Countrywide Financial Corporation Case Study

Countrywide Financial Corporation

I. Introduction

Countrywide Financial Corporation was a mortgage lending giant founded by Angelo Mozilo and David Loeb in 1969. With a long history, it was at the height of its success during the mortgage boom from 1994 – 2006. The mortgage debacle began in 2007 and drastically changed the future of Countrywide Financial. Many issues related to Countrywide’s business practices resulted in the company’s failure as well as the subprime mortgage market collapse as a whole.

II. Issues

Countrywide had an extreme change in its business strategy as the housing market changed from 1994 through 2008. It went from providing mainly prime mortgages backed with high underwriting standards to a relaxed environment of little documentation and risky business practices. The main issue for Countrywide was this dramatic change in strategy that did not adequately evaluate the risk associated with its business practices and turned a blind eye to unethical business behavior.

Risky or Unethical Business Practices by Countrywide Financial Corporation:

• Relaxed underwriting standards that did not require customers to verify income or go through a full credit history check. This allowed customers to be approved for a loan they could not realistically afford or have loans on multiple homes at one time that they could not adequately cover.

• Adjustable rate mortgages that increased after the initial low interest rate period allowed customers to purchase homes they could initial afford. Many customers planned on flipping the home or counted on the home value increasing enough that they could sell the home before the rate increased to a point they could no longer afford.

• Increase in home values during the housing bubble allowed customers instant equity in their homes to borrow against which was financed by companies like Countrywide. Countrywide did not properly assess the risk associated with this type of loan.

• In 2004 Countrywide greatly...