Raising the government limit on federal home loan banks such as Fannie Mae and Freddie Mac would be a good start. Currently, loans for those programs cap at $417,000. That number does little good in Southern California where the median home price was $462,000 in September, according to DataQuick, which monitors real estate activity. Mozilo argued that programs like Fannie and Freddie should be “tied to the local MLS (multiple listing service),” not a nationwide number, where you wind up with potential homebuyers from North Dakota and Southern California tied to the same loan value.

Mozilo, the embattled Countrywide chief executive, said lenders have been the media's whipping boy, but they're not the only culpable party in bringing about the subprime mess. “It was easy money, low-cost money that caused it. Then, the Fed raised rates 17 times,” said Mozilo.

Pressure from advocate groups for minorities only fueled the fire, Mozilo added. “There was a huge effort for minorities (to gain homes), including undocumented workers, that contributed to the cataclysmic exercise we're going through today.”

Countrywide has established a $16 billion modification program that will help “legitimate borrowers who made bad decisions” rework their loans, added Mozilo. But help is needed from the government. “We're not getting much help from the government so far, only incredible pressure on lenders to keep people in their homes.”

The Milken Institute's DeVol provided a grim picture of California's next 12 months. He said the triple whammy of declining home sales, rising oil prices and the credit crunch has brought the nation “right on the razor's edge of a recession. We could have offsets and the Fed can work to help provide a bailout, but if anything else (negative) goes on, we're probably in a recession.”