Read Online The Greatest Trade Ever by Gregory Zuckerman - Free Book Online

loans had limited documentation, up from 27 percent. A full 12 percent of mortgages had no down payments
and
limited documentation, up from 1 percent in 2001.
    For those already in homes, lenders urged them to borrow against their equity, as if their homes were automated-teller machines. Citigroup told its customers to “live richly,” arguing that a home could be “the ticket” to whatever “your heart desires.”
    “Calling it a ‘second mortgage,’ that’s like hocking your house,” said Pei-Yuan Chia, a former vice chairman at Citicorp who oversaw the bank’s consumer business in the 1980s and 1990s. “But call it ‘equity access,’ and it sounds more innocent.” 4
    As lenders began exhausting the pool of blue-chip borrowers, they courted those with more scuffed credit. Ameriquest, which focused on loans to subprime borrowers, ran a suggestive ad in the 2004 Super Bowl showing a woman on a man’s lap after an airplane hit sudden turbulence, saying “Don’t Judge Too Quickly … We Won’t.”
    Head-turning growth at Ameriquest, New Century Financial, and other firms focused on these subprime borrowers put pressure on traditional lenders to offer more flexible products of their own. CountrywideFinancial Corp.’s chairman, Angelo Mozilo, initially decried the lowered lending standards of other banks—until his company began to embrace the practices of the upstarts.
    During the 1980s, Mozilo, a forceful executive and gifted salesman born to a butcher in the Bronx, taught employees how to sell mortgages quickly and efficiently, focusing on plain-vanilla, fixed-rate loans. The banking establishment didn’t give Mozilo and his California operation much of a chance, but by the early 2000s, profits were soaring, and the company was the largest mortgage lender in the country.
    Mozilo didn’t so much run Countrywide Financial as rule over it. Rivals called him “The Sun God,” both for how his employees seemed to worship him as well as for his deep, permanent tan. Mozilo drove several Rolls-Royces, often in shades of gold, and paid his executives hundreds of thousands of dollars. Mozilo’s shiny white teeth, pinstriped suits, and bravado helped him both stand out and send a message: He was going to shake up the staid industry.
    By 2004, competitors were biting at Mozilo’s heels, and Countrywide began to adjust its conservative stance, pushing adjustable-rate, subprime mortgages, and other “affordability products.” ARMs were 49 percent of its business that year, up from 18 percent in 2003, while subprime loans were 11 percent, up from less than 5 percent. 5 Mozilo said down payments should be eliminated so more people could buy homes, “the only way we can have a better society.” He called down payments “nonsense” because “it’s often not their money anyway.” 6
    Mozilo was merely reacting to executives like Brad Morrice. In the early 1990s, Morrice worked at a mortgage lender in Southern California, watching housing prices in the region swing violently. In 1995, Morrice, along with two partners, pulled together $3 million to form New Century, a lender focused on borrowers with poor credit sometimes ignored by major lenders. They chose a name that seemed to foreshadow big changes on the way for the nation.
    The New Century offer: People with bad credit could get loans to buy a home, albeit at much higher rates than those offered to borrowers with pristine credit. To limit their risks, New Century’s executives had the good sense to sell their loans to investors attracted to the hefty interestrates. It was a blueprint followed by rival lenders. Orange County in Southern California quickly became the epicenter of subprime lending.
    Morrice and his partners took New Century public in 1997, just as the housing market began to heat up. New Century, which billed itself as “a new shade of blue chip,” reached out to independent mortgage-brokerage firms around the country, often tiny, local