Angelo Mozilo is shocked by the recent global market turmoil, which has had ripple effects in his industry.
"Nobody has ever seen a liquidity crisis like this," said Mr. Mozilo, the chief executive officer of Countrywide Home Loans, the largest independent mortgage company.
But Countrywide and the other big players in the market ultimately stand to benefit from the shakeout, which has battered subprime lenders and bruised the mortgage-backed-securities market, he said.
Already "we find ourselves getting substantial increases in applications," Mr. Mozilo told reporters at the Mortgage Bankers Association of America's annual convention here this week.
His company, which is based in Calabasas, Calif, has had record applications in all loan categories, he said.
Industry consolidation will "continue and accelerate because of what has happened in the last couple of weeks," Mr. Mozilo said.
"The marginal players who were hanging on to start with are going to be gone. Only the larger, well-capitalized players will survive."
Companies that made loans that cannot be sold to government-sponsored enterprises-including subprime, high-loan-to-value, and jumbo loans-were "seriously damaged in the last several weeks," Mr. Mozilo said.
The spread between interest rates on agency loans and jumbo loans is "going to be much wider than it has been in the last several years," Mr. Mozilo said. "The disparity between the rate of agency product and nonagency product is going to be substantial."
It appears that the liquidity crisis "is not going to be solved overnight," Mr. Mozilo said. "It's going to be a long time before we return to what we think is normal." Even then the landscape will be different than it was this year, he said.
The collapse of two large hedge funds-Long-Term Capital Management and Ellington Capital Management-led the funds to liquidate their mortgage- backed securities. "When buyer become sellers, that transforms the market place," Mr. Mozilo said.
In such an environment, he said, a price war is impossible. "You have to have adversaries, and there are no adversaries here," he said. In fact, he added, margins in home lending are likely to increase. The situation is "very positive for those who come out of the storm."
On another matter, Mr. Mozilo expressed his displeasure at Freddie Mac's recent attempts to broaden its charter to allow it to self-insure some loans. Though the initiative failed, Mr. Mozilo said it was another sign that leads him to ask where the GSEs are going.
He said mortgage bankers should "fight hard for the maintenance and the perpetuity of the GSEs in their core business," providing liquidity in the secondary market.
He said he is unnerved by what he sees as attempts by the GSEs to delve into the customer base and ancillary businesses of mortgage bankers. "Its a frightening concept."