Countrywide dismisses subprime naysayers

By Jonathan Stempel - Analysis

NEW YORK (Reuters) - Countrywide Financial Corp. CFC.N Chief Executive Angelo Mozilo is expending considerable effort answering a simple question: As other mortgage lenders struggle, why shouldn't his?

Shares of the top U.S. mortgage lender have fallen by about one-fifth since setting a record on February 2, when speculation was rife about a possible link-up with Bank of America Corp. (BAC.N)

Specialists in riskier "subprime" loans such as New Century Financial Corp. NEWC.PK, Accredited Home Lenders Holding Co. LEND.O and Fremont General Corp. FMT.N have suffered far steeper drops.

Yet people who in January didn't know what a subprime loan was now talk as if mortgage Armageddon looms for the lenders that extend more than $2 trillion of loans annually.

"This is now becoming a liquidity crisis, an unnecessary one," Mozilo told CNBC television on Tuesday. "There's been a rush to judgment, an overreaction, a baby out with the bathwater. There's no question about it."

Countrywide did not make Mozilo available for an interview.

On Monday, the company cut 108 subprime jobs, and said that foreclosures rose to a five-year high and that subprime turmoil may hurt earnings. Borrowers are making payments late on 19 percent of subprime loans it services.

Subprime lenders are flailing from rising delinquencies and defaults after offering easy terms to borrowers on the financial edge, or pushing people with good credit to extend themselves too far. Greed supplanted good business sense.

BUTCHER'S SON

Mozilo is a Bronx, New York-raised butcher's son who entered financial services at age 14 as a messenger. He co-founded Countrywide in 1969.

Now a well-tanned 68, Mozilo says investors are tarring his Calabasas, California, company for others' poor judgment. Once the bad apples fall away, he says, things will look "great" for Countrywide, itself the fourth-largest subprime lender.

"I absolutely agree that if you look out 18, 24, 36 months, things look much brighter," said Christopher Bingaman, who helps invest $4 billion at Diamond Hill Capital Management Inc. in Columbus, Ohio. "(Lending) capacity is going away every day."

Bingaman recently owned Countrywide preferred stock but not common stock, saying he gets subprime exposure through Wells Fargo & Co. (WFC.N) and Washington Mutual Inc. WM.N.

Critics of Mozilo say he's overpaid. The Los Angeles Times estimated his 2005 compensation at $160 million, and said if he left the company he would walk away with another $246.8 million.

Last week, defending $140 million of stock sales over 14 months, Mozilo told The Wall Street Journal he was "running out of time" and needed "balance" in his life.