Angelo Mozilo: Deposit Builder

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In May of last year, Countrywide Home Loans ended 32 years of being labeled a “non-depository” when its parent, Country Credit Industries, purchased a small Federally-chartered bank in northern Virginia.

The institution, an under-capitalized unit called Treasury Bank, had less than $100 million in consumer deposits, and carried little renown either inside or outside the Capital Beltway.

But all that changed when publicly traded Countrywide, the nation’s fourth largest residential originator and servicer, took the reins. Why would Countrywide, based in Calabasas, CA, want to own a depository, especially a one-branch operation, that was on the wrong side of the regulatory tracks?

Well, for starters, it was dirt cheap, almost nothing, and by buying an ailing bank it was buying a bank charter, which among other things would let it take deposits over the Internet and then, eventually, through the 400-plus branches of Countrywide. A bank charter would also allow the mega lender to park some, or all, of its $6 billion in customer escrow funds at the institution, increasing its ability to leverage that money.

Yes, as most any mortgage banker can tell you, owning a depository, or at least being affiliated with one, is a key tool in surviving in the ultra-competitive world of residential finance. Traditionally, non-depository mortgage bankers borrow in one of two ways the money they lend to consumers: through warehouse lines of credit (made to them by banks or thrifts) or by selling commercial paper in the capital markets.

Non-depository mortgage bankers, though, are going the way of the dinosaur. A glance at the top 20 mortgage firms reveals just three lenders not affiliated with a depository: GMAC, Cendant, and Principal. By comparison, only seven years ago three of the top five lenders were owned by non-depositories: Countrywide, G.E. Capital Mortgage, and Prudential Home Mortgage.

The shifting landscape in mortgage finance was sparked not only by the commoditization of the mortgage instrument, but by accounting and regulatory changes that give banks and thrifts a greater ability to leverage their underlying capital. In other words, Countrywide saw the writing on the wall and decided the only way it could survive and thrive was to become affiliated with a bank — or sell out to one.

It’s no secret that Countrywide and its fiercely independent and (competitive) chairman Angelo Mozilo have, in the past, contemplated selling out to a mega bank. By now, if anything is clear, it’s that Countrywide intends to go it alone — and with a bank charter as a battering ram. Following are excerpts from interviews Mozilo held with U.S. Banker contributing editor Paul Muolo.

USB: You’ve had the bank now since late spring of 2001. What does your deposit base look like?
MOZILO: So far, we’ve moved almost $1 billion in deposit funds into the bank.

USB: You’ve said in the past that most of that money was escrow funds that Countrywide is holding for its mortgage customers. Is that still the case?
MOZILO: Yes. I’d say of the $1 billion, about $900 million is escrow money. The rest are consumer deposits. Some of that has come in through the Internet.

USB: Do you plan to shift all the escrow money into Treasury Bank?
MOZILO: It’s not something I’m in a position to talk about at this time. We have relationships with our banks to think about.

USB: You still have only the one Treasury Bank branch. When do you plan to open Countrywide branches?
MOZILO: That’s something we’re working on right now. We plan to open kiosks in certain existing Countrywide branches. We’ll have employees in those branches take deposits and sell mutual funds. It will be what we call a full-service branch.

USB: How many of your 400 branches do you think you’ll do this in? Will you use the Countrywide or Treasury Bank name?
MOZILO: Eventually, maybe 370 or so but we’re going to try this first in 50 to 60 branches — to see how it works. The first kiosk will be in our Woodland Hills office (in California). Construction is going on now and we think things will be up and running some time in January. The name on the mortgage branches is currently Countrywide Home Loans, but we’ll shorten that to just Countrywide.

USB: Do you plan to move slowly with this?
MOZILO: As you know, we don’t do anything slowly. I think we’ll have this in all the Countrywide branches that we think can support this effort within 24 months. In some cases we won’t have kiosks — we’ll have just ATMs.

USB: A few months back you talked about Countrywide buying a $1 billion California bank. Is that still in the works?
MOZILO: Talks are ongoing, but that’s also something I can’t discuss. I can tell you this — within three years we hope to have $20 billion in deposits.

USB: In the old days of mortgage banking, one advantage to being a non-depository was that you didn’t have as much regulation to deal with.
MOZILO: It’s just something that you have to live with. The last time I counted we had anywhere from nine to 12 regulators: I have HUD, FHA, VA, Moody’s, Fitch, S&P, the SEC, the NASD, Fannie and Freddie, and the Department of Corporations.

USB: You consider Moody’s, Fitch and S&P regulators?
MOZILO: I do. They rate us — they drive everything we do.

USB: In late 2000, you predicted that by 2005 there would be just five major lenders and servicers left in the U.S. Do you still stand by that prediction?
MOZILO: Yes. I don’t think anything has changed. This is a very capital intensive business. I think if you’re a big bank you have to be totally committed to this business or decide to get out.

USB: Where do you see Fannie Mae and Freddie Mac, in say, five years?
MOZILO: I really can’t say. I think the MPF (mortgage partnership finance program of the FHLB system) has taken away some business from them, but how much it has hurt, I don’t know. Probably not much. Potentially, it’s competition for them.

USB: As an industry leader, how do you view the events of Sept. 11 and what effect will it have on the residential mortgage market?
MOZILO: It’s a very fluid situation. Hopefully, the worst of what will happen is over. But I think the attacks make each and every one of us reflect on our lives and what’s really important to us. When this horror happened, I went to Los Angeles and hugged my grand kids for two days. I think this is causing Americans to reassess their lives — to think about what’s really important, what really matters. I think when we do this evaluation, we as a people will realize that all this striving we’ve been doing for bigger houses, and bigger cars isn’t really so important anymore.

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