Excerpts of E-Mails From Angelo Mozilo
Sept. 26, 2006 — following up a meeting with Sambol the previous day about the Pay-Option ARM loan portfolio:
We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. The only history we can look to is that of World Savings however their portfolio was fundamentally different than ours in that their focus was equity and our focus is fico. In my judgement [sic], as a long time lender, I would always trade off fico for equity. The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.
What I read here are the thoughts of a "real" lender. Surprisingly to me, Mr. Mozilo recognizes the poison in the product and also knows that his own staff is completely out of control and ignoring even their own crappy underwriting standards. Question: What did he try to do about it? Was he so disconnected that he couldn't fix the problem? Was it like a runaway locomotive and there was nothing he could see to do but bail out?