James Sterngold, Bloomberg

Former Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo warned as early as 2004 of a possible housing-market collapse while the Federal Reserve overlooked the threat a year later, according to documents released by the Financial Crisis Inquiry Commission.

“Not only at Countrywide, but also with other lenders, there is a clear deterioration in the credit quality of loans being originated,” he wrote to company executives on Sept. 1, 2004. “The type of loans currently being originated combined with the unprecedented stretching of all aspects of credit standards could cause a bump in the road that could bring with it catastrophic consequences.”

Fed policy makers got a mid-2005 staff briefing suggesting the mortgage market had “solid fundamentals” and the officials didn’t believe overvaluation of homes “posed the major systemic risks that we now know it did,” Fed Chairman Ben S. Bernanke wrote to the FCIC last month. The congressionally appointed panel said this week that the crisis could have been avoided through better corporate management and government oversight.

“What this shows is that the Fed had blinders on,” said Geoffrey Miller, director of New York University’s Center for the Study of Central Banks and Financial Institutions. “They had some doubts about the market, but they chose to overlook them because they already had a view. They saw what they wanted to see.” David Skidmore, a spokesman for the Fed, didn’t immediately return a message seeking comment.

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