Countrywide Mortgage Corp

Countrywide Financial Corporation

History:

In 1932, the United States government looked at the housing market and saw that there was a problem with the American dream. Over 50% of Americans could not by a home or afford the balloon payments at the end of their 8-10 year mortgage. The introductions of Fannie Mae in 1938 along with Ginnie Mae and Freddie Mac over the course of 32 years helped to provide those looking to purchase a home with a safer alternative to do so. These programs gave the investors and mortgage lenders a safety net from default on the borrowers providing insurance to 80% of the home’s value. These programs also helped to expand the buying power to the middle class nationwide.

This legislation did not come without controversy. There were complaints of redlining, or disqualifying potential buyers due to the neighborhoods in which they were looking to buy in. This caused Congress to pass several new Acts to help combat these complaints. The Community Reinvestment, Home Mortgage Disclosure, Depository Institution Deregulation and Monetary Control, and the Housing and Community Development Acts, developed in the 1970’s were all aimed towards giving the low-income families a chance at home ownership, with a subprime mortgage rate, clearer terms and conditions, lower down payments or no down payments at all. This came with an increased risk involved to lenders. These high risk loans took off for mortgage companies becoming 37.6% of all loans by 2005. These mortgages were sold off to investors as securities, thus giving the banks a solid performance on their books, but this also left investors relying upon AIG, the insurance holders on these securities, to be able to cover any defaulted loans.

With each step the government made to increase accessibility to the housing market for the general public, the rate of homeownership rose. There was a steady increase since the advent of Fannie Mae, and the FHA programs. Governmental influence...