans it was generating. It was all about the quantity. Because for every loan written, Countrywide earned a fee. And the loan officer got a commission. The more loans sold, the more money everyone made. They were basically printing money. And everyone was happy!  

Michael Winston: It was clear to me that they didn't worry about selling good mortgages. Just a lot of them. It seems to me you should focus on the quality of your loans, not the quantity.

In 2006, Countrywide had originated $500 billion worth of loans. Sorry, let me say that in a more dramatic way — half a trillion dollars worth of loans. The company had become one of the most prominent businesses in America. It was bigger than Nike, Marriott, and Pepsi. So why would Countrywide have any interest in changing up its game? They were winning the mortgage Tour de France every year.

Plus, homeowners were happy. And why wouldn’t they be? People who never thought they could get a mortgage suddenly qualified. 

And Countrywide made it seem like a breeze! 

CLIP [Countrywide Commercial]: A growing family with a lot of debt. A young couple with no down payment. A business owner whose income was hard to document. Every one of them was turned down for a home loan by three different lenders. I’m with Countrywide and I got them all approved. So if you need a lender who actually finds ways to make loans, call Countrywide. We’re America’s number one home lender. No one can do what Countrywide can. 

One more, you say? Oh alright. 

CLIP [Another Countrywide Commercial]:  You still have your pay stubs from your college job?/ Why would they need that? /You never know./ At Countrywide Home Loans, we’ve put our branch managers in charge of the entire loan process./ I could sure use those statements./ Still looking!/ We have no loan committee./ Hi, just checking in again./ Peter I think I have everything I need from you./ That’s ok, I don’t want to rush the loan committee./ I am the loan committee./ What?/ Your loan is approved./ That’s great./ Countrywide, easy. Really. 


If this all seems too good to be true, it’s because it was. 

Maeve Elise Brown is the founder and executive director of HERA — Housing and Economic Rights Advocates. It’s a statewide nonprofit law office in California that deals with issues of economic justice and discrimination. And when she started seeing these subprime loans in the mid-aughts…

Maeve Elise Brown: I really just couldn't believe what I was seeing. The loans just were so inappropriate, dangerous for the people who were in them. The loan term seemed pretty consistently miserable. It was also very different from the loan that I had gotten for my little condo. And I was flabbergasted.

See, at first blush, the loans seemed great. People who might not otherwise be able to buy a home were getting the keys and moving in with the promise of accruing generational wealth. But there was a catch. The home loans they’d signed were generational debt machines — it was there in the fine print. 

Countrywide was putting people into all kinds of non-traditional predatory financial products — loans with adjustable interest rates that would balloon after a few years; piggyback loans, or second mortgages on top of first mortgages; and perhaps one of the shadiest moves, says Mehrsa Baradaran — giving subprime loans to prime borrowers.

Mehrsa Baradaran: And the data shows now that lots of black borrowers went in asking for 30 year fixed who had the financial capacity, like who were capable of the loan to value ratios considering everything you consider for standard mortgage and were upsold these subprime loans.

We know there’s lots of predatory behavior among wild animals. We learned that at the zoo. But what does predatory mean in this context, Patricia McCoy? 

Patricia McCoy: Predatory lending essentially means lending that is designed to extract money and equity in homes out of unsuspecting borrowers without any regard to whether those homeowners can hang on to their homes.

And would you believe that the people who were most often the targets of these predatory loans were Black, brown, low income and older homebuyers? NO! 

Lending abuses aren’t new. They’ve been around since the days of ancient Babylon. But Countrywide’s predatory schemes were particularly repugnant. They preyed on people who have historically been marginalized when it comes to homeownership in this country. It was the Countrywide wolf bopping around in some sheep’s clothing. 

Mehrsa Baradaran: These buyers were trying to do the thing that was held from them for so long, and trying to, you know, own homes. Which is what we tell Americans like this is the American dream. And so as they're grasping for this American dream, they're kind of sold this, like, you know, Martin Luther King said it was a bad check marked insufficient funds, and that's what they got. 

Our pal Cloyed Miller is one of those folks who was given a bad check. Remember, Cloyed was given two mortgages — one from a wholesale mortgage lender and one from Countrywide. And that Countrywide loan was an adjustable-rate piggyback loan. 

Cloyed says he made his payments on time and in full. But about seven months after he and his wife bought their house, they learned it was in foreclosure. Apparently, a clerical snafu channeled both of Cloyed’s mortgage payments into one loan instead of separating them out. 

Cloyed only found out about the foreclosure when he went back to the bank to get a home equity loan. He planned on doing some renovations. 

Lauren: They hadn't given you any notice at all. It was only when you went to the bank you found out?

Cloyed Miller: Yeah. That's when I found out that I couldn't rectify the situation, even though I was still, I'd been making payments all the way up to September.

He found out about the foreclosure in October, not even a year after he bought the house. 

For years after, Cloyed’s life was one monster battle with Countrywide after another. 

Cloyed Miller: It was several months in terms of letters that I had written to Countrywide. And finally, you know, after them not correcting the issue, I wind up filing for bankruptcy in 2007. 

And anyone who’s been through personal bankruptcy knows it’s totally draining.

Cloyed Miller: Went through the whole process of being on time with my payments for the bankruptcy and the game was played that I wasn't on time. I had to constantly send back proof of my payments to the court. Oh, it was a mess. 

Miller tried and failed to get a loan modification from Countrywide…for an issue that was Countrywide’s fault to begin with. In 2008, he testified at a Federal Reserve hearing along with Congresswoman Maxine Waters. 

CLIP [Congresswoman Maxine Waters]: We’re not asking them to be irresponsible and to put themselves at some great risk of not being paid. What we’re saying is there are many people who with a little time and attention can get work-outs and modifications to help them stay in the loans.

But Countrywide wasn’t budging. It wasn’t really in a position to. Because there were millions of borrowers around the country just like Cloyed whose Countrywide mortgages had gone south on them. 

Countrywide was basing its underwriting of the loans on the value of the homes continuing to go up. And when prices started to tumble, all those folks owed more than what their home was worth. 

Former CNBC “Money Honey” Maria Bartiromo asked Angelo Mozilo about this in 2007 at a discussion at the Office of Thrift Supervision. 

CLIP [Housing Market Panel]:

Maria Bartiromo: Angelo, give us a status check. Where are we in this cycle of slowdown for housing?

Angelo Mozilo: I don’t know why you pick on me first, Maria.

Maria Bartiromo: Well, you’re the leader. 

And he was. There was no bigger mortgage broker in the nation than Countrywide. 

Angelo Mozilo: I think we’re dealing clearly with the results and not with the cause. Nobody’s addressing the cause. And that’s what has to be addressed ultimately and that’s the fact that values of homes continue to go down and as they go down, the problem gets exacerbated. And until we stop that cycle, we’ll be continuously dealing with this break in the dam. 

Mmm, but like, didn’t Mozilo’s company share some of the responsibility for turning the housing market into a Vegas gambling racket? And now he’s saying that the big problem was that the bubble was about to burst? 

Bethany McLean: So then to look back and say, well, we didn't think home.... It just the whole thing is just, it's a circular argument, the worst kind of circular argument.

Around this time, Countrywide exec Michael Winston started to get really suspicious of his employer. Angelo Mozilo was petitioning the board for a massive increase in his compensation, the company had corporate governance and succession issues and people getting loans for homes they couldn’t even remotely afford. 

Michael Winston: When my secretary comes up and says, you know, the guy who was shining my shoes was sold a mortgage on a $750,000 house. What the hell's going on here? You know, it doesn't take a rocket scientist.

Good, because we didn’t talk to any for this story.

It got to a point where Winston had to say something about what he was observing at Countrywide. In a meeting with one of Angelo Mozilo’s direct reports, Winston told the guy…


Michael Winston: Looks to me like you're engaging in massive public fraud. I must be missing something. Tell me how I'm wrong. 

I mean, what’s a little accusation of massive public fraud between friends? Come on now.

Michael Winston: But apparently that observation was not, was not welcomed, though it was true.

Obviously Countrywide wasn’t going to be like, ‘Oh thank you, Michael, for bringing that to our attention. We’ll get right on that.’ So Winston took his claims to the Securities and Exchange Commission. He was one of a handful of Countrywide employees who officially blew the whistle on the company and its dubious lending practices.

Winston’s whistleblowing got him sacked and he later sued Countrywide for wrongful termination. The legal battle lasted years and he says it cost him more than a million dollars.


Michael Winston: I lost my career. I lost my speaking career. I lost my voice. It's a total loss.  

And not just for Winston. Remember all those people who got adjustable-rate mortgages from Countrywide? Well, in 2005, 2006, 2007 those interest rates adjusted. Without warning, borrowers’ mortgage payments went up by hundreds, even thousands of dollars. 

And because home prices had taken a tumble, folks were underwater. That led some people to just up and leave their homes. Others were forced out. 

In 2008, home foreclosures broke all kinds of records. 

CLIP [Al Jazeera English]: In the months to come hundreds of thousands more American families will see their mortgage rates soar leaving many with no choice but to give up the most valuable asset they’ve ever owned. 

And we know what happened next! BAILOUT TIME! Fortunately, the government stepped in and saved underwater homeowners with bad loans...no, no. That’s wrong. They helped the predators. JP Morgan Chase was bailed out. Wells Fargo and Capital One and Goldman Sachs were all bailed out. Fannie Mae and Freddie Mac also got some of that sweet bailout cash. 

Maeve Elise Brown: I think most people defrauded were never made whole. And when I think of the emotional distress that people went through, because they were losing everything, they were losing this place where they were raising their kids, they were sometimes losing grandmother's home that they had inherited. They were losing family history. Tremendous sense of stigma and personal failure, that folks who were foreclosed on, still carry with them, even when they know that they were essentially set up to fail. 

If there is one speck of solace that can be found in all of this it’s that Countrywide, the largest subprime mortgage lender in the U.S., did not get to ride off into the sunset. When the mortgage market collapsed, Countrywide was carrying a huge number of mortgages on its books. The company usually shunted most of its mortgages off its ledgers right into the loving arms of investors. But, it kept some for itself. 

Bethany McLean: So the idea is that if you hold these things that are generating income on your own balance sheet, well, then you have a buffer during times when the mortgage machine is sputtering. 

But since so many Countrywide borrowers couldn’t pay their mortgages, the company was left holding the bag. Its former BFFs on Wall Street wanted nothing to do with them and bankruptcy loomed. 

Eventually, Bank of America came to Countrywide’s rescue. In July 2008, the multinational bank snagged the fallen mortgage giant for $4.1 billion — just a sliver of what the company had been worth at its peak. 

Then came the lawsuits. The SEC charged Mozilo in 2009 with insider trading and misleading investors. He settled a year later, writing Uncle Sam a fat check for $22.5 million and pinky-swearing to never serve as the head of a publicly-traded company again. But don’t worry about Mozilo. He’s doing just fine thanks, living life in his 12,000-square-foot country clubhouse in Santa Barbara.

In 2011, Eric Holder’s justice department issued a $335 million settlement with Bank of America. They were forced to take responsibility for Countrywide’s discriminatory lending practices. 

CLIP [Eric Holder]: These allegations represent alarming conduct by one of the largest mortgage lenders in the country during the height of the housing market boom. For example, in 2007, a qualified African American customer in Los Angeles borrowing $200,000 paid an average of roughly $1200 more in fees than a similarly qualified white borrower. 

Holder’s victory hasn’t really been any help to Cloyed Miller. The retired veteran has been battling to save his home for 15 years.

Once the bank foreclosed on Cloyed’s home, Bank of America agreed to sell it back to him. But they offered him another adjustable-rate mortgage. Cloyed had no other options — his credit was shot from filing personal bankruptcy and he didn’t qualify for a fixed rate. 

And things just kept getting worse. Cloyed was the victim of a foreclosure rescue scam and he had a serious stroke in 2014. He’s tried for years to get loan modifications from Bank of America, but to no avail. Recently, he and his wife decided they’d had enough. They were going to put their home up for short sale. That’s where a distressed homeowner sells the house for less than the amount due on the mortgage. 

Cloyed Miller: I would say the high anxiety and levels of depression that come with this, and the trauma that follows, is something that the banks don't compensate you for.

 

In the wake of coronavirus and the rampant unemployment it caused, it’s natural to look back at the last worst economic crisis since the Great Depression and wonder what’s coming down the pike. 2008 was a grim year for foreclosures in this country, particularly for Black and brown communities. The subprime crisis wiped out about 50 percent of the nation’s Black wealth. And that wealth hasn’t been recovered, no matter what any politician or president says. 

With new foreclosures and evictions looming, the already vast wealth gap stands to widen even further. Sure, Countrywide is out of the picture. And federal regulators have tightened mortgage lending practices, which isn’t nothing. But if I’ve learned anything over the years it’s that if there’s money to be made, there’s always another creep waiting in the wings for his shot at inglorious greatness. I mean, scammers gotta scam. So the only thing to do is... read the fine print. 

Spectacular Failures is a production of American Public Media. It’s written and hosted by me, excellent neighbor Lauren Ober. Full-time renter Whitney Jones is the show’s producer. Our editor is real life homeowner Phyllis Fletcher. Basement dweller David Zha is our assistant producer. Our theme music is by the delightful David Schulman. Other original music this season comes from Jenn Champion and Michael Cormier. Kristina Lopez is our Audience Engagement Editor and Lauren Dee is our executive producer. Concept by Tracy Mumford. If you want to know more about Bethany McLean, Patricia McCoy and Mehrsa Baradaran’s excellent books, check out our website spectacularfailures.org. It’s got all our great source material. Finally, super thanks to our pal Dr. Clare Fieseler and her daughter Remi for joining me at the zoo… and being chill when a cheetah marked its territory right in front of our faces. 

Lauren: That was truly disgusting.

Clare Fieseler: I think it's pretty cool. 

Lauren: I mean he literally just sprayed stink from his butt.

Clare Fieseler: On the tree. 

Lauren: On the tree. 

Clare Fieseler: He probably does that like every hour on the hour. That’s his tree. 

Lauren: Right, right.

Clare Fieseler: That’s his tree.