| In Search of a Subprime Villain
Mozilo is further amassing extra-credit points by announcing the easing of loan terms on more than 81,000 homeowners facing foreclosure and partial debt forgiveness in an additional 8,000 cases. If that doesn't immunize him, he's willing to play dumb—or to proclaim martyrdom. It's clear now that Countrywide's easy underwriting culture invited nothing short of business suicide: an astonishing 7.2% of its mortgages are delinquent, while foreclosures more than doubled in a year. Cut off from the credit market and paying unsustainably high rates to attract depositor cash, Countrywide started the year on bankruptcy's doorstep. With his company's stock in free fall, Mozilo had to agree to what traders derisively call a "takeunder"—as opposed to a premium-sweetened takeover. All of which will conveniently allow Mozilo to profess: Hey pal, pity me.
Increasing financial literacy
Vast numbers of us go to college and own homes and cars. Our kids tote the latest cellphones, and our living room television sets have been replaced by lavish home entertainment centers. But we don't know how to budget for our households or how to balance our checkbooks. Homeowners who misunderstood or ignored the inherent risks of adjustable-rate mortgages are losing houses to foreclosure in record numbers. (In California, 31,676 households foreclosed in the last quarter of 2007, more than twice as many as the previous record in 1996.) Shoppers who ignored the fine print on credit card agreements helped push consumer bankruptcies up 40%, to 801,840, in 2007. The average college student graduates with $2,200 in credit card debt and is more likely to drop out of school because of financial hardship than because of academic failure.
A lender's recipe for downfall
The home loan program was dubbed South Street.
It turned the idea of credit risk on its head. Consumers just exiting bankruptcy could get a mortgage with few questions. They could have some of the lowest possible credit scores. And they didn't have to submit any pay stubs or tax returns.
Subprime mortgage lender Fieldstone Investment Corp. of Columbia created the loan program during the real-estate gold rush in 2004 as competitors flooded the market.
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