Mozilo Unbowed Says Countrywide Was ‘World-Class Company’

By Hugh Son & Edvard Pettersson – Dec 13, 2012 12:00 AM ET .

Countrywide Financial Corp. co- founder Angelo Mozilo said under oath last year that he had “no regrets” about how he ran the mortgage firm and that he only agreed to a record $67.5 million regulatory settlement in 2010 to protect his children.

Mozilo, who led the lender blamed by lawmakers and regulators for contributing to the housing collapse, said in a June 2011 deposition as part of a lawsuit between his firm, which was bought by Bank of America Corp. (BAC), and MBIA Inc. (MBI), according to documents filed this week in state court in New York. MBIA, once the biggest bond insurer, claims Countrywide committed fraud by securitizing loans that were riskier than promised.

Countrywide Financial Corp. co-founder Angelo Mozilo sought to defend his company’s role in the mortgage mess even before the U.S. housing market showed signs of recovery from the bursting of the housing bubble. Photographer: Jay Mallin/Bloomberg News

The crisis was “not caused by an act of Countrywide,” said Mozilo, 73, according to a transcript of the deposition. “This is all about an unprecedented, cataclysmic situation, unprecedented in the history of this country. Values in this country dropped by 50 percent.”

Bank of America, the second-biggest U.S. bank by assets, has spent more than $40 billion to clean up mortgages inherited from the 2008 Countrywide purchase. Congressional investigators released e-mails from Mozilo, the Countrywide chief executive officer, showing that as early as 2004 he was concerned about the decline in quality of mortgages the lender was originating.

Mozilo was responding to questions from an MBIA attorney who asked if he regretted how Countrywide was run after “all the foreclosures and ruined lives and lawsuits.” Mozilo called the lawyer’s question “nonsensical and insulting.”

Mortgage Mess

“I have no regrets about how Countrywide was run,” Mozilo said. “We were a world-class company in every respect.”

Mozilo sought to defend his company’s role in the mortgage mess even before the U.S. housing market showed signs of recovery from the bursting of the housing bubble.

The firm only made loans that it was confident would be repaid, Mozilo said. Countrywide was the third-largest subprime lender in 2006, with about $40.6 billion in the mortgages, compared with $44.6 billion in 2005, according to data from Inside Mortgage Finance.

“We never made a loan knowingly — and it would be stupid to do so — that we knew the borrower could not pay. Never,” Mozilo said. “All our loans had that one standard from 1968 to the end of my rein at Countrywide.”

While publicly reassuring investors about the quality of his loans, Mozilo issued “dire” internal warnings and engaged in insider trading accelerating stock sales to reap about $140 million, the U.S. Securities and Exchange Commission alleged in a 2009 lawsuit. In one e-mail, he described a “particularly profitable subprime product as ‘toxic.’” He also wrote that Countrywide was “flying blind” and had “no way” to determine the risks of some adjustable-rate mortgages, the SEC said.

Criminal Investigation

In 2010, Mozilo agreed to a $67.5 million settlement to resolve SEC claims that he misled investors, without admitting or denying the allegations. The Justice Department ended a criminal investigation of Mozilo without bringing charges, a person familiar with the investigation said in February 2011. He paid the $22.5 million fine included in the SEC deal to protect his nine grandchildren and five children from the effects of his notoriety, Mozilo said.

“It had nothing to do with anything that I did at Countrywide or anything I did in my personal life,” Mozilo said. Relatives “were being harassed in school. My name was in the paper every day nationally and internationally, accusing me of things that were absolutely untrue. I could not have my family go through it anymore, and that’s why I settled.”

‘Really Proud’

Mozilo “remains really proud of his company and this institution he built,” said his attorney, David Siegel. “It would be unfair to say he doesn’t feel a great deal of empathy for the honest, hard-working Americans who suffered in the financial crisis.”

A wealth of information in the public record contradicts Mozilo’s contention that Countrywide never knowingly made a bad loan, said Joel Bernstein, the lead lawyer for plaintiffs in a shareholder lawsuit that Charlotte, North Carolina-based Bank of America settled for $600 million.

“A lot of people would find a different solution for their grandchildren being pestered than agreeing to a $67 million settlement,” Bernstein said.

If he were in Mozilo’s position, Bernstein said, he would have found a different school for them.

David Brown, a spokesman for the SEC’s Los Angeles office, said he had no immediate comment on Mozilo’s deposition.

Kevin Brown, an MBIA spokesman, declined to comment on the deposition. Bank of America spokesman Lawrence Grayson didn’t immediately respond to an e-mailed request seeking comment on it.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Rick Green at rgreen18@bloomberg.net