Quick quiz: Which mortgage company chieftain took home $140 million in compensation last year while the company he founded lost $704 million?

If you said Angelo R. Mozilo, CEO of Countrywide Financial Corp., take a bow. And add a couple of gold stars if you knew Mozilo’s pay was comprised of more than $120 million from exercised stock options and more than $22 million in other compensation, according to a Reuters’ report based on the mortgage company’s year-end filing with the Securities and Exchange Commission.

Set aside the stock options, and the astonishing disconnect between Mozilo’s star-quality compensation and the company’s horrific performance could nonetheless suggest why Mozilo decided it was OK to arrange some special insider deals on home mortgages for an assortment of people dubbed "Friends of Angelo." Yet while this disconnect may serve as an ego-booster and explanation, it’s by no means an acceptable excuse for Mozilo’s sorry moral judgment and misuse of his own position within the company.

To recap what’s already been reported, these "Friends of Angelo" included at least two U.S. senators and two former presidential cabinet members who received especially favorable terms and extra special service on new mortgages they obtained from Countrywide.

What’s not yet known is whether Mozilo had other "friends," and who they were, what deals they received or how the savings they pocketed affected their decision-making on laws, regulations and public policies related to home-loan lenders. Also unknown is how many other "Angelos" at other mortgage companies also arranged special deals for their own "friends."

It’s tempting to dismiss Mozilo’s special deals as just another corporate perk, just another example of too much money in politics or just another instance of greed gone wild in real estate transactions. And that temptation is all the greater since the beneficiaries have insisted they weren’t Mozilo’s "friends," didn’t know they’d received any special treatment and didn’t offer any quid pro quo for what they got.

But unfortunately, to dismiss this issue as nothing new is just too simplistic. In fact, Mozilo’s special deals are troubling and should give pause to people who care about corporate governance and public policy.

On the one hand, these deals reinforce the perception that elected representatives belong to an elite upper class that’s woefully out of touch with the day-to-day experiences of ordinary people. How can officials comprehend the complexities and pitfalls of home loans when they’ve been shielded from the process and, worse yet, seemingly without their knowledge? It’s hardly remarkable that legislators may be loath to tinker with a system that, in their own experience, worked quite well, thank you very much, Angelo.

Another serious question is whether these deals, which resulted in substantial savings for the lucky borrowers, could be characterized as illegal gifts to public officials. Gifts are regulated with good reason, that is, to avoid the reality or appearance of favoritism on the part of politicians. Even if no laws were broken nor any regulations violated, at the very least, the terms of these attractive mortgages should have been disclosed since they resulted in direct personal financial benefits.

On the other hand, these deals also add credence to the complaint that CEOs all too often act as if the companies they manage are private enterprises rather than publicly owned corporations beholden not to the executives themselves but to their stockholders. Mozilo’s excessive compensation had already attracted plenty of criticism from corporate governance watchdogs, and the SEC had already opened an investigation into his fortuitously timed sales of Countrywide stock. Now comes news of special deals for "Friends of Angelo" at the stockholders’ expense.

As unpleasant as these facts may be, real estate shouldn’t turn a blind eye to Mozilo’s activities. After all, it’s been only a few years since Stuart Wolff and friends turned Homestore into a hotbed of alleged and admitted securities fraud or since Franklin Raines and Leland Brendsel retired from their top posts at Fannie Mae and Freddie Mac, respectively, with ample severance, despite being under black clouds of massive accounting scandals.

The Countrywide brand is about to disappear in a swirl of disgrace as the company is set to be acquired by Bank of America. But let’s not let the revelations about the special deals Mozilo arranged for his "friends" slip out of sight without full disclosure and, insofar as may well be warranted by those disclosures, plenty of public condemnation.

Marcie Geffner is a freelance real estate reporter and former managing editor of Inman News.

Copyright 2008 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.


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