"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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  • Michelle

    September 20, 2007

    could the war be a factor for why our economy is hurting?

  • Anonymous

    September 20, 2007

    well. I am not too sure about whats happenning but I wonder if the "war" on terror and the government spending all its money ( and ours) that maybe THATS the reason we're in a recession? I wonder if war makes a big difference in our economy. Also I wonder why the banks are suffering so much? Maybe its a combination of all the sitautions and the war just makes things worse?

  • A

    September 08, 2007

    Teri--how can you put all the blame on Countrywide when there are many other companies out there, the old GMAC-RFC for one, that were much more involved in the subprime market for a much longer time than Countrywide. Also, the borrowers need to take at least half the blame if not more. In many cases we are not talking about people who just wanted to buy a home but people, who by choice, overextended themselves on the cars they chose to buy, credit card debt and then felt the need to impress others with a bigger and better home. People need to learn to live within their means. Certainly there has been fraud out there and misrepresentation, but I also know A/E's at Countrywide (yes their pay is performance based, as is every other company's sales force) and they are not "evil" as you would portray. Every company has bad apples. As far as saying Countrywide should go down, that statement is callous and ignorant. You are wishing the demise of an awful lot of people...hmmm...think that says something about YOU!

  • Teri

    September 02, 2007

    The feds should let CW die, I agree. CW acted like Enron did... Now Mazio is bailing out of his own company. They sold sup-prime and alt-a loans to people who could have gotten prime loans and they knew it. Their sales force works on commission and that is their incentive.... $$$$. Now, the country is in this mess because of them. Plain and simple. The money was in sub-prime and alt-a and so they pushed these loans onto people who could not afford them. They need to go under!!! I know people who work at countrywide I know what they do. They should be investigated. It is as bad as what Enron did. Trust me.

  • George Polich

    August 31, 2007

    There seem to be a series of money managers and corporate executives trying to scare Bernanke into cutting when the larger economy doesn't need a cut.

  • 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.

  • 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.

  • 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.

  • 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 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.

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