Secrets of a Countrywide Insider

Insider- Author Willie Pena

For nearly four years Willie Pena worked as a home loan consultant for Countrywide Home Loans in Seattle, Washington from late 2003 until mid-2007 where he sold loans to home buyers in the harrowing days of the real estate boom. Like many consultants Countrywide hired, Pena had no experience in the field until being hired by the now defunct lender, which takes more blame for the nations economic mess than perhaps any other single entity. He now reveals insider secrets, making his home in Burbank, California.

As a Countrywide loan officer, I had the power to influence my customers into applying for whichever loan product I chose. Guess which ones I chose most times? If you guessed the higher rate or riskier ones you would be correct.

This was not done to intentionally hurt my customers. It was simply because the company encouraged this by paying higher commissions on them. Although mortgage brokers are criticized for making money through a Yield Spread Premium received for selling a higher rate, loan officers at banks do the very same thing. The difference is that bankers keep this a secret, while mortgage brokers have to tell customers. I used this to gain several thousands of dollars in extra commissions, and was lauded for my profitability.

Protesters at a Boston Branch of Countrywide Home Loans

The fallout from the mortgage debacle plays out as regulators scratch their heads, and try to figure out exactly whose head to plant firmly on a pike. Banks, aided by major media outlets and Congressional shills, have conveniently placed the blame on mortgage brokers— and the public has bought it. It’s understandable because it’s not really possible to scold a Collateralized Debt Obligation (CDO) traded on Wall Street, blamed for much of the financial crisis.

In reality, the culture at the mortgage banks – especially Countrywide – encouraged extreme risk taking, which led to its demise. Mortgage brokers sold the exact same products as the in-house loan officers did. As a former top-producing Countrywide loan officer, I earned the Countrywide elite Circle of Excellence Award in 2005, and I can attest that Countrywide and the housing market were not brought down by brokers, but by a mortgage lending philosophy that rewarded profit over prudence.

Apart from selling a higher rate, there were also products such as the Pay Option ARM (Adjustable Rate Mortage) and the Home Equity Line of Credit (HELOC) that were pushed due to their greater profit margins and higher commissions.

The Pay Option ARM is a complex loan where the borrower can pay less than the interest due each month, which results in the principal balance growing exponentially. It works great if housing prices keep climbing or the intention is to flip a property quickly.

In a housing downturn, this product is a disaster. Negative equity can ensue, and at a certain amount the payment suddenly skyrockets. Combine depreciating home values with ballooning debt payments and you have a surefire recipe for defaults. At a private meeting with a Countrywide Division Manager, I was told I was expected to have about 30% of my production to be comprised of these Pay Option ARM loans.

Gaming the System

I never witnessed an incidence of actual blatant fraud at Countrywide, not even one time. However, the best-paid originators in my company tended to be the ones who knew how to “massage” the loans to somehow get them approved. I estimate that if I had simply passed all my loans straight to the underwriter at the moment of application, that I would have funded only 10 to 25% of my loans.

Countrywide encouraged getting creative, and provided tools for us to get loans into a state saleable to the secondary market. Loans that didn’t fit guidelines could be sent to the Structured Loan Desk. This department granted exceptions to guideline violations such as low credit scores, borrower collections and bankruptcies, lack of down payment and other things, which would kill loans at any other company.

HELOCs allow you to use your home’s value as a credit card, and I pushed them to make more money. These loans had an interest rate, which varied monthly, potentially reaching as high as 18%. This became troublesome during the market crash as interest rates moved higher, putting strain on the wallets of an already battered population. Neither I nor my customers expected the Prime Rate to jump from 4 to 8.25% from 2003 to 2006. The jump contributed to defaults and foreclosures because customers could not afford the higher payments.

The focus on maximizing profit, regardless of the long term risks, extended all the way to the Countrywide executive level. Despite the massive fallout and widespread financial disaster, those seeking to amass a huge personal fortune would be hard-pressed to argue against their strategy.

NEXT: In part two of “Secrets of a Countrywide Insider” Willie Pena takes a look at his former boss Angelo Mozilo, the specially branded Countrywide Fast & Easy “Liar Loans” and the next round of fallout from the financial crisis in real estate coming to a home near you.