A look inside Countrywide
Countrywide Financial is arguably the company at the heart of the mortgage financial crisis. Kai Ryssdal speaks with Countrywide's former Senior Vice President of Marketing Adam Michaelson about his experiences at the company.
Adam Michaelson, author of "The Foreclosure of America" (Adam Michaelson)
More on Housing - Real Estate, Bookshelf
TEXT OF INTERVIEW
Kai Ryssdal: Today Bank of America CEO Ken Lewis showed why he's still got a company to run while so many of his former peers don't. Lewis is smart enough not to ask for a bonus. He told the board today he's not interested in extra money after the bank's performance last year. Of course, 2008 wasn't all bad for B of A. It managed to snap up its Wall Street competition, Merrill Lynch, and what is arguably the company at the heart of the mortgage mess -- Countrywide Financial.
Adam Michaelson used to run marketing at Countrywide, helping generate new customers for what was at the time the biggest mortgage firm in the United States. He's has written about his experiences in a new book. Adam, welcome to the program.
Adam Michaelson: Thank you for having me.
Ryssdal: So let's frame this in terms of timing. I mean, you started at Countrywide before any of us had ever heard the word 'subprime.'
Michaelson: Well, you know, it's funny. I myself had not heard that much about Countrywide when I interviewed with them. And there's a portion of the book where I go through the scene by which I was being interviewed and the sparkle in their eyes when they mentioned the dream of home ownership. And this was not like marketing toys, or candy, or technology -- this was selling the American dream.
Ryssdal: What was it about this sense of purpose that you guys had that got us to where we are today? I mean, there was a mentality there, that comes through in your book, of we got to get people into homes and this is why we are on this planet.
Michaelson: I speak a lot about Angelo Mozilo, the CEO of Countrywide. And he's been vilified in many ways in the press, but the man was a hero to many of us in the business. And before the crisis came to pass, for 40 years he helped people get into homes that perhaps they could not have gotten before. When he walked the halls it was like Walt Disney walking the halls and touching your shoulder and telling you that you were doing good for America. So there was a certain paternal pathos there that was infectious. And I'll tell you, at the time -- and I'm sure many people can think back when their housing values were skyrocketing and everybody was getting rich and everything was great -- we all honestly believed in the mission that he espoused.
Ryssdal: Here you are, though, a guy whose job it is to get more people signed on to Countrywide's products. I mean, you know . . .
Michaelson: Well, there's moral ambiguity inherent in all selling. In fact, I would argue that many of your readers, any of whom have ever been involved in sales, have at one time wondered whether that prospect should be buying that product or could buy that product. But they have goals to make and their job is to sell whatever it is they're selling.
Ryssdal: One thing, though, to be selling lawn mowers. It's another thing to be putting somebody, who everybody knows can't really afford it, into a half-million-dollar house.
Michaelson: Well, that kind of point of view is a very valid point of view. It's also a populous point of view. But using that argument, we as a nation should decide to vilify fast food companies . . .
Ryssdal: And we do.
Michaelson: And we do. And credit card companies who offer new credit cards to people who owe $50,000 in household debt.
Ryssdal: And we do.
Michaelson: So it's a much larger issue about, not only the morality of selling, but is it more about the death of personal responsibility? It's important for us to question was every foreclosed homeowner really a victim? Was every corporation really evil? I think the answer is much bigger than that.
Ryssdal: What is the answer then? I mean, I'm not going to let you get away with just saying, "Well, we have to question these things." Because the economy's in tatters, in large part, because of what a company like Countrywide did.
Michaelson: Well, part of the reason I wrote the book is because I started to read stories about foreclosed homeowners and how corporations were all evil and I said, "Wait a minute. I was in the room and I'm telling you, we were not out to hurt people." Everyone truly believed in the mission of home ownership as a good thing for America.
Ryssdal: I'm a big one for reading the acknowledgments section of a book. And the last word actually in this book, in your acknowledgments, is "And finally to Angelo Mozilo for creating Countrywide in the first place and for pushing us all, at one time, to believe." It doesn't really sound like you regret what happened at Countrywide.
Michaelson: Anyone in their right mind regrets what has happened. But to vilify every loan that's ever been created by any company in this business, I believe is the same rush to judgment that has gotten us into this crisis in the first place. And now that same rush to judgment is helping us blame people quickly without the full view of the story.
Ryssdal: Adam Michaelson used to be a senior vice president of marketing at Countrywide, the mortgage company. His book is called "The Foreclosure of America." Adam, thanks a lot.
Michaelson: Thanks for having me.
Comments
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07/11/2009
I also use to 'work' with Michaelson and he is total BS. He likes to talk the talk, but doesn't know anything about Marketing 101. Looks like he is pulling the wool over more people's eyes now jumping into the world of book publishing. How did this D level executive get on NPR??
From Somerset, NJ, 05/07/2009
One other point: I've read Michaelson's book, the interview here and the comments. I also spent '07 working for a very Countrywide-like mortgage company. While I know I should restrain myself from ad-hominem remarks, I can't help noting that the characterizations of Mr. Michaelson I see here ring very true. I just posted on his blog and was deleted within about five minutes. Apparently he'll only accept rah-rah comments over there; "Great book, Adam!" and all of that. I asked to visualize a mortgage industry without the secondary market and listed the benefits as I saw them. Then I noted that Don Corelone believed that he, too, was bringing The American Dream to a cohort of outsiders (a very common American Studies take on The Godfather). Snarky? Slightly, I suppose. But apparently Mr. Michaelson refuses to address the secondary market at all. I agree with a poster that he argues in straw-man false dichotomies: "The Evil Corporations" vs "Self-Indulgent Consumers," as if it were either one or the other. I'm guessing he's doing this to sidetrack the real issue, which is why we ever needed a secondary market to dangle vast amounts of capital in front of would-be homeowners to begin with. Toward the end of the book, Michaelson reverts to his conservative roots and argues against homeownership for everybody -- a clearly sustainable position, but one which annihilates Mozilla's vision of Countrywide's mission -- the vision which Michaelson was virtually weeping in support of several chapters earlier. Is this denial? Compartmentalization? It's some kind of bald rationalization, for sure. If Michaelson's later remark is correct, then there is no need for a secondary market to provide so much cash on so little margin for so many people. Why do we need the secondary market in the mortgage industry? Well, without it, neither Mozilla nor Michaelson would have made mountains of money so godawfully out of proportion to the actual service they rendered people. Bob
From Somerset, NJ, 05/07/2009
Adnan hit it on the head. The choice between self-respect and inevitable financial disaster is a choice between being a fiduciary responsible to your potential clients, paying or otherwise vs being held accountable to essentially arbitrary sales goals by a management totally unconnected to those people. That's why, in a nutshell, the corporatization of the mortgage industry through the vast capital raisable on the secondary markets was such a terrible, terrible idea to begin with.
Angelo Mozilla helped destroy a viable Mom & Pop business in every town in America just as Sam Walton has caused devastation to legions of local retailers. The mortgage business needs to be returned to what it was -- an essentially local enterprise. Moral hazard is vastly diminished when people know just who and where the entity is that lent them those hundreds of thousands of dollars.
With no secondary market in the mortgage business, there's no need to churn loan applications. If that means there's less capital available for Ninja loans and 10% down on a McMansion, if that means that a mortgage lender is going to have to go the extra mile to confirm ability to pay because they're directly responsible for the money they're lending -- so much the better for everybody.
Bob
From Los Lunas, NM, 03/08/2009
Countrywide was purchased by B of A in part, due to it's 'wonderful and profitable' loan servicing business. In reality, it was another profit center with very real accuracy and ethics issues. Payments were accepted and debited from homeowner's bank accounts, but not posted to mortgage accounts and homeowners reported in arrears to credit bureaus in many instances. Flood and homeowners policies in place were ignored and expensive 'alternative' policies were forced on homeowners who had no recourse but to pay for the forced insurance while they fought the adminstrative nightmare of getting CW to correct the accounts. It's no wonder B of A is in trouble. The servicing arm of CW was not a well oiled machine even though it was touted as such. I know people who fought these very battles, and have read several stories of folks across the country who have actually taken CW to court for wrongful foreclosures due to their servicing errors.
Ethics problems exist from top to bottom from what many of us can see. Not just in the marketing and writing of loans.
01/27/2009
(Note: Not my real name to protect my identity.) Despite the fact that by purchasing this book it meant I'd essentially be buying from "the devil", I admit to being curious and wanting to know what if anything "the devil" had to say. I hate that by purchasing the book I've lined Adam's pocket with even more cash, but I really truly was curious. In less than a month I will be kicked out of my home. I tried desperately to save it. Tried through many phone calls to people at Countrywide (who the mortgage was through) to find a reasonable solution and they were rude, lacked compassion, didn't even seem like people. I tried getting help from the various groups who are designed to help, but I didn't qualify. Part of why I am losing my home goes beyond the actual loan or the state of the economy. I was trying to leave a marriage that was abusive. The man I was married to threatened to kill me. For a period of time I wasn't even living in the home and this man briefly lived there not paying the mortgage let alone any bills. Eventually I moved back in due to my restraining order against him but still unaware of the situation due to all bills being forwarded to his new P.O. Box. I also happened to be serviing my country in a federal program in which I earned a paltry stipend and was contracted to complete my service and was legally not allowed to take on another job. I also was suffering PTSD, for awhile had no health insurance, and still afraid for my life. I tried to hold on, didn't want to lose my pets which really was and still is all I have. I felt like jumping off a bridge if I ended up losing my house and therefore my pets. Aside from the foreclosure process (not to my mention not having ANY luck finding ANY decent job despite having the qualifications and degree), I also suffered other crises such as a furnace blowing out, soaring energy costs and a greedy energy company turning my heat off. Despite qualifying for energy assistance, there was zero money left because my governor cut funding for social services. I could go on and on about the many things that have happened. My now new significant other is trying to help me out and trying to buy a different house (it was too complicated for him to buy THIS house. He tried that approach), it's ironically him waiting and waiting and waiting to hear back about his bid on a shortsale for another home that someone ELSE is apparently losing. And I don't know who their bank is, only that we must wait for them to say yay or nay. And if we don't hear something soon, we are homeless. And we tried to go the renting route as we thought that was our only option, but landlords refuse to rent to us unless we lie and pretend I don't exist (due to my bad credit, etc.) and we also can't possibly get rid of the pets. But if this short sale doesn't go through, although he qualifies for a fixed rate loan (thankfully), we're still homeless and back to square one because it takes so long to close on another house. Where will our pets go? Us? The stuff? We don't have the option to stay with family or friends. I already mentioned the deal with landlords as we already looked into that option. We have three pets, so even a pet friendly hotel isn't an option. I just pray to God that this other house works out so I don't have to freeze to death under a bridge. Ironically while reading the first chapter of this book I noticed that Adam mentions Wachovia and they were one of the many who participated in the same BS lending practices. I think back to when my (abusive) ex-husband and I were so eager about buying the house. We were a bit clueless about it all, so naturally we asked his mom to look over the paperwork and advise us on whether or not it made sense. My former mother-in-law was some sort of big wig for Wachovia. She told us (several years back) that it was a great idea and thought we should go for it. Yes, despite it being a high interest ARM. So while someone on the outside could point their finger at my ex and I and say it was all our fault for being stupid and taking out such a junk mortgage, it's not like we didn't seek the advise of a financial adviser. His MOTHER at that. In retrospect I wonder if my former mother-in-law truly was that corrupt to point us off the inevitable cliff or if in fact she really did believe the advise she gave us at the time. I tend to think the former rather than the latter because when in a moment of desperation my parents and I tried to approach her about her abusive alcoholic son (me ex) and wondering if perhaps she could manage to loan my ex and I $500 to cover a fraction of one month's mortgage payment, she declined, saying she was "broke" despite her big wig job and living in a brand new McMansion. So, I have to believe she is heartless and lacks a conscience. I have to say I feel the same way about those who have ever worked for Countrywide. Again, it's not like I'm trying to say as a consumer I played zero part in my fate, but I also highly resent anyone reading about the foreclosures who dares accuse someone like me of being stupid, greedy, or deserving. I also think it's terrible that all of our tax dollars apparently are ONLY bailing out the banks. It's a shame those tax dollars aren't at the very least being used to help out PEOPLE. I have yet to hear one story of the bailout bill helping anyone such as myself stay in their home. I thought that was the point of that bill.
From Calabasas, CA, 01/17/2009
I used to work with Mr. Michaelson and I just finished reading his book. It really provides little insight into the foreclosure crisis, no surprise given that Mr. Michaelson was so low on the totem pole and therefore nowhere near the real decision makers. He was an SVP. Anyone who knows anything about banking will know that Banks have highly inflated titles. Above him would have been another SVP, an EVP, an MD (Managing Director), an SMD and an EMD. And that is before the Bank hierarchy reports into the Countrywide Home Loans organization. The list of his accomplishments that he provides HIGHLY exaggerated. My recollection is that he was unable to get anything done at all and was very good at taking credit for other people's work. He duped Bank management for a year before they finally let him go during the 2006 "house-cleaning", which for the sake of accuracy was about a year before the crisis started. Now, apparently he duped Penguin Books into believing his story. Don't waste your hard earned money on this book. Shame on Penguin for publishing this garbage without doing even minimal fact checking.
From Chicago, IL, 01/09/2009
I enjoyed the interview with Mr. Mickaelson. I have to take issue with his assersion that the founder of Countywide was primarily concerned with home ownership for every American. I suspect he was telling his employees to generate as many fees as possible with these subprime mortgages and to sell,sell,sell. Not all companies are greedy as he seems to believe. Countrywide aboviously was a greedy and self surving institution, otherwise the hope for home ownership would not have been lost for millions of people.
From Las Vegas, NV, 01/08/2009
Mr. Michaelson's insights were very interesting. I like his emphasis on personal responsibilty for avoiding personal and corporate financial crises. Thanks to Kai for asking the hard questions we all want to ask!
From Gilroy, CA, 01/07/2009
Michaelson's "We didn't know the gun was loaded" schtick is disingenuous and infuriating.
As VP of marketing, he probably had some role in approving these mortgage "products" that anyone with any kind of financial background knew would blow up on lots of unsuspecting people as soon as the next downturn arrived - and downturns generally arrive at least once a decade.
I hope there are energetic prosecutors out there who find opportunity and cause to put Michaelson in prison for 5 or 6 years for his role in the meltdown. If they did, he would be out about the equivalent period of income that evaporated from my bank account because of the actions of him and his ilk.
From CO, 01/07/2009
Regarding your interview and I found one of Michaelson's comments very interesting:
"Wait a minute. I was in the room and I'm telling you, we were not out to hurt people. Everyone truly believed in the mission of home ownership as a good thing for America."
Everyone thought that Jim Jones was a good guy right up until the end as well...
From huntington beach, CA, 01/07/2009
I can understand how somebody in their marketing department could have the belief he has. However, a year before Countrywide went under, I met a countrywide employee who worked in the bond department. I was talking to him about the real estate bubble and how prices would come down eventually. He warned me that there was going to be a huge financial crisis. He said that it was going to take out some of the largest financial companies in the US. At the time I didn't know what to make of his comments. It obvious to me that people knew what was really going on with these toxic bonds. If low level employees knew of the coming problems, then management must have known since they were directing the activity. Seems like regulators should have known.
From Bradford, NH, 01/07/2009
I am rarely moved to comment on stories but I was so pleased listening to this story and Kai's refusal to let this guy off the hook. Before the interview even started I was sickened that he was trying to make more money off of this scam by writing about it. But when he tried to weasel out of responsibility with the assertion that it is a "populist view" that people think mortgagees were tricked into these products for 1/2 million dollar homes. Us populists don't really relate to mortgages that size.
As a salesperson myself I find it odious that he could have totally lost track of morality. I face choices everyday yet am able to make deals where my clients and I both feel like winners.... and keep my business viable.
From Menlo Park, CA, 01/07/2009
Kia, usually, i'm bored with your lackluster questioning of the "person". In this case, kudos. (Viva the downcycle.) BTW, did anyone realize that this is the guy responsible for 90+% of all spam and internet advertising for last 10 years? Think about it.
From Minneapolis, MN, 01/07/2009
Kai, Simply a terrific interview with Adam Michaelson today. You were direct and did not let him off the hook in anyway. Too bad that more media folks don't conduct themselves the same way. You made me laugh while making dinner listening to you tell him he couldn't end the interview by answering you with even more questions. In a very respectful way you made his egocentric view of the world come through loud and clear. Excellent job!!!!! Too bad George W. didn't ever come on the show......
From Ventura, CA, 01/07/2009
I have to say, the Pollyannaish spin Mr. Michaelson attempts to put on Countrywide's--and his own--role in the sub-prime mortgage meltdown is one of the creepiest, most disturbing things I've heard in a while. At some point he and his peers could not have failed to realize that easy loans to too many unqualified buyers were helping to fuel unsustainable speculation in housing. Itâ??s not ALL the lendersâ?? fault, but he should at least have the decency to admit his role in the fiasco. And his assertion that critics are now vilifying â??every loan thatâ??s ever been createdâ?? is the classic straw-man debating technique used by dishonest people who canâ??t defend their position on its merits. Iâ??ve not heard anyone say all of the loans were bad---the BAD ones were bad. And there were enough of them, and they were bad enough, to bring the whole house of cards down, and our economy with it. Countrywide played a significant part in that.
From Alameda, CA, 01/06/2009
Kai,
I strong disagree with Terry Grier that the role of "objectivity" requires one to be silent. I appreciate you not rolling over and being silent to Mr. Michaelson's assertions. You posed ethical choices that contrasted the effects of home loans Countrywide offered with other financial decisions. If Countrywide had continually done this Mr. Mozilo would still be in business with a sterling reputation, and thousands of his employees would still have jobs doing what they love.
A fair amount of my time as a REALTOR is consumed these days with pro bono analysis for people referred to me who are in financial distress, most often due to teaser loans. To be fair, not all of these are Countrywide loans, but I have seen enough to know the pattern. I'm not an attorney, so the best I can do is run the math for a set of decision trees that often reveals they never should have been given such a large loan, regardless of current conditions.
My previous business experience demonstrated to me that a company's executive and sales compensation models nearly always determines the outcome. The business practices of Countrywide, and many other lenders, did not reward loan brokers for being a fiduciary for buyers. Countrywide brokers were rewarded with higher commissions for steering buyers to high interest rate products. The type of volume required by management goals could only be met with reduced documentation and minimal underwriting oversight. Brokers were not penalized for writing loans for buyers with specious income and no documentation. "Can they fog a mirror?," became an open joke. Kickbacks were offered to real estate agents to increase volume. Independent loan brokers, often with minimal experience, were enlisted and incentivized to increase volume. Countrywide management was rewarded with bonuses and stock options for increased loan volume, loan profits and market share. With such practices the result was predestined, only the timing of the debacle was uncertain.
I am certain that the people at Countrywide truly believed in the benefits of home ownership. I share this belief. But as a REALTOR I accept a commitment to be a fiduciary to my buyers and sellers, not my investors and shareholders, which in my case is me.
Yes, I am a salesperson. But I have had to give buyers the tough news that I would not write an offer on a home they loved, but could not realistically afford. I made nothing as there was no sale. In most such situations I earned the trust of my client and they went on to make a future purchase. Their trust has reward me with referrals. Regardless of the commissions, I earned the ability to look myself in the mirror, something one cannot buy at any price.
Perhaps another book would be a good counterpoint to Mr. Michaelson's. I suggest "Chain of Blame" by Paul Muolo which details the real estate meltdown with forensic precision. Mr. Muolo portrays a likeable Mr. Mozilo from their first meeting a quarter century ago, until the publication after the collapse of Countrywide.
From NC, 01/06/2009
It is really interesting twist to the mentality of the masses. As a first-generation immigrant I've always admired the Americans for high level of optimism. For the last 3 decades or so the economic indicators have been expected to be positive and improving bottomlines for all. In a growth-oriented society it is obvious that risk-taking capacity is stretched unintentionally. Now when we post-mortem as to why we're in the mess it is absolutely wrong to villify any corporation, government or people unable to pay mortgage. There is no conspiracy theory other than our own psyche.
The very basis of capitalism encourages to take debt to consume and invest such that future earnings will crate ability to repay debt while enjoying high level of lifestyle. It is absurd to blame corporations that somehow tempted 'innocents' with easy loans without verifying income stability. Providing loans to subprime clientele has been a business model for many lenders including Countrywide because Fed was supporting the lending through Fennie and Freddie. And as lenders saw money to be made in servicing loans, consumers eyed The American Dream of owning home at 30+ year low mortgage rates. Nobody has anything other than optimism that things can never go wrong.
If someone must be blamed it should be on the Fed economists and regulatory agencies that allowed and fueled growth with flawed risk models. As soon as Fed Reserve alarmed that the mortgages are being underwritten with high risk than insured capital the business should have been stopped. We just stretched the definition of equal housing opportunity to bit far.
So if anyone needs to be blamed for flawed, dangerous product including cigarette and ARM loan, it should be government agencies. Their role should be to make citizens aware of the consequences and let them pick regardless. Because after all we need to regain and retain our optimism. Let's move from the greed lane to sanity, and from constant growth to stability.
From huntington beach, CA, 01/06/2009
Kai, I don't know you and am not a broadcaster but have been following the sub-prime collapse in all its causes and results. THANK you for having the guts to hang in there with Michaelson and his book and knowing exactly what questions to ask. He raved about Mozillo's and their good intentions to get folks (who could not afford) into homes. When I bought my condo 15 yrs. ago, the lender asked for every kind of financial record and assurance that I could pay. Several months ago another Countrywide interviewee who kept his identity hidden stated that Countrywide management practically stood over employees with a whip to get them to bat out loans (with close to no questions asked) to aggrandize the company.
From Austin, TX, 01/06/2009
This story was one of the most insightful stories I have heard in a while on this program. Kai, accepts the populous label and by his quick retort about the credit card companies and fast food, allows his opinion to surface, which is that he finds this man and countywide guilty. Kai lost his sense of objectivity.
From Fairfax, VA, 01/06/2009
According to Adam Michaelson, Countrywide was on a mission to make housing available to more people. Based on the types of mortgages that Countrywide offered during the bubble, I take it that due diligence was a foreign concept, especially since Countrywide was able to pass most of the the trash to Fannie and Freddie. From the tone of the interview, it is obvious that Michaelson feels he bears no responsibility for his participation in the inflation of the mortgage-credit bubble. If Michaelson's book, "The Foreclosure of America," has the same tone that Michselson took in the interview, I predict that it will soon take its place on the Loser Shelf next to such turkeys as David Lereah's "Why the Real Estate Boom Will Not Bust," and James K. Glassman's "Dow 36,000."
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