Angelo Mozilo's VIPs

Dan Golden's full 5,500-word cover story on the VIP loans given by Countrywide to "Friends of Angelo" is now online. He leads with the most damning of the cases: that of Richard Aldrich, a California state appeals court judge. Aldrich belonged to the same country club as Angelo Mozilo, and got a mortgage above what guidelines allow, as well as $5,000 in waived "points". He then proceeded to reject an appeal brought in front of his court by Countrywide borrowers.

Beyond the Aldrich case and maybe one or two others, there's not a lot in the way of smoking guns here. Angelo Mozilo was well within his rights to deem anyone he wanted a "VIP", whether they knew it or not. And it's part and parcel of being a VIP that you get exceptional treatment; there's actually very little that VIPs can do to stop that happening.

There's also a massive irony overhanging this entire story. Countrywide is Poster Child Number One for lax automated underwriting: the idea that you don't really need to know your borrower before you lend money to them. It's now conventional wisdom that that kind of thing doesn't work, and lots of columnists are quoting John Pierpont Morgan:

Asked: "Is not commercial credit based primarily upon money or property?"
"No sir," replied Morgan. "The first thing is character."
"Before money or property?"
"Before money or anything else. Money cannot buy it...Because a man I do not trust could not get money from me on all the bonds in Christendom."

The fact is that VIPs are probably more creditworthy than most Countrywide borrowers. Lending money to someone based on who they are rather than how much they say they earn is precisely the kind of thing that most of us wish lenders had been doing all along.