As all sides start piling on the beleaguered mortgage not-so-giant-anymore, I've received a letter that Democratic New York Senator Charles Schumer wrote Countrywide Chairman and CEO Angelo Mozilo after the two met in September. Senator Schumer wants answers, including documentation to back up what he claims Mozilo told him about how Countrywide does business, in their meeting.
Schumer also wants structural changes for Countrywide. For example, he writes, "I believe that the practice of paying mortgage brokers higher premiums for higher cost mortgage products, commonly known as yield spread premium compensation, is inappropriate." The "yield spread premium compensation" is another way of saying "commission." I'm told that when an independent mortgage broker sells a loan, he or she has to disclose that commission.
But if you work for the lender, in other words, if you work for Countrywide, you don't have to say how much you're getting paid to push a particular product. It appears Senator Schumer wants to know just how much Countrywide brokers were getting paid, and if they got paid more for selling more profitable, but riskier, loans.
Sen. Schumer then asks Mozilo ten questions. Here they are (the last two appear to be based on actual comments the CEO made to the Senator):
1) What percentage of Countrywide's subprime mortgages came from independent mortgage brokers?
2) Does Countrywide pay independent mortgage brokers more for loans with prepayment penalties? Did it ever do so?
3) How many buybacks did Countrywide do in 2006? What was the value?
4) What percentage of Countrywide's subprime mortgages were refinancings vs. purchases in each year from 2000-06? Please include data from your retail branches as well as your independent mortgage brokers.
5) How much business in piggyback loans did Countrywide do in 2006?
6) "Inside the Countrywide Lending Spree," by Gretchen Morgenson, that appeared in the New York Times on August 26th, stated that a C-minus rated borrower with a 500 credit score could get a $500,000 mortgage from Countrywide. Does Countrywide provide, or has Countrywide ever provided, mortgages on terms similar to this report?
7) The same article stated that Countrywide would lend to borrowers who had been 90 days late on a current mortgage twice in the past 12 months. Does Countrywide lend, or has it ever lent, to such borrowers?
8) That same article also stated that Countrywide had profit margins as high as 15% on some subprime products. Does this article accurately report Countrywide margins for any existing or past products?
9) Please provide the documentation you discussed to support your claim that Countrywide makes the same amount of money on FHA loans as on other types of loans.
10) Please provide the documentation you discussed to support your claim that Countrywide had received accounting advice for not giving independent mortgage brokers 1099 forms.
We asked Countrywide if it had responded. We haven't heard back. As for that last note about 1099 forms, I'm told it is very unusual for a company of this size not to send out tax forms to independent brokers who sell its loans. I was shown an email from Countrywide telling one such broker "Unfortunately, we don't issue 1099s. Sorry."