Two years ago the proud chairman and chief executive officer of Countrywide Credit Industries said his goal for the mortgage company he had built from scratch 30 years ago was "to be around 100 years from now."
But Angelo Mozilo has started talking like a man who is willing to sell.
In an interview last week Mr. Mozilo, 61, said that remaining independent was no longer a sacred corporate tenet, though he did not specifically say the company was on the block, and he would not talk about possible suitors or prices.
"I have to answer that question a little differently now," he said. "I am a big shareholder myself, aligned with the interests of shareholders, and I'm obliged to seek the greatest possible return for them."
Mr. Mozilo's shift follows decades of steady-handed guidance of Countrywide through economic cycles that destroyed many competitors. All the while, he has fiercely defended his intention to keep the company independent. "I have spent more time with the company, unfortunately, than with my family," Mr. Mozilo said in the recent interview. "I am emotionally attached to it, and feel strongly about everything that goes on here."
The possibility of a sale of the Calabasas, Calif.-based lender comes even as Mr. Mozilo has pledged to give shareholders a 20% return on equity annually, and to control 20% of the origination market by 2004. The company's ROE was 15.2% in 1999, and it claims 7% of the origination market.
Though Mr. Mozilo has already acted on several fronts to achieve that kind of ROE - by entering into international partnerships, and by starting to sell mutual funds, title insurance, home inspection, and home warrantees - analysts say a sale of the company could get him there faster.
Today, Countrywide employs 11,000 people and has about 550 branches. It is the top independent mortgage lender in the United States - none of the other independents came close to the more than $75 billion Countrywide underwrote in 1999. Even among the nation's largest banks, only Chase Manhattan Mortgage and Wells Fargo actually made more loans.
Countrywide also has the third-largest servicing portfolio in the country, with about 2.5 million mortgages worth $245 billion. As a matter of policy, Countrywide keeps the servicing rights on nearly every loan it originates or buys. It aggressively built up its servicing book just before the industry's 1994 down cycle, and that buildup enabled it to survive on servicing revenue for several years after originations dried up.
Analysts who follow the company attribute its success largely to Mr. Mozilo, whom they describe as a systematic and conservative businessman with a constant eye on cost control and customer satisfaction. Gary Gordon, an analyst at PaineWebber, credits the company with "wonderful discipline."
"They don't go for home runs, just nickels and dimes," he said. "They are careful about pricing and costs, and they stick to strategy."
If discipline and risk aversion have always defined Mr. Mozilo's management approach, the same has not applied to his interests outside the office. Before a debilitating accident, he used to regularly ride his bicycle from Los Angeles to Santa Barbara - about 20 or 30 miles of which you have to be on the Freeway, he said. He also tried helicopter skiing - an "extreme" sport in which one jumps out of a helicopter to ski down otherwise inaccessible slopes.
In 1992, at age 53, he took a bad spill from a helicopter jump, and, over two years, paralysis spread through his body. An operation in 1994 removed five vertebrae from Mr. Mozilo's neck, halting the paralysis.
He has tempered his ways since then. "I did things that in retrospect were silly," Mr. Mozilo said. "I did more than my physical talent would make me capable of doing, because I'm not the most graceful person in the world."
In the wake of the accident and the realization he was growing older, Mr. Mozilo designated chief operating officer Stanford Kurland as his successor. Yet Mr. Mozilo says he has no desire to retire. If he does sell Countrywide, the deal would "have to benefit the people who have contributed substantially to the success of the company," he said.
Even without the distraction of a possible deal, Mr. Mozilo's ambitions are making business as usual a challenge. He agrees it's going to be pretty tough to capture a 20% market share in originations, but says, "I think it's important that we set lofty goals for ourselves."
A 20% return on equity annually is possible, he says, if Countrywide can increase its capital in order to enlarge its servicing portfolio - something Mr. Mozilo said he is working on.
"That origination goal seems wild to me," said Mr. Gordon. Though the PaineWebber analyst has placed a "short-term buy" on the stock, he said he is skeptical about some of the products that Countrywide has begun offering to boost fee revenue, such as casualty insurance, mutual funds, and credit cards.
Mr. Gordon said Countrywide has been more successful selling home insurance and other services connected to its core mortgage business. When it comes to the ancillary products "it'll be a long time before they can produce anything like the revenues that come from [their] lending," he said.
Mike McMahon, an analyst at Sandler O'Neill, said he sees several ways that Mr. Mozilo could hit his performance goals - one of which would be selling the company to the right partner. Such a partner could be "a European bank with operations in the states, or a top domestic bank without mortgage operations, or one which hasn't been able to figure out mortgages," Mr. McMahon said.
In a report last month, Mr. McMahon compared Countrywide's return on equity with that of Wells Fargo Home Mortgage. He concluded that if Countrywide had the same capitalization advantage as Wells Fargo, Countrywide would generate a 32.5% ROE.
Capital has always been a problem for Countrywide, but acutely so in its early years before it went public. Mr. Mozilo and a partner, David Loeb, started out in 1969 with little more than a secretary. Soon they built Countrywide into an 85-person operation. Mr. Mozilo said their early success seemed to justify their decision to have the New York-chartered company underwrite mortgages in the booming real estate market of Southern California - an region that accounts for 20% of the nation's mortgage originations.
But in the early 1970s, with interest rates and rising and volume dropping, he and Mr. Loeb decided to lay off everybody and start over again - with just the two of them and a secretary again. Otherwise "we were barely going to be county wide, let alone a national lender," Mr. Mozilo said.
Since it did not have a commission-driven sales force to pay, Countrywide told real estate agents that it would not be beaten on price. In the three years that followed the restructuring, Mr. Mozilo spent evenings and weekends at kitchen tables throughout the San Fernando Valley, shepherding borrowers through the mortgage process. Simultaneously, he and Mr. Loeb built a branch system staffed by salaried employees who received yearend bonuses for good performance.
"I interviewed tens of thousands of borrowers in their homes," Mr. Mozilo said. "I processed them, I closed the loans, I drew the security instruments, I recorded them - whatever was necessary."
A cornerstone of Countrywide's strategy has been the so-called "macro hedge," in which the huge servicing business makes up for a drop in originations and vice versa.
Macro hedging isn't rocket science. It's based on two simple concepts, Mr. Mozilo said: "servicing performs well in a rising rate environment and originations perform well in a lowering rate environment."
By contrast, hedging on the micro side with derivatives requires the brainpower of a team of Countrywide quantitative analysts, several of whom literally are rocket scientists, having worked at the Jet Propulsion Lab in Pasadena.
Mr. Mozilo's cofounder, Mr. Loeb, used to oversee Countrywide's derivatives hedging. He retired in February at 76. Now Jeff Speakes, a former Claremont College professor, runs the hedging of the servicing portfolio, and Kevin Bartlett, a 15-year Countrywide veteran, is responsible for hedging of the company's pipeline of loans in progress.
Countrywide's disciplined approach to the mortgage business extends to its Internet strategy, where it has been willing to invest large sums regularly. "We never say no to spending money on technology," Mr. Mozilo said.
The company has about 600 people dedicated to technology, and its Web site originates the largest number of loans in the country - about $19 billion worth, or 25% of all the loans the firm originates. "It's easy for an old-economy company to get into the new economy," Mr. Mozilo said. "It's not easy for the new economy to build the infrastructure of the old." Earlier this year he predicted that none of the strictly online mortgage lenders would survive.
With its Internet operation and hundreds of branches nationwide, Countrywide is the leader among a new breed of bricks-and-clicks mortgage lenders, said Nick Karris, an analyst at Gomez Advisors of Lincoln, Mass.
Countrywide can take applications and pre-approve them online in more than 25 states, and its Web site keeps applicants and borrowers constantly informed of the status of their loans. Countrywide's biggest competitors - Wells, Chase and a few others - are just now preparing to offer the same services, Mr. Karris said.
"Yes, it's going to be a more competitive environment" when the big banks come online, Mr. Karris said. But he says Countrywide has the advantage of being first on the Web and of having local loan officers available on evenings and weekends, when banks generally aren't open, to capture the business started online.
Yet Countrywide has never closed a loan online, and says its branch offices are necessary supports for the Web channel. Mr. Mozilo said the Internet alone cannot suffice - that buying a house is a complicated process that requires hand-holding for the consumer and lots of documentation to satisfy the secondary market.
Nonetheless, applications that consumers fill out on the Web are easier to bring to completion in a branch, he said. Mr. Mozilo figures that a lot more business comes through the door at branches after people browse the Countrywide Web site, even if they don't feel comfortable applying online.
PaineWebber's Mr. Gordon has a more pessimistic take on what the Internet means to Countrywide. Regardless of its premier position online, Mr. Gordon says that in the long run the Web will "commoditize" mortgage loans enough to rob Countrywide of market share.
"It's the realtor that's going to benefit," Mr. Gordon said, adding that after finding the home they want, prospective buyers will sit in a realtor's office and shop for a loan using a portal. "Financial services are very price-sensitive," he said.
But Mr. McMahon of Sandler O'Neill said Countrywide should not be underestimated, even in a commoditized market. The company has always been able to keep costs down - its costs per loan are consistently less than 1% - and to provide distinctive products, including a 10-day guaranteed-close loan, Mr. McMahon said.
