A Former Mortgage Exec Speaks Out : Planet Money A former employee describes what life was like inside a giant mortgage lender back in 2006. It's not pretty.
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A Former Mortgage Exec Speaks Out

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A Former Mortgage Exec Speaks Out

A Former Mortgage Exec Speaks Out

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(SOUNDBITE OF TV SHOW, "IN THE LOOP")

MOHAMED EL-ERIAN: Unambiguously, this is good news. It's a signal that the U.S. economy continues to heal. Think of it. The banks were in intensive care, then they were in the recovery room in the hospital. And now we have a signal that they're out of the hospital.

(SOUNDBITE OF SONG, "THE LONG HAUL")

BLACK ENGLISH: (Singing) We'll be fine, I'm sure. Just use the other door. I want to have a house like they did.

ALEX BLUMBERG, HOST:

Hello, and welcome to PLANET MONEY. I'm Alex Blumberg. And I am joined by a very special guest host today.

MICHAEL HUDSON: I'm Michael Hudson, a staff writer with The Center for Public Integrity.

BLUMBERG: And Mike, we'll get to why you're joining us in a minute. But first, some business. That was PIMCO CEO Mohamed El-Erian you heard at the top. He was on Bloomberg Television talking about the results of the Federal Reserve's latest stress tests on banks. Today is Friday, March 16.

So Mike, you are joining us because you've been doing a lot of reporting into a company that is no longer with us but, in many ways, represents the worst of the housing crisis, Countrywide Financial, at one time, the biggest mortgage lender in America, who made a startling number of really bad loans.

HUDSON: Something you hear a lot from the big names who ran the banks and mortgage companies - this idea that the housing crisis was like an act of nature, a financial tsunami that no one could've seen coming. I've talked with lots of people inside Countrywide who say they did see it coming and were punished for speaking out.

BLUMBERG: Today we'll hear one of those stories, a story that started in 2006 but is still having consequences today. We'll get to that in a minute. But first, as always, the PLANET MONEY Indicator. And today we have a very special guest Indicator from NPR sports correspondent Mike Pesca.

MIKE PESCA, BYLINE: Hello.

BLUMBERG: Hey. What do you got for us?

PESCA: One thousand dollars, $1,500 dollars.

BLUMBERG: All right, I'll bite. What's this?

PESCA: One thousand dollars was how much a New Orleans Saints defensive player would get via a bounty for delivering a hit to an opponent whereby the opponent was carted off. If that opponent was indeed knocked out of the game and could not return, that bounty would be $1,500.

BLUMBERG: So let me just get this straight - a Saints defensive player, if they delivered a hit to an opposing player so savage that the player was injured and forced to leave the game and not return, that player was given $1,500?

PESCA: Yup, a cart-off - $1,000. That guy stays on the sidelines, doesn't come back to play, it gets upped by 50 percent to 1,500.

BLUMBERG: So this is a huge scandal in the sports world. Right?

PESCA: Yeah.

BLUMBERG: I saw - was talking about it on ESPN, all over the sports shows. But you're talking about it to us because there's an economics question that - you know, laying aside the morality here, purely from an economic perspective, this was an incentive program.

PESCA: Yeah.

BLUMBERG: The incentive program was to injure the opposing team's valuable players with the organizational goal of securing a win...

PESCA: Yes.

BLUMBERG: ...For the team.

PESCA: Yes.

BLUMBERG: And this happens all over the, you know, everywhere in business...

PESCA: Right.

BLUMBERG: ...Where the business has a goal, and they will incentivize the employees to achieve that goal by offering them a cash bonus.

PESCA: Right.

BLUMBERG: Did it work?

PESCA: You know, here's where it worked and where it didn't. It worked in that the Saints did make the Super Bowl. And the fact that they put a licking on Brett Farve factored into that. However, it didn't work for a couple of reasons. Gregg Williams, who was the defensive coordinator who oversaw or at least supported this bounty program - if he has a flaw as a defensive coordinator, it's that he's overly aggressive. I've argued it out with a Saints fan who says sometimes that aggression is good. They did make the Super Bowl based on very aggressive play.

But last year, for instance, the Saints - they had a great offensive team, and perhaps they could have beaten the 49ers - but they blitzed way too often. They tried to be way too fast and aggressive and nasty. And it burned them. So you could argue that, you know, the Gregg Williams aggressive style giveth and taketh away. But I think, overall, football minds will fault Gregg Williams and his defenses for being overly aggressive.

BLUMBERG: So the analogy here is so striking to me because, basically, these players were incentivized to take bigger risks...

PESCA: Yes.

BLUMBERG: ...Than perhaps they otherwise would have been.

PESCA: Yes. Gregg Williams' defense would be called, on Wall Street, a high-beta defense - big risk, big reward. And you know what? When the risk worked out when he won his Super Bowl, the good stuff that accrued to Gregg Williams, a reputation as a Super Bowl-winning coordinator, that was great. It probably got him his current job - unless he's going to get suspended by the NFL. So yeah, the big wins - once you have a couple of big wins in the world of football or the world of finance, that really kind of is a bright line on your resume a lot more than maybe a lot of the mistakes you made along the way.

BLUMBERG: All right. Thank you so much, Mike.

PESCA: You got it.

BLUMBERG: On to our story and a different Mike - Mike Hudson.

You're an investigative reporter. You've spent a lot of time picking through the wreckage of the housing crisis, interviewing people who were at these big financial companies, mortgage companies about what they knew, what it felt like at the time, what it looked like.

HUDSON: I've talked with hundreds of former employees in the big mortgage companies. And one weird thing I've heard over and over again is they weren't surprised that things got so bad. They saw that they were bad. But when they tried to do something about it, they were shut down.

BLUMBERG: And today we're going to be hearing from one of those people, Cynder Niemela. She was a senior vice president with Countrywide Financial. And she was the big-time management guru. She'd worked for Boeing, Ernst & Young. And Countrywide approached her in 2005 and heavily recruited her.

CYNDER NIEMELA: They started giving me articles about Countrywide - it's so fast growing; there are so many opportunities for somebody with your talent.

BLUMBERG: So they were wooing you.

NIEMELA: Oh, yeah.

HUDSON: Countrywide wasn't just hiring her. In fact, in the last five years, the company's workforce had grown fivefold, from about 10,000 workers to 50,000. And that was just the beginning.

NIEMELA: They had this 2010 vision that everybody talked about, that they were going to be 100,000 employees by 2010.

HUDSON: Wow.

NIEMELA: They were going to dominate the market.

HUDSON: Cynder told us that at first, the job was great. But there was one thing that seemed weird.

BLUMBERG: To take this job at Countrywide, she'd had to relocate from the Bay Area to LA County. And she'd found a great house. She figured she had an inside track on getting a good mortgage because her brother-in-law was a mortgage broker. But as she was getting ready to buy the house, she took another look at the relocation agreement from Countrywide.

NIEMELA: I read the fine print, and I had to use Countrywide Mortgage.

HUDSON: And the odd thing was that the mortgage that her brand-new employer was offering her was a lot worse than what she could have gotten somewhere else. There were lots of fees added on.

BLUMBERG: The points in mortgage-speak - right? That's what they call them? Yeah. And also, there was something else, a huge prepayment penalty, meaning essentially, she was locked into this mortgage for seven years. If she tried to sell her house or refinance or pay it off early before the seven years were up, she'd have to pay many thousands of dollars in penalties. Even the woman at the title company who handled Cynder's paperwork - her eyebrows went up when she saw this mortgage.

NIEMELA: She said, I've never heard of a 7-year prepayment penalty. And I said, no, neither have I. I mean, I've bought a few houses, and they were all one year, if there was one at all.

HUDSON: Even the worst of the subprime lenders, the longest prepayment penalty I ever heard of was three years.

NIEMELA: Yeah.

BLUMBERG: (Laughter) Wow.

NIEMELA: So - and she said the points - don't you work for Countrywide? I go, yeah, I do. And she goes, well, why are they tacking on all these charges?

BLUMBERG: The next day, Cynder asked one of her colleagues that very question. Why is Countrywide giving its employees such bad deals on their loans? And the colleague told her, oh, yeah, it's widely known around here. When it comes to mortgages, the company screws its own employees.

HUDSON: We know now from official investigations that it wasn't just employees. A lot of people were getting loans like this from Countrywide. According to government investigators and former employees, the company used a variety of tactics to mislead people into signing up for what turned out to be crappy loans.

BLUMBERG: But back in 2005, Cynder didn't know any of this. And she basically shrugged it off and dove into her new job. But the more she learned about her new company, the more her experience getting a mortgage from Countrywide seemed to make sense. When she dug below the surface, there were a number of problems that became evident.

HUDSON: For instance, one of the startling things she learned was that the employee turnover rate was really high. Almost 1 out of every 3 employees chose to leave the company within a year. So Cynder went to work figuring out why. This, after all, was her job. She was hired as management guru, someone whose job it was to figure out how things worked in a company and how they didn't work.

BLUMBERG: And she did this by putting together a survey. They surveyed 40,000 employees at Countrywide and asked them, among other things, how satisfied are you with your job, with your benefits, with your boss? It was a huge project. It took many months to design the survey. And then once they got it back, it took more time to sort through the data. In June of 2006, they got the results back.

NIEMELA: And the results were alarming. There were some executives that the people in their divisions - their favorability ratings were in the teens if not single digits. That is, you know - the norm - a best company to work for would have favorability ratings of around 85 percent, 80 to 85. A sustainable company would have favorability ratings of 70 percent.

BLUMBERG: And then Countrywide was in the teens and single digits in some places.

NIEMELA: In some places.

BLUMBERG: So this was like lower numbers than you'd seen at any company you'd ever worked with?

NIEMELA: Oh, yeah. Oh, yes.

BLUMBERG: But perhaps more damning even than that, the survey contained dozens of allegations of fraud - not a huge number but, you know, on an employee satisfaction survey when multiple respondents go out of their way to describe illegal practices, that's a red flag. And Mike, you've seen some of the comments from the survey. Right?

HUDSON: Right. Let me give you a couple examples. One worker said, quote, "there is so much fraud being committed between loan brokering, document alteration, overstating bars, length of employment and actual income." This worker said no one was being held accountable because the company continued to, quote, "look the other way."

Another employee warned that, quote, "there will be a reckoning. Think of the cigarette industry. They know it's a slow poison, but they sell them anyway." This employee predicted that unless something changed, Countrywide would go down in history as a company that had polluted the land with toxic loans and it would take, quote, "superfunds to undo the damage."

BLUMBERG: And keep in mind, Countrywide, at this time, was the biggest and most successful company in what was one of the hottest industries in the country at the moment, the mortgage business. And Countrywide's CEO, Angelo Mozilo, was considered one of America's most important CEOs. He was on the cover of business magazines, showed up on CNBC - that cable business channel - all the time. He was the keynote speaker at an important housing conference sponsored by Harvard University. And yet, on the inside, Cynder was seeing a very different place.

NIEMELA: When people ask me - what was it like working at Countrywide? - I say, it's very much like the movie "Titanic." You know that opening scene where there's that gorgeous car and people are all dressed up and everybody's excited about getting on this brand-new ship that's, you know, just one of a kind? And that's the way it was going into Countrywide. And you're kind of, you know, going through, and things are wonderful. I got my raise the first year.

And then, suddenly, there's a flood (laughter). And that's me, sitting at home, reading these written comments. And it's soaking in. And the ship is going down.

BLUMBERG: So Mike, I don't know about you, but if I were a passenger on a ship that was going down, I would try to get word to the captain.

HUDSON: And that's what Cynder says she tried to do. She says she shared all those fraud allegations with senior management and urged that they open a full investigation.

BLUMBERG: She also says she put together a summary of the employee satisfaction results and gave them to her boss, thinking it would make its way to the highest levels of the company. But she didn't hear back - although she did hear from someone on the outside who was interested in her survey.

NIEMELA: Somebody contacted me. I won't say who. Somebody contacted me and said that Bank of America wanted to see our survey results. Now, I knew the people at Bank of America.

HUDSON: And why did Bank of America want to see this?

NIEMELA: I didn't know. But there were rumors - very, you know, rumors that circulated Countrywide by the end of 2006 that the reason Angelo didn't retire when he was supposed to is because he's trying to sell the company. And when I got that call, I said - oh, they're trying to do their due diligence. So they want to see the results to see what the state of health is of Countrywide.

HUDSON: This company that they're thinking of buying.

NIEMELA: Yes, that was my guess.

BLUMBERG: Not surprisingly, when Cynder asked her boss - can I share the private results of this internal survey with Bank of America? - she was told no. But soon after that, her boss came back to her and said, OK, the top brass now wants to see your results. Can you put together a PowerPoint presentation of the results of your survey? And she was told, be as honest and direct as possible.

NIEMELA: You know, how the executive team is perceived, how the leadership team is perceived, the turnover, why we have the turnover, what we need to do to address that turnover. And it was a pretty big deck and lots of appendices with numbers so that they could dive into it because it was, you know, basically a banking company. They like to see the numbers.

HUDSON: Cynder handed off her PowerPoint to an executive above her and waited. Eventually, she got word back that a presentation had been made, just not the presentation she says that she prepared.

BLUMBERG: The presentation that the senior executives saw, according to Cynder, was completely different than the ones that Cynder herself had put together. She actually got a copy of the revised version. She says the word turnover was never mentioned in that version. And there were statements in the revised version that were almost the exact opposite of what was in her version.

NIEMELA: One was, employees are happy with their benefits. That was the statement. Well, that wasn't true at all. There was - I can't think of one benefit people liked.

BLUMBERG: So how did they put that in the presentation? Employees are happy with their benefits - did they back it up somehow?

NIEMELA: Nope - took it all out, all the data to support why people were not satisfied with their benefits and just said that.

BLUMBERG: Cynder's not sure who changed the presentation, who prevented the results from reaching the top executives or why. But she has a suspicion that the top brass just didn't want to know the results, didn't want to know what was in her survey.

NIEMELA: And I suspect that it was because they were working with Bank of America. They just didn't want to tell them. So at some point, I knew that. And I couldn't get over that, and so I called the hotline.

HUDSON: The employee ethics hotline.

NIEMELA: Yes.

BLUMBERG: Ever since the Enron scandal, large corporations are required by law to have these ethics hotlines where employees can report fraud and can do so anonymously if they want to. Cynder called that number, which went to a lawyer in Countrywide's legal department. Cynder told the whole story. A week later, she was fired.

HUDSON: In my reporting, Cynder isn't the only person at Countrywide who's told a story like this. In one example, an employee in a Countrywide loan office said in a lawsuit that she called the ethics hotline, made what she thought was a confidential report. And almost immediately after, her boss called her in and chewed her out for phoning the hotline.

And then there was the former executive vice president in charge of fraud investigation who said that she was fired both for uncovering widespread fraud and for trying to protect employees like Cynder who were reporting misconduct. The U.S. Department of Labor recently ruled in this executive's favor and awarded her over $900,000 dollars in damages and back pay.

BLUMBERG: Cynder, for her part, sued Countrywide after she was fired. And her case, like most of them, went into arbitration, where it stayed for four years. During those four years, the thing that had been rumored to happen when Cynder was an employee at Countrywide actually happened. Bank of America bought Countrywide Financial Corporation, a move now seen as one of the worst corporate acquisitions in recent history. Bank of America's share price has gone from over $40 at the time of the purchase to around $8 today. They have also piled up tens of billions of dollars in losses and legal settlements due to those old Countrywide loans.

HUDSON: Along with those old loans, Bank of America also acquired Cynder's arbitration case. Bank of America defends Countrywide's firing of her to this day, saying in legal papers that, quote, "her interpretation of events is severely skewed." The bank says she wasn't fired because she blew the whistle but because she was, quote, "angry, critical and difficult to work with" and had been bad-mouthing the company to her co-workers.

Not long after we interviewed her at the end of last year, the bank settled with Cynder. She's not allowed to say what she got in the settlement.

BLUMBERG: But she says she doesn't hold a grudge against B of A.

NIEMELA: I have a lot of compassion for Bank of America. And maybe I'm naive, but I think they were sold the bill of goods. You know, I think that they thought they were in the Land of Oz. And then after they bought it, they looked behind the curtain and there's this stupid wizard (laughter). And they've pretty much said that in the press - haven't they? - that we didn't know it was so bad.

BLUMBERG: It's almost like if you guys could have just gotten to each other back then in 2007 - in the summer of 2007 before you got fired - do you think if they'd seen your report, that would have changed their mind?

NIEMELA: I do. I do.

BLUMBERG: Wow. It was that damning that it would have stopped the bank from making this purchase?

NIEMELA: Yeah, I do.

BLUMBERG: Bank of America declined to talk to us for this story. But in an email, they did say that Cynder's speculation here is, in fact, purely speculation. The company said it did due diligence before pulling the trigger on Countrywide and that it's illogical to think that a 2006 employee survey would have had any impact on Bank of America's decision-making almost two years later.

(SOUNDBITE OF SONG, "THE LONG HAUL")

BLACK ENGLISH: (Singing) We'll be fine, I'm told. Together we'll grow old.

BLUMBERG: Mike, we'll post links to you reports on Cynder Niemela and some of the other ex-employees of Countrywide on our blog, npr.org/money. Also, please contact us. We'd love to hear what you have to say, planetmoney@npr.org. Or you can find us on Facebook or Twitter or Spotify. I'm Alex Blumberg.

HUDSON: I'm Mike Hudson. Thanks for listening.

(SOUNDBITE OF SONG, "THE LONG HAUL")

BLACK ENGLISH: (Singing) Because as far as I can see, the world belongs to me. There's a place set at your table with my name on. When we walk, they roll the carpet out at our feet.

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