The Corner

There’s Something About Angelo

An e-mail:

Having just resigned from Countrywide’s corporate offices in Dallas (June 6th), I have an interesting question.

Countrywide is poised to be taken over by Bank of America; the shareholders will be voting on it in the next two weeks.

How come almost nothing has been said about this? The buyout was announced in January.

Actually, the Wall Street Journal offered an interesting perspective on the takeover earlier this week:

In the week since the Journal revealed this [“Friends of Angelo”] program, the key questions have become clear: What did Countrywide CEO Angelo Mozilo receive – or think he would receive – in return for the friendly loans to politicians? And what did Mr. Mozilo get – or think he would get – in return for sweetheart loans to Fannie Mae CEOs Jim Johnson and Franklin Raines? [Sen. Kent] Conrad says he called Mr. Mozilo at the suggestion of Mr. Johnson, a leading and long-time member of the Democratic Beltway establishment.

The relationship between Countrywide and Fannie Mae goes to the heart of the mortgage crisis. Fannie makes its money by borrowing vast sums at low rates (thanks to an implied taxpayer guarantee on its loans) and then using that cash to buy loans from mortgage originators like Countrywide. Fannie then holds the mortgages and earns interest on them, or pools them into securities for sale to investors.

Fannie has been buying more home loans from Countrywide than from anyone else. In its most recent 10-K report filed with the Securities and Exchange Commission in February, the company reports: “Our top customer, Countrywide Financial Corporation (through its subsidiaries), accounted for approximately 28% of our single-family business volume in 2007, compared with 26% in 2006.”

A Fannie spokesman tell us that “for competitive and proprietary reasons, we can’t provide information about the terms we agree to with specific lenders,” and adds, “We don’t have lender-specific performance data available.” Count us among the skeptics that Fannie hasn’t bothered to check how well Countrywide’s loans perform compared to those of other lenders vying to do business with the government-sponsored giant. But then again, we don’t know what terms Countrywide’s competitors offer on loans to Fannie CEOs.

Those wondering why Bank of America continues to move forward on its planned purchase of the controversial Countrywide might consider that BofA, despite its huge brand name and resources, has been able to capture only 4% of Fannie’s single-family business on its own. Clearly, there’s something about Angelo.

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