Mr Mortgage: ‘Friends of Angelo’ were Everywhere at Every Bank.

Posted on June 13th, 2008 in Mr Mortgage's Personal Opinions/Research

This is not a Countrywide-specific story. Countrywide was not without wrong doing, as we are all finding out. But, these ‘Friends of Mozillo’ favors were commonplace and rather petty considering many more serious allegations brought up in the past several months about Countrywide and every other mortgage/investment banker in existence. Elected politicians receiving ‘gifts’ is very bad and by no means petty, especially considering which politicians are involved. But I am not going to get into that for this piece.

Portfolio Magazine, which I admit I like, just published a ‘Friends of Angelo’ story in which they summarize what they consider to be ‘preferential treatment’ in the paragraph below. To be honest, I don’t see anything too outside standard operating procedures over the past five-years. These were all fairly routine practices if you ask me. In the following several paragraphs, I will tell you ‘how it really is’.

Portfolio: “According to company documents and emails, the V.I.P.’s received better deals than those available to ordinary borrowers. Home-loan customers can reduce their interest rates by paying “points”—one point equals 1 percent of the loan’s value. For V.I.P.’s, Countrywide often waived at least half a point and eliminated fees amounting to hundreds of dollars for underwriting, processing and document preparation. If interest rates fell while a V.I.P. loan was pending, Countrywide provided a free “float-down” to the lower rate, eschewing its usual charge of half a point. Some V.I.P.’s who bought or refinanced investment properties were often given the lower interest rate associated with primary residences.”

Take it from this 20-year mortgage vet that what Mozillo gave his ‘insiders’ was nothing more than most mortgage and investment banks gave their top retail, wholesale or correspondent customers. This just goes to show you how lax everything was over the past 5-years. The investment banks were so hungry for parts (loans) for their Frankenstein securities that they bought almost anything. Heck, why not when 80% of what was produced was going to be bundled up and sold anyway?

This is why I firmly believe that originating banks and/or original investors will ultimately end up responsible for all of this. Forced buybacks for early payment defaults (first 12-months), ‘white-lie’ fraud (liar loans), unauthorized ‘exceptions’ (outside of investor guidelines without investor approval) and lender ‘negligence’ (sloppy underwriting/quality control) are already being demanded by whole loan and securities owners if a default audit unveils any of these deficiencies. If you are diligent enough, I am willing to bet an auditor can find one of the above mentioned deficiencies in 80% of all Prime, Alt-A and subprime loans made over the past five-years.

I have written about this many times and the WSJ recently published an article on May 28th, 2008, confirming many of my views. ‘Investors Press Lenders on bad Loans’ . The article cites a lawsuit filed in LA Superior Court where units of the mortgage insurer, PMI Group, alleged WMC Mortgage Corp breached it’s ‘reps and warrants’ on a pool of subprime loans insured by PMI in 2007. Within eight months, the delinquency rate was at 30%. The suit also alleges that a detailed audit of 120 loans that PMI asked WMC to repurchase found evidence of ‘fraud, errors and misrepresentations’. WMC was owned by GE by the way.

The auditing of defaulted loans looking for fraud or lender negligence is escalating at a feverish pace. This is being spearheaded in many cases by the mortgage and bond insurers, but even Fannie, Freddie, banks and the investment banks are picking up the pace. At this point in time considering the damage that has been done to the insurers, they have nothing and everything to lose. The biggest finger-pointing contest of all time is commencing and the prize may be the firm’s very existence.

Perhaps soon one of the insurers will release detailed reports on the amount of fraud and negligence on the defaulted prime, ALT-A, subprime and home equity loans that they insure in an attempt to make themselves look good. When this news breaks it will shock the world.

Most think they have a handle on how pervasive outright fraud was. But few have a handle on the ‘white-lie’ fraud and broader negligence, such as increasing income and/or asset levels on stated income/asset loans and making unauthorized investor guideline ‘exceptions’ on large percentages of loans. Unauthorized ‘exceptions’ were made in many cases, unilaterally, by someone as low down the totem pole and a document drawing clerk.

The following is another recent article that does a great job summarizing lending malpractice even at the investor level. NPR ran a great story recently as well regarding Wall Street investment banks looking the other way . The writer adds, “it suggests that auditors for Wall Street investment bankers knew how preposterous these loans were, and that could mean Wall Street liability for aiding and abetting fraud”.

Ultimately, I believe that outright fraud, ‘white’lie’ fraud, unauthorized ‘exceptions’ and lender ‘negligence’ will be major factors in the ownership of loans and the accompanying losses. Especially fraud and negligence surrounding inflated income and assets used on limited documentation loans, which were a large percentage of all loans across all paper types.


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22 Responses to “Mr Mortgage: ‘Friends of Angelo’ were Everywhere at Every Bank.”

  1. Thanks Mr. Mortgage for your great articles, you are the best. Have a good night.


    There is a young cowboy
    He lives on the range
    His horse and his cattle
    Are his only companions
    He works in the saddle
    And he sleeps in the canyons
    Waiting for summer
    His pastures to change
    And as the moon rises
    He sits by his fire
    Thinking ’bout women
    And glasses of beer
    And closing his eyes
    As the doggies retire
    He sings out a song
    Which is soft but is clear
    As if maybe
    Someone could hear

    So good night
    You moonlight ladies
    Sweet Baby James
    Deep greens and blues
    Are the colours I choose
    Won’t you let me go
    Down in my dreams
    And rock-a-bye
    Sweet Baby James

    Now the first of December
    Was covered with snow
    So was the turnpike
    From Stockbridge to Boston
    The Berkshires seemed dreamlike
    On account of that frosting
    With ten miles behind me
    And ten thousand more to go
    There’s a song that they sing
    When they take to the highway
    A song that they sing
    When they take to the sea
    A song that they sing
    Of their home in the sky
    Maybe you can believe it
    If it helps you to sleep
    But singing works
    Just fine for me

    And rock-a-bye
    Sweet Baby James

    James Taylor

  2. The part that’s not petty here is that according to Senate Ethics rules you cannot accept anything of value of more than $100 – including a discount – from any given party in a given year in virtually all cases.

    One of the specific enumerated cases is if the firm/individual employs lobbyists.

    That a company has a “Friends” or “VIP” division is no big deal. The “big deal” comes when that special consideration is extended to a lawmaker or employee of a lawmaker.

    In virtually all cases this is at least an ethics violation and may be a criminal offense.

  3. Great piece of journalism this NPR investigation. Indeed. Somebody should sue Lehman Brothers and all the gang for a couple of trillions. Nah! It won’t happen. We had Enron. Apparently it wasn’t sufficient to give a lesson to these people.

    They knew what they were doing and they couldn’t care less, because they know the taxpayer always foot the bill. In the case of the USA it’s even funnier. It’s mostly the real stupid arad, russian, japaneese, chineese, canadian investor that will also share the expense.This system is perfect. At least try to sue them. Try to embarass these corrupt politicians and journalist from bubblevision. Mister Obama is not the real change some expected. To have an organizer that was head of Fannie Mae is not a good start.

  4. Right Karl, I agree 100%.

  5. If we want real CHANGE we must start with ourselves. Our actions are the windows to our souls…who we truly are. Our actions should honor God, Ourselves, and Others. Then we must look to surround ourselves with those who act as we do. Do not be fool by mere words.

    A candidate for REAL CHANGE was Ron Paul. Check out his voting record. He did not vote for the war and comes in under budget every year to site a few examples. He served his country proudly and every year in Congress he speaks to these issues we are now facing. His actions speak volumes about his soul. He believes firmly, as I do, in the US constitution. If the US had followed the Constitution, we wouldn’t be in this mess.

    The actions of most politicians, lawmakers, and moneymen are so blatantly corrupt that to comment on this particular story is a joke. The financial situation we are in today is all about the transfer of wealth. The house of cards that this society is built upon (the US dollar) is about to come crashing down. We will have to deflate this monster we created and in doing so we will be forced to tighten out belts and live conservatively…as we should have been doing all along.

  6. European banks have $400bn hole in balance sheets
    By David Oakley

    Published: June 14 2008 03:00 | Last updated: June 14 2008 03:00


    European banks have a $400bn hole on their balance sheets in spite of a record-breaking week in fundraising from rights issues.

    This is a 20 per cent increase from the end of last year, raising a big question mark over the health of the banks and suggesting the credit crisis is deepening, according to Citigroup.

  7. «This is why I firmly believe that originating banks and/or original investors will ultimately end up responsible for all of this in the end. Forced buybacks for early payment defaults (first 12-months), ‘white-lie’ fraud (liar loans), unauthorized ‘exceptions’ (outside of investor guidelines without investor approval) and lender ‘negligence’ (sloppy underwriting/quality control) are already being demanded by whole loan and securities owners if an audit on a loan in default unveils any of these deficiencies.»

    But IIRC Congress is already fixing that, isn’t it? Some already table Bill makes securitized loan sales final even in cases of fraud (retroactively of course), has it already been passed?

  8. Not a great example of american productivity “miracle”. A lot like all the promises of the “new economy”. Another mirage.

  9. Where I agree that EVERY lender had its share of sweetheart deals, this Countrywide story is important because of the involvement of 2 key players in this mess. Mozilo, who should be wearing an orange jumpsuit very soon, and the supposedly honorable Christopher Dodd, a liberal Senator who is trying very hard to put the mortgage broker and/or broker LO out of business with his big government ideas and meddlesome bills. That he now insults the intelligence of his constituency and every taxpayer by saying he didn’t realize his loan came with no fees and free buy-down points is LUDICROUS. The man is a 5th term Senator, the Chairperson of the Banking and HUD committee, a licensed attorney, and has spoken out repeatedly about the mortgage lending process and we are expected to believe that he didn’t review his loan docs at signing or realize what a ridiculous deal he was getting. The Banking and HUD chair didn’t know what the benchmark 30 year rate was? Think about what you are being asked to believe here. The man dealt DIRECTLY with Mozilo on this deal. Something stinks in Calabasas. Mozilo’s problems with the SEC could certainly be lessened due to his buddy status with congressmen and other high ranking staffers. The guy dumped tens of millions of dollars in stock while he knew damn good and well his underwriters were approving dogshit alt-A and option-arm paper to make the pipeline look sweet to the shareholders. If you think Dodd’s voting record couldn’t possibly have been swayed, or that he could never have made a call down the beltway to help cover his pal’s backside, I have a few 7 figure properties to sell you at last years values in California’s central valley.

    If this is not just a Coutrywide story, then I want to hear all of the stories about all of these corrupt politicians and the loans they got. I hope Dan Golden and conde nast hires an archaeological team of hundreds and digs up every loan made to every crooked congressperson and I hope they do it quick. It is important, because these people are attempting to re-shape the whole industry with legislation that doesn’t fix the problems. This is not petty…there could be a much bigger story here.

  10. I could not agree more Dave, that’s why I qualified this story at the beginning. I specifically wanted to write about losing focus and going off on another tangent.

  11. If those guys were republicans, they would have already been railed out of town and brought up on charges. As they should have.

    If you really think Obama is going to change anything and that the Democrats are the party of the people, you are as dumb as the person making $50K/year that thought he could afford that Million dollar house. It is no wonder to me that CA is so blue.

  12. Welcome to the party, Mr. Mortgage. We covered just how big fraud really is in various mortgage pools back in April:

    Eventually the press will figure it out; I can guarantee you that the monolines already have.

  13. I would also like to add that Ron Paul or the Libertarian candidate, as right as they may be, have zero chance of winning the presidency. Ronald Reagan, Teddy Roosevelt, Abraham Lincoln and John Kennedy are not running leaving Obama and McCain.

    I do not particularly like McCain for many reasons, but Obama is a disaster in the making that will be historical and take a generation to fix. The tax increase alone will set back any recovery for 5 years or better.

    The Democratic elite have more money than most replublicans ever dreamed of. The like of Kennedy, Kerry, Entertainers and the ever present sons and daughters of Zion. Interest rates will spike back to double digits. This is a good thing for these people because they already have all the money they need. All they have to do is to buy governmnet backed or insured cash securities to make double digit returns with no risk and try to convince the average man this is a good thing.

    Corporate expansions and investments are cut to zero because the cost of funds and level of taxation on the proceeds exceeds the return on sitting and doing nothing because of the risks involved.

    You think unemplyment going from 5.1 to 5.5% is bad, I can’t wait to see how the 15% number in blamed on the republicans when the democrats have control of everything.

    Been in charge of the house and senate for two years now and have done how much of what they promised?

  14. P Jackson – thank you for the welcome and link. That is a good story. He is right on the money. By the way, I have been at the party all along…remember, I was in the middle of all of this during the boom and saw it first hand. I estimate 80% of all loans carry some sort of actionable dificiency to force a buyback, but fraud is the primary. Fraud comes in many shapes and sizes and it was absolutely industry standard to lie about income to make loans work in stated loans. The income was the last thing put into a loan app because the amount put in was what was needed in order to make the ratios work. Due to the structure of the programs, income was not a factor in lending in the past 5-years, which is why everyone lied about it. Stated income = liar loan for a reason.

  15. Yeah Obama is a disaster like McCain. There is nothing to hope from politicians, specially those that take power. “Change” Yeah yeah yeah with an ex CEO from Fannie Mae. Oh boy ! As for Hillary Clinton and his philandering husband; it’s the same. And McCain wants to stay in Irak for 100 years ! WoW Wee ! American politics is a bad as american banking. Don’t think very much of bankers neither. Hey start a third party; “Angelo Mozilo as president!”

  16. Core inflation rate = Liar inflation rate.
    Arms of mass destruction = Pentagone CIA lie.
    New Economy = New Con-nomy.

    Boy. This epidemy of ninja loans and liar loans migrated in Great Britain, Spain and certain parts of Canada. Vancouver and Toronto is full of liar loans too. Fraudarika. Was there anything true in the USA these last years. Well I must admit that only sector that was real OK, even less scandals for the moment at least, was the oil and gas sector.

  17. And despite the excellent articles above from NPR, Housing Wire, etc, making it pretty clear that fraud has been a systemic problem in this crisis, the U.S. Attorney General still thinks it’s a “localized” problem, not worthy of national attention. Ugh. What is wrong with people?

  18. Makes you wonder if old Mukasey got a sweet NINA-no-no loan with a few free buy down points from his pal Angelo, doesn’t it.

  19. US attorney “sans doute” received also a sweat hart deal on his loans ? What is wrong with people ? Well. Usually they have something to hide, like a dirty little secret, an eveloppe with nice green bills in it, a swiss bank account or a hooker’s telephone number. That’s the way the cookie crumbles. 🙂

  20. check out this LEH ditty fron NC.

  21. Mortgageman85,

    We all understand you worship the ground Ron Paul walks on, everything would magically change if he was Pres, Heaven on Earth, He’s the new messiah, we get it… Enough is enough. Please stop spouting the same thing in every post you’ve become annoying and I just read past your posts.

    Well pretty much the US is up a creek w/o a paddle. We really need to retroactively punish the majority of these fraudsters and not bail out these large financial firms/banks. It will cripple the US in the short term but in the long run (If we survive) we will be better off and actually stabilize. I would recommend learning to grow food and getting in shape now so if the worst case (Great Depression type) society returns you will be able to literally survive.

  22. Wana really be depressed? House in foreclosure, relatives in denial and being black and watching all of these Obama lovers who know less than he does.

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