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48 Former Countrywide employee Kyle Lagow filed suit under the False Claims Act after the subprime dust-up. Lagow brought forth damaging allegations, informing the government that Countrywide defrauded the Federal Housing Administration (and HUD) by falsely inflating home appraisal values associated with loans the government insured. e end result, according to Lagow's 2009 complaint, was a surge in defaults among government-backed mortgages that the FHA eventually became accountable for. Lagow claimed Countrywide did this by rewarding appraisers who offered higher home valuations. e subprime lending giant allegedly hid this conflict of interest through LandSafe, an appraisal firm owned by Countrywide—and the place at which Lagow worked during his four-year tenure. Lagow's attorneys at Hagens Berman noted publicly that his whistle blowing led to a $1 billion settlement between the DOJ and Bank of America. Of that amount, Lagow received $14.5 million. During Lagow's time under Mozilo's umbrella from 2004 through 2008, he discovered the lender created these easily hidden appraisal conflicts by working directly with its LandSafe unit and builder KB Home to boost appraisal values. is event and events like it—or the root of these events—occurred under Mozilo's watch. But despite the infamy the subprime CEO acquired after the dust-up, housing and mortgage finance experts remember the former Countrywide CEO spending two decades on a housing high before the 2008 crash. It's a high, they contend, that would not have occurred without the help of shifting government housing policies in the form of Fannie Mae and Freddie Mac expanding their risk appetites for mortgages and aggressive Federal Housing Administration policies. ese converging interests would give Mozilo the sandbox he needed to create a "subprime-lending sand castle" that would defy the odds until the tide turned against him. He had friends in both business and in government. Even grateful homeowners were in his pocket, with Countrywide's keen ability to turn home lending into a nationwide enterprise that served formerly underserved markets. "Countrywide absolutely did pursue bringing the ability to own a home to anyone who walked in a branch office," explained E. omas Booker, managing director with e Collingwood Group and a former CoreLogic executive with expertise in working with the GSEs. "e real question is over time you have to understand the real premise for the borrower being able to repay the loan and how you convey those sets of facts to the buyers of the loan." For some, the entire market was taken by surprise when a tight economy and falling home prices ended a nearly two-decade housing boom. is version of the story is in line with Mozilo's own expressed beliefs. For others, executives like Mozilo functioned in the role of classic movie villain, with Mozilo hiding menacingly behind a desk, waiting to originate a faulty loan for the express purpose of selling it off to unsuspecting secondary-market players. Mozilo, himself, perpetuated this view when an email slip-up in 2008 allowed the media to see what he was really thinking as homeowners pounded Countrywide with requests for loan modifications. Mozilo, angered by homeowners using template emails designed to help borrowers with loan mods, accidentally "replied all" to a borrower's email. His words would haunt him for days: "is is unbelievable. Most of these letters now have the same wording," Mozilo exclaimed in his email. "Obviously they are being counseled by some other person or by the internet. Disgusting." But the disgusting part for Mozilo may be the sudden fall he experienced after becoming the godfather of subprime lending. Gone are the days when Washington lawmakers took cheap mortgage credit from Countrywide in side room deals as part of the now infamous "Friends of Angelo" program. For housing experts like Ed Pinto, resident fellow and codirector of the American Enterprise Institute's International Center on Housing Risk and a former chief credit officer for Fannie Mae, Mozilo and Countrywide would not have existed without the government. e fact that the Justice Department is possibly working on a lawsuit against Mozilo doesn't change that, he says. THE RISE OF MOZILO AND COUNTRYWIDE To say that Mozilo's angry e-mail slip-up in 2008 defines his personality is to forget at one point Countrywide was promoted across the country as the borrower's best friend. Booker says Mozilo's platform was the first to break free of how mortgage markets operated in the Reagan-era and in the decades preceding the 1990s. "If you look at the way the mortgage markets worked in the 1980s, you had an aggregation of local markets," he explained. "You might have had challenges getting attractive rates in one region, while the same house a hundred miles away came in with a difference that was 100-basis points." Countrywide's strategy, says Booker, was to "focus on a segment of a population everywhere in America and base the sale on competitive pricing in every community across America. ey were the first to do that in a broad-scale way," he says of Countrywide. Booker also remembers Countrywide being one of the first to use innovative data and technologies to create origination platforms that allowed for faster loan originations. Yet, all of the innovation and aggressive efforts failed to thwart other risk factors. "One of the challenges is they became very dependent on being able to sell to the GSEs and other investors," explained Booker. e firm also created a riskier footprint when it expanded beyond originations. "ey became a servicer, and it put a much heavier burden on them to manage the risk," Booker pointed out. But Mozilo, at one point, had the market cornered nevertheless. From lending to servicing—all the way to securitizations— Countrywide was a major player. But the happy times for Countrywide would continue as long as they had a market in which they could sell those loans. Shifting GSE guidelines in the early 1990s would help create the very marketplace that Mozilo needed to go extreme with subprime, Pinto remembers.

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