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Book Review: Chain of Blame. How Wall St. Caused the Mortgage and Credit Crisis

Not To Blame -- Joni Mitchell

Here are a few fragmented excerpts on Countrywide's thirst for quantity and increasing lack of quality.

As for Countrywide being a great place to work -- as Jonas Roth (the head of the trading desk at Countrywide) and others might testify to -- Betsy Bayer (VP of compliance at Countrywide) wasn't so sure. "It was a sweatshop," she said. "They had these posters all over the office. They were 'work/life balance' posters, like they were concerned about our well being. What a load of Bullsh*t. It was a sweatshop." Even though many of Mozilo's senior executives had been with the company 20 years or more, the Countrywide she worked for had a high turnover rate where many employees would leave before two years was out. "That's a fact that never gets published," she said.

Managing wholesale compliance, she -- and others -- learned the idea was to produce as many loans as humanly possible. Bayer, being the company's "rules person" for loans brought in through its broker network, didn't think compliance was being taken all that seriously by Mozilo and his senior management.

Mozilo, for his thirst for market share, had followed Arnall's company (Ameriquest and Argent) into the business of originating stated-income loans (where home buyers state their incomes and the lender believes them as long as their FICO score checks out). Stated-income loans came in two types: prime and subprime. But when it came to the "A" paper credit quality stated-income loans, Fannie Mae and Freddie Mac (for the most part) wouldn't touch them because of the lack underwriting. Countrywide also followed the crowd in originating another popular loan of the 2004 to 2007 period: payment option ARMs (adjustable-rate mortgages) (POAs), a product where the consumer was offered four different payment plans each month. One of these payments artificially low by delaying large interest payments each month, thus adding new debt onto the loan amount. It was what some lenders called an "I'll worry about it tomorrow" option. By 2006 Countrywide was the largest pay option ARM lender in the nation, originating $11 billion worth a quarter.

"When you go for quantity, quality is what you give up," said Bayer. "To get volume, you lose quality -- that's what they did." When she arrived in 2004, the company's compliance department was in what she called "complete turmoil." When pressed further, she said Countrywide wasn't doing its homework when it came to underwriting. "They were relaxing credit guidelines."

She said that inside the company compliance staffers had a word for stated-income loans: "liar loans." Bayer said the only ones in the company who called them that were members of the compliance staff. No one in the firm used the phrase, at least not within earshot of the production chiefs.