type: timeline_event
In 2006, Countrywide Financial, the nation's largest mortgage lender, began the process of switching its primary federal regulator from the Office of the Comptroller of the Currency to the Office of Thrift Supervision, completing the transition in early 2007. CEO Angelo Mozilo had approached OTS about the move as early as 2005, seeking what was widely understood as the agency's "lighter touch" regulatory approach. The switch exemplified regulatory arbitrage, where financial institutions shop for the most lenient regulator—a practice OTS actively encouraged through its deregulatory philosophy and industry-friendly stance.
OTS Director James Gilleran had made the agency's philosophy explicit in 2004: "Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion." The agency's budget depended heavily on fees from the institutions it regulated, creating a fundamental conflict of interest. Washington Mutual alone provided approximately 12 percent of OTS's operating funds. This fee-based funding model meant OTS had every incentive to attract large institutions and avoid aggressive enforcement that might drive them to other regulators.
Countrywide's move to OTS regulation meant that four of the five biggest issuers of option ARMs—risky adjustable-rate mortgages with payment shocks—fell under OTS supervision. The agency imposed reserve requirements for thrifts that declined to just one-third of their 2002 average and did not impose higher lending standards for option ARMs, which would cause massive delinquencies after mortgage rates reset higher. Within two years, the housing downturn forced Countrywide into Bank of America's arms under threat of failure. The other major OTS-regulated mortgage lenders—IndyMac, Downey Financial, and Washington Mutual—all collapsed entirely, with WaMu becoming the largest bank failure in U.S. history. OTS was eventually abolished under the Dodd-Frank Act, but not before its captured regulatory approach helped enable the predatory lending that devastated the economy. The Senate investigation later singled out OTS for its role in the financial crisis, documenting how the agency prioritized industry concerns over consumer protection and systemic stability.