A few weeks ago, in preparation for a special issue of National Mortgage News that was to be shipped to the annual Mortgage Bankers Association convention, I sought interviews with the CEOs of America’s two largest lenders – Countrywide Home Loans and Wells Fargo Home Mortgage.For years, these two shops have battled to be the top origination gorilla in mortgage banking. Wells originally agreed to an interview but changed its mind citing an upcoming earnings release. Fortunately, Countrywide’s chairman and CEO Angelo Mozilo readily agreed. Mozilo, who is about to turn 68, is the Bill Gates of mortgage banking. His firm didn’t invent the industry it plays in but over the years it has ex-erted enormous influence on it by shaping new products and dominating markets. When Mozilo speaks, the industry listens. Unlike many mortgage CEOs, he prefers (at least when talking to me) not to be baby-sat by a public relations official. So what did America’s Mr Mortgage have to say about the state of residential finance in the US? Here are the highlights of the interview: Mortgage Strategy: The home finance industry is in the early stages of a cyclical correction. How long do you think it will last? And how ugly will it be? Mozilo: There’s no question that business is down. I think we’re in for a year or two of an unsettling market. But are we all going to fall off a cliff? No. Mortgage Strategy: What do you make of so many Wall Street firms buying sub-prime lenders? Do you think they’ll leave the industry at the first sign of trouble? Mozilo: For years Countrywide has had an end-to-end mortgage operation, from origination to securitisation. Most of Wall Street had to come to us for products that they could securitise. I think the Street is right to try and control the flow of product by purchasing firms. It is trying to control its destiny. But it’s a lemming effect. They’re all coming into it at once. They’re keeping an eye on each other. Nobody wants to be left out. Mortgage Strategy: Will they go retail – direct to the consumer? Mozilo: No. We’re in the business of making mortgage customers happy. The Street will stay out of retail. Instead it is buying wholesalers who work through loan brokers. Mortgage Strategy: Fannie Mae and Freddie Mac once dominated the mortgage business but their accounting scandals have hurt them. They’ve been sitting on the sidelines as non- traditional loans such as payment option adjustable rate mortgages and interest-only deals have grown in popularity. Do you see Fannie and Freddie ever again becoming a huge force in the industry? Mozilo: Forever is a long time. They are important to the liquidity of our housing market. But because of their accounting scandals they’ve been paralysed. Meanwhile, non-traditional loans have become huge. It used to be that 100% of our loans were sold to Fannie and Freddie. Now just 35% to 40% are. They won’t come back as they once were – not in my lifetime. Mortgage Strategy: What about overseas? You no longer have a lending joint venture in the UK but you’re a technology provider there. What are your overseas plans? Mozilo: We’re selling asset-backed mortgage securities in the UK and we have a Tokyo office that sells them too. Four months ago we opened an office in Hong Kong. And next year we’re opening one in Shanghai. We’re expanding our broker/dealer effort overseas. Why? Because the dollars are there to invest in mortgage securities. Mortgage Strategy: What about India? A few years back you said you’d never outsource US mortgage jobs overseas but you changed your mind. Mozilo: I didn’t want to. To buy a house you have to have a job in the US. But I had no choice but to put jobs over there. The cost of labour is cheap and I have competitors to worry about. And there are mortgage workers there too. We now employ 3,000 in Mumbai. Mortgage Strategy: What about acquisitions? Traditionally, Countrywide has bought little, preferring to grow organically. But you’ve hinted that you might be open to buying another firm. Mozilo: We might be a buyer of firms but I’m concerned about the dilution of our corporate culture. We have the best origination business and the best servicing business in the country. There’s nothing for us to buy in that regard. But we might consider making a bolt-on acquisition. We may look to buy something in the capital marketplacePaul Muolo is executive editor of Washington-based National Mortgage News
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