Mozilo viewed himself as something of a populist, fighting for the little guy — as did the editors of La Opinion.That`s an empirical point that deserves more looking into — how much did Mozilo hang onto his loans versus how much did be securitize them. But it`s clear his business model was dependent upon Fannie and Freddie keeping the firehose of government-backed cheap credit flowing to him.
So in addition to learning that Mozilo was incredibly insecure, the article also offers a gem about Fannie Mae (FNM) and Freddie Mac (FRE) and their role in Countrywide`s success:
NYT: While he is sanguine about the stock price, Mr. Mozilo remains volatile about so much else. Particularly irksome are calls by Alan Greenspan, the Federal Reserve chairman, to shrink Fannie Mae and Freddie Mac, the quasi-government institutions that buy huge numbers of mortgages from financial institutions, notably from Countrywide.
"Fannie and Freddie are a threat to his banks," Mr. Mozilo said of Mr. Greenspan, whose agency regulates big bank holding companies. By buying his mortgages and thus freeing up his capital to solicit even more business, Fannie and Freddie are a big reason Mr. Mozilo has driven Countrywide past the Citigroups and the Wells Fargos to the top of the mortgage heap. "If it wasn`t for them," he said of Fannie and Freddie, "Wells knows they`d have us."
Now this is damning on a couple of levels, one simple, one a bit more complex. The obvious phenomenon was that Countrywide made a gigantic business, winning market share by turning itself into an organ of the government. Courtesy of Fannie and Freddie it had an extremely low cost of capital (even Wells Fargo could barely compete, and as Warren Buffett will tell you, Wells` cost of capital is very low), and a toilet down which to flush all the loans it wanted to make.
That alone is bad.
But it`s not quite true that Countrywide just saw Fannie and Freddie as trash receptacles. Countrywide was a big believe in aggressive lending, and it thought that it was engaging in good, profitable lending to people that other banks wouldn`t go touch. Remember, Mozilo was a populist. He had a chip on his shoulder. And he obviously was extremely proud of the fact that he, along with some other lending pioneers, had discovered that lending to poor people with marginal credit — people that bankers had tradtionally turned their noses up — were profitable. Mozilo didn`t see himself as just a salesman and packager of trash.
Fannie and Freddie allowed Countrywide to get big, but Mozilo thought that the core business was inherently profitable, which is why, Countrywide held onto some of its loans in order to "smooth" (read: goose) its earnings. If Mozilo just thought he was selling garbage, he wouldn`t have held onto a penny of it;.