"Countrywide is Fine, but America is Headed for a Housing-Induced Recession"

Somehow Angelo Mozilo's comments to Maria Bartiromo this morning don't pass my smell test.

Maria Bartiromo flew out to LA to speak with Angelo Mozilo and CNBC ran a live interview at 11 AM this morning.

Mozilo essentially said that Countrywide is fine, that the company does not face a bankruptcy risk any greater than six months ago, and that the Merrill analyst was "irresponsible" to mention the possibility of bankruptcy.  I actually concur with the last point, especially since the analyst mentioned bankruptcy 2 days after saying that the company had no such risk.   I am not so sure about Mozilo's other claims and believe that he recognizes that the situation is an especially severe one.  He acknowledged that the Bank of America deal announced last night is not a good one for Countrywide - he sold an 'in the money" option on 17% of his company that yields 7.25% for the purchaser until exercised for only $2 billion.  That, in fact, smells to me of desperation as Countrywide couldn't get better terms from any other money center bank (Mozilo said that all the other banks told him that they couldn't consider a deal because they have their own mortgage exposure problems).

It is what Mozilo said next that really smelled of hypocracy.  Mozilo said he sees a housing-induced recession in the offing over the next year.  Somehow, while Countrywide is the largest mortgage lender and is going to be fine, we are going to have a housing-induced recession!

I don't profess to have a clue at this point which way the economy is going tomorrow or the day after tomorrow much less in three or six months.  This volatility has made economic judgments very, very certain.   The economy may shake this off and return to expansion in September, leading the stock market much higher.  However, this economy was strong until four weeks ago, and if housing is going to cause it to unwind and in fact fall into a recession, then this housing / mortgage situation is still in the second inning and the $2 billion that Angelo just got from B of A isn't going to save his business.

 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • JRodgers

    August 24, 2007

    Mozilo is usually a real straight shooter, but this time he just decided that he could speak out of both sides of his mouth just an everybody who speaks to Maria does.

  • TheodoreR

    August 24, 2007

    His goal is clear - he wants to stop the volatility in his POS company and he wants to force the Fed's hand to bail him and his buddies out of this mess that they created. He is going to say whatever he has to say to do it. If he were telling the truth he would have said the exact opposite - "This Bank of America thing probably won't save us if this housing recession continues. I am not an economist. I have no idea what is going to happen to the economy, but judging the retail numbers and the performance of the leading tech companies, I believe that this disaster that I have created for my shareholders will not spread."

  • VNM

    August 24, 2007

    this whole countrywide thing smells of a market disaster awaiting. I am not sure the fed can save this situation beacuse of such a wide exposure.

  • Sam Cass

    August 25, 2007

    I don't think he really has a clue about where the economy or housing is going. But if I had to guess I'd say housing will decelerate into a soft landing. The economy will do fine, espeically with the positive energy of new elections and a new President. No recession is my call.

  • Mozilla the gorilla

    August 25, 2007

    Maria should ask why insiders sold 600 million in stock if things are peachy at Countrywide. And why at the same time they borrowed 2 billion for a buyback. Pretty fishy.

  • Dill Vern

    August 25, 2007

    BAC is thourough. They would invest for two reasins: 1) they knew that Countrywide was going to ahve further problems and expected to gain control of the company at some future poin for more of a bail-out

    2) They saw an easy way to make some quick cash, reassure the markets (and protect some of their own investments), and get a toehold into Countrywide.

    My bet is on #2.

  • Mozilla the gorilla

    August 27, 2007

    Maybe BAC has so many billions unsecured in cfc they have to prop it up or lose it all................................................................................

  • Dill Vern

    August 27, 2007

    @Mozilla - Interesting question. I might take a look at Countrywide's filings to see if I could find any evidence. But even if they had it, they could afford to lose it. The company makes tens of billions of dollars PER QUARTER.

  • Sam Cass

    August 28, 2007

    I'm becoming more and more convinced there won't be a recession that the credit crunch is a golden time to buy into the market. Unemployment and payroll numbers look good, the global economy is chugging along, what's the problem? Housing needed to correct and I'd stay away from real-estate for awhile but most people will be fine.

  • R Polk

    August 30, 2007

    Mozilo is a BSer who is trying to ave his overlevered company by gettingg Bernanke to bale him out, but the economy doesn't need a lowering of the Fed funds rate - we already have too much liquidity and inflation so it is better than Bernanke let Countrywide die.

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