Douglas McWhirter
01/01/2008
In early winter, protesters gathered outside the Santa Ana, Calif., offices of Countrywide Financial, the nation’s largest mortgage lender, to demand that the firm stop foreclosure proceedings and modify adjustable-rate mortgage loans about to reset to higher payments.
"These people gamed the system," Nativo Lopez, the president of the Mexican American Political Association, told the Associated Press. "They continued this game knowing full well that they were bringing borrowers into a market that was turning belly-up."
No doubt, inside the Countrywide offices, management focused on more pressing concerns than the demonstrators grousing outside their door. "The system" that Countrywide had allegedly gamed had turned sour, leading this remarkable financial services company to post its first quarterly loss in 25 years. Thanks to its aggressive peddling of subprime loans to high-risk borrowers who ultimately could not pay the money back, Countrywide’s stock was now down 68 percent from the start of the year, meaning the company had lost roughly $25 billion in market value. Its credit rating was languishing just above junk status, and the firm was laying off 20 percent of its 60,000-person workforce.
Over the summer, Countrywide’s CEO, Angelo Mozilo, had been forced to go hat-in-hand to competitor Bank of America to offer a $2 billion equity stake in the company. Now investors were calling for him and his board of directors to resign. Mozilo had to deny rumors that bankruptcy was imminent. Countrywide, which helped countless Americans realize their dreams of home ownership and regularly delivered impressive returns, was being tied to the whipping post and blamed for causing the credit crisis that threatened to destabilize the U.S. economy.
The rest is a sad tale of federal investigations into lending practices and ludicrous congressional bills to "protect" borrowers from lenders who, as the popular narrative went, knowingly took advantage of innocent families.
Did Countrywide—and Citigroup, Merrill Lynch, Wells Fargo, Bank of America and virtually every institution that offered subprime loans—cunningly lure low-income customers into borrowing money on terms that they could not afford? Hardly. Yes, the feds may find some minor malfeasance in the ways some lenders processed loans. Yes, it is heartbreaking to see families lose their homes to foreclosure. But the responsibility for the subprime meltdown and its growing economic and personal ramifications lies with all involved—lenders and borrowers alike.
Nativo Lopez probably doesn’t realize it, but Countrywide and the borrowers on whose behalf he speaks, along with countless others whose homes are now in foreclosure, were willing participants in the same game. Countrywide chose to take on enormous risk in offering mortgages to lower-income customers. Those customers, in turn, assumed just as much risk when they took out adjustable-rate mortgages.
In this game, both parties lost. The only difference is that Countrywide fully understood the risks involved when it made the loans. The borrowers, on the other hand, apparently couldn’t be bothered to educate themselves on this risk, or on how the game is played.