Mozilo knew hazardous waste when he saw it
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The use of ‘toxic’ to describe high-risk mortgages has been de rigueur for the last two years. Now it looks like Countrywide Financial Corp. founder Angelo R. Mozilo might have coined the term.
In the Securities and Exchange Commission’s civil fraud case filed today against Mozilo, the agency includes excerpts from e-mails Mozilo wrote in spring 2006 to other Countrywide executives, describing his concerns about some of the lender’s unconventional mortgages.
He uses ‘toxic’ twice in these emails -- long before word became the mortgage-market adjective of choice on Wall Street.
In March 2006, Mozilo wrote that the lender’s program of granting subprime loans for 100% of the value of a borrower’s home was ‘the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from [underwriting] guidelines be permitted irrespective of the circumstances.’
In April 2006, Mozilo wrote about those loans, ‘In all my years in the business I have never seen a more toxic prduct [sic].’
But when Countrywide’s risk-management department in April 2006 recommended increasing minimum credit scores for the loans, echoing Mozilo’s criticisms, the idea allegedly was opposed by David Sambol, who then headed the lender’s production units (and who also is a defendant in the SEC’s case).
Sambol ‘noted that such an increase would make Countrywide uncompetitive with subprime lenders such as New Century, Option One, and Argent,’ the SEC says.
-- Tom Petruno