Mozilo said he's mostly concerned for first-time homebuyers: "The only way that lower income and minorities can get into middle income is through buying a home," he said. "And there is a real rush to judgment in cutting off the programs that many of these people have historically used for many years to get into their first home."
He said that much of the problem is tied not to this group, but to investors and speculators who used more exotic mortgages to buy investment properties. "They are not new products or exotic products, but some of them have been sold to people they shouldn't have been sold to."
"Clearly an Overreaction"
Now, he explains, there are first-time home buyers who need to refinance because their interest rates are resetting to higher levels. "They can't get refinancing because the rules changed on them after the game started," he said. "This is clearly an overreaction."
Mozilo also said the fallout from subprime lending -- the business of making loans to people with poor or spotty credit histories -- will largely be shouldered by the "monoline" lenders such as New Century, Novastar, and Accredited Home Loans and less so at more diversified lenders.
"It’s a mistake to apply what's happening to them to the more diversified financial services companies like Countrywide, Wells Fargo and others," he told CNBC. In fact, "this will be great for Countrywide because at the end of the day, all of the irrational competitors will be gone."
But they haven't been able to entirely avoid subprime's reaches. On Monday, Countrywide, which is the nation's largest mortgage lender and fourth-largest subprime lender, said it eliminated 108 jobs in its wholesale lending unit's subprime division. The company said in an e-mail disclosing the cuts that they "align the company's workforce with the recent changes in the mortgage market."
In addition, the company said that foreclosures rose to a five-year high and turmoil in the subprime market may hurt near-term earnings.
It was not immediately clear how many workers are in the subprime division. Subprime loans represent less than a tenth of Countrywide's overall lending. The entire company employed
55,311 people at the end of February.