What does the future hold for Countrywide Credit Industries, the largest independent mortgage banking company?
For one thing, no slowdown on the part of its leaders. At 59, chief executive officer Angelo Mozilo is nearing retirement age. But when asked recently if he had any thoughts about retirement, Mr. Mozilo gave an uncharacteristically terse answer: "No."
That's not hard to believe, given the example set by his partner. chairman David Loeb, 74, who is showing the energy and drive of executives half his age. He continues to work out of his homes in Sparks, Nev., New York, and Miami Beach, frequently rising at dawn to monitor global markets and set hedging strategies.
Mr. Mozilo has, however, designated his successor: Stanford Kurland, the company's president.
"Stan is second in command behind me," Mr. Mozilo said in an interview last month. "You never know what the future is going to bring, but assuming a normal progression of events, Stan would be my successor."
The softspoken Mr. Kurland, 45, is a different breed of executive from his outspoken boss. He joined Countrywide in 1979 from accounting firm Grant Thornton LLP.
In that respect, he has more in common with Mr. Mozilo's biggest competitor, Mark Oman, chief executive officer of Norwest Mortgage, another former accountant, than Mr. Mozilo, a tough kid from the Bronx who broke into mortgage banking as a messenger boy at age 14.
Countrywide was Mr. Kurland's client at Grant Thornton. He recalls being impressed that the company "tried to strike a balance between what was required in terms of financial acumen-understanding interest rate risk-and the need for marketing skills. They developed a better balance."
While his style and pedigree may be different from Mr. Mozilo's, Mr. Kurland is highly regarded, and the investment community sounds confident that whenever Mr. Mozilo does step down, the company will be left in capable hands.
"It isn't a one-person organization," said Gary Gordon, an analyst at PaineWebber Inc. "I follow some companies where I'd worry about it. Countrywide isn't one of them."
There is apparently no sellout on the horizon for Countrywide either. In an earlier interview this summer, Mr. Mozilo made it clear that he is loath for Countrywide to go the way of so many other independent mortgage companies who were swallowed up by banks.
"We were never groomed for sale," he said. "Our goal is to be around 100 years from now."
Over the summer, Calabasas, Calif.-based Countrywide drafted a 10-year plan. Some of the company's long-term objectives include:
Bundling. Mr. Mozilo and Mr. Kurland want to create a one-stop shop for all the various services a borrower has to buy during the origination process: title insurance, appraisal, escrow, credit reports, processing, and closing.
Today a borrower might have to deal with as many as eight different entities before the loan is closed, Mr. Mozilo said. "It should be one seamless process, with all services in one location from one source."
That will simplify pricing for the consumer, Mr. Kurland adds. "It will be easier to say, 'this is the interest rate on your mortgage, and all your costs and services is x dollars."
Countrywide has a small title-services unit that has operations in just a handful states. Mr. Mozilo intends for it to eventually operate in ever major state.
International expansion. Eleven European countries are scheduled to join the European Monetary Union next year, creating an economy larger than that of the United States, with a single currency. U.S.-style mortgage bankers will be able to thrive in such an environment, Mr. Kurland believes.
The European mortgage market now, he said, resembles the U.S. market in the 1960s and 1970s-"less efficient and highly fragmented." Getting a mortgage takes a lot longer, and the terms are much less favorable to the borrower.
Europe has nothing like Fannie Mae and Freddie Mac, but Mr. Kurland contends that quasi-governmental guarantors are not necessary to bring liquidity; private-label securitization will do the job.
Originating mortgages in Europe will give Countrywide another means of adding to its mammoth $195 billion servicing portfolio, he added.
Retail. Like many mortgage bankers, Countrywide wants to aggressively expand on the Internet. But it's just as focused on growing its network of bricks-and-mortar retail branches-a key ingredient of its past success.
One of Countrywide's innovations was to decentralize underwriting and processing, locating those functions in the retail branches. That allowed borrowers to get decisions faster, and saved the cost of having to send the loans to a faraway processing center.
"Local presence will still be an advantage," Mr. Kurland said. For example, the primary marketing role of Countrywide's local branches is to get business in the purchase market-a business that is still largely influenced by local realty agents, who "respond well to having a local presence," Mr. Kurland said.
Even Countrywide's telemarketers ultimately distribute the loans they make to the retail branches for local processing, closing, and signing on the dotted line. "Being local makes it more consumer-friendly than having to ship paper back and forth," Mr. Kurland said.
Another advantage of having a large retail network with processing handled in each branch is that it gives Countrywide more flexibility in hiring. "It's easier to expand the work force in 400 different locations than in a few centralized locations," Mr. Kurland said.
The company is opening a branch every week, and Mr. Mozilo expects to continue that rate of growth over the next decade. Countrywide hopes to double its originations market share to 10 to 12% in the next 10 years.
Economies of scale. The common belief among mortgage bankers is that scale helps drive down the cost of servicing, and with its $195 billion portfolio, Countrywide enjoys more scale than anyone else except Norwest. Mr. Mozilo plans to keep feeding the machine.
"In two years, we'll be close to $300 billion," he said. In the next 10 years, "we feel we can do $500 billion."
Branding. Countrywide wants its name to be synonymous with "mortgage" in consumers' minds the way Coke is with cola or Xerox with photocopiers. As mortgages become more and more of a generic product, "brand building becomes incredibly significant," Mr. Kurland said.
Despite the increased use of the Internet to access financial services, Mr. Kurland said, there will always be "high-touch individuals who want to be walked through the process." Because of this, "We see a need to be perceived as trusted."
Purchase market. Countrywide has certainly benefited from this year's refinancing boom, but its retail branches have a clear mandate to build purchase business.
"To be a long-term player, you must have a significant share of the purchase market," said Mr. Kurland.
This emphasis on growing purchase business makes sense because it is much less cyclical than refinance business, analysts said. Even when interest rates rise, "People don't stop moving or having children," said Mark Constant, an analyst at Merrill Lynch & Co. "People still buy houses."
"The only thing that's cyclical is the refi segment of the business," said Mr. Kurland. "The purchase market is somewhat seasonal, but there's not been any change in activity throughout 90% of the markets I've seen."
Stable earnings growth. The purchase focus is one of several ways Countrywide tries to keep its earnings growth stable in an industry that historically has been susceptible to booms and busts.
Another strategy is its famous "macro hedge": maintaining both a massive servicing portfolio and a large origination business. When rates fall and servicing runs off, Countrywide can replenish its portfolio because production volume is strong.
Countrywide was also one of the first mortgage bankers to hedge its servicing with derivative instruments designed to rise in value when interest rates fall. It started doing this in the early 1990s, several years before accounting rules made it essential in the industry.
In that area, "I believe we were pioneers," said Mr. Loeb, the technical genius who cofounded Countrywide with Mr. Mozilo in 1968.
Mr. Loeb has been working from home since 1975. He oversees a crew of 15 quants and traders in Calabasas who analyze Countrywide's servicing and pipeline hedges.
Each of Mr. Loeb's three home offices has an identical terminal, "so I don't feel disoriented," he said.
In the company's latest quarter, which ended in August (its fiscal year begins in March), Countrywide earned $95.1 million, 27% more than a year earlier. Analysts were impressed, and were particularly pleased that the company appeared to be writing down the value of its servicing conservatively.
"They're clearly building a cushion for future prepayments," said Gary Gordon, analyst at PaineWebber. "They could have easily reported another 10 cents, maybe 15 cents" in earnings per share.
Mr. Loeb would not say whether or not Countrywide was intentionally writing down its servicing asset faster than necessary, but said generally "if you can squirrel away some cushion by overamortization, it's a wise thing to do.
"But you have to be careful," he added. "If you're doing it to the point where you're juggling earnings around, it's frowned upon" by regulators.
Tapping underserved markets. Part of the retail expansion plan is to continue opening branches in low-income and minority neighborhoods in the inner cities and suburbs.
Countrywide has been an industry leader in lending to these underserved markets. Even though it is not regulated under the Community Reinvestment Act, its has a better fair-lending record than many banks that are. In fact, Mr. Mozilo and his fair-lending lieutenant, Steve Boland, regularly attend CRA conferences.
"Hats off to Countrywide," said Matthew Lee, executive director of Inner City Press/Community on the Move, an activist group that has been critical of most lenders. "They're not subject to CRA and they have still invested the time to penetrate these markets. In that sense they're a leader among nonbank mortgage companies."
Most recently, Countrywide helped the Department of Housing and Urban Development finance more than 100 houses on a Sioux Indian reservation in South Dakota.
Mr. Mozilo has said he views lending to minority, immigrant, and low- income homebuyers as smart business, not a regulatory chore or a handout. Indeed, studies show minorities and immigrants are an increasingly important force in the housing market.
But he also has a sense of mission. "We have a responsibility to serve communities in their totality, not to pick and choose," Mr. Mozilo said.