Countrywide Financial was cofounded by Angelo Mazilo and by the early 2000s it became the largest provider of home loans in U.S. It was also considered the main provider of home loans to minorities in U.S. because of its lower barriers regarding homeownership for low-income individuals. The company was well known for their services offered to their clients such as: loan closing, capital market, insurance and banking services.
In 2000s the main factor that contributed to the company’s reputation and growth were the higher margin for home equity and subprime loans. Countrywide Financial was one of the top providers of liar loans because of its riskier clients who had to pay higher fees and interest rates.
Subprime lending means lending to borrowers, people who would not qualify for traditional loan, at a rate higher than the prime rate. In other words the subprime loans are offered to high risk clients who do not qualify for conventional loans. For example, if a borrower has a credit score under 620 it is classified as low-income bracket. Many critics considered the subprime loans the main key to the 2008-2009 financial crisis.
Countrywide was criticized for negligence of giving out highly risky loans to people who could not afford them in order to receive quick profits and right now some homeowners are struggling under liar loans.
According to Datamonitor (2008, p. 5) s one of the company’s strengths was the “Diversified offerings” and “Strong financial performance”.
The group’s banking segment offered a diverse product portfolio and caters to a diverse client base.The banking segments operated through Countrywide bank and Countrywide Warehouse lending (CWL). Countrywide bank’s product offering included residential mortgage lo...
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...e Criminal Justice, Retrieved December 20 and available at: http://www.corporatecrimereporter.com/news/200/eileen-foster-countrywide-and-the-failure-of-corporate-criminal-justice/
U.S.Department of Labor (September 12, 2011), Retrieved December 23, 2013 and available at: http://corporatecrimereporter.com/documents/fosterosha.pdf
United States v. Countrywide Financial Corp. et al. Summary of Complaint, Retrieved December 23, 2013 and available at: http://www.justice.gov/crt/about/hce/documents/countrywide_complaint_overview.pdf, p. 1-2
Zacks (July 09, 2012) Countrywide's Fraudulent VIP Program - Analyst Blog, Retrieved December 23, 2013 and available at: http://www.investopedia.com/stock-analysis/zacks/countrywidesfraudulentvipprogram-analystblog.aspx
Unknown, Eileen Foster, Retrieved December 23, 2013 and available at: http://en.wikipedia.org/wiki/Eileen_Foster
After the time of financial crisis, JP Morgan was not the only national bank in US which got involved in trade of toxic loans related to mortgage. Before JP Morgan, it was Goldman Sachs-another large US Bank that faced the allegation of manipulating the trades in its own self interes, ended up in favor of SEC while GoldMan Sachs were asked to pay $500 Million during late 2011 in a deal called Abascus 2007-AC1 where the bank were alleged to mislead its investors on a deal related to Collateral Debt Obligation(CDO). (Eaglesham, 2011) The ab...
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A majority of mortgage defaults that Americans used were on subprime mortgage loans, which were high-interest-rate loans lent to people with high risk credit rates (Brue). Despite knowing the risks, the Federal government encouraged major banks to lend out these loans to buyers, in hopes, of broadening ho...
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Countrywide Financial got greedy and started to make questionable and unethical decisions to make money. Countrywide Financial preyed on consumers that could not qualify for conventional loans and those that could to make more money with subprime loans. Countrywide was found guilty of mortgage fraud. The U.S. government is seeking to have Bank of America Corp. pay nearly $864 million in damages after the company was found liable for mortgage fraud (Subramanian, 2013).
Countrywide’s ambition to help more Americans take part in the “American dream” of homeownership was a noble gesture. However, as noble as the goal was Countrywide failed to protect themselves and the same people they desired to help. The demographic of borrowers Countrywide marketed to were specific: low-income and minorities. Countrywide saw a need and a wide open opportunity to make money, however, they also took a large risk with offering loans to borrowers that would not have met the standards for a “traditional” loan. At first the borrowers were able to keep up with their loan payments (the economy was stable and the job market was solid).
Dodd-Frank Act was “based on a set of beliefs about the causes and consequences of the housing boom and collapse that preceded the recession” (Johnston). This act ensured that mortgage terms are suitable for borrowers from lenders, imposing massive legal risks on any lender that decides to write mortgage contracts that do not meet up to “qualified” mortgages. In the early 2000s bankers and mortgage brokers used high-pressure sales tactics and even using fraud to sell
•Merrill Lynch, a massive investment back on Wall Street was the starter of the biggest mortgage companies to go wild. Merrill plan was to do a subprime mortgages that would get people to fail on their own toxic products. He knew those debts would stack up and then people would not afford to pay off that mortgage. His plan was to secretly bet against or insuring themselves to fail. Merrill only focused on making more money by doing subprime mortgages. Therefore, the plan was to get mortgages that would not be sustained and redo it into a subprime mortgages. Indeed he would sell them off other corporation that would not question the investment and would more likely not be able to understand the possible risk of buying it. Merrill was doing
Investment banks, Rating agencies and Insurance companies are key components of the financial market. In this presentation, I’m going to explain how these three key roles worked together to create the 2008 financial crisis.
Being the CEO of Countrywide Financial, it would be my responsibility to provide quality mortgage services to our customer and keeping our processes ethically sound. In order to make sound loan decisions, we must have established guidelines that all of our loan originators follow. I do believe that every case deserves its own individualized decision based on the specifics of the application, but we should have a base that we all follow. The appraisers we work with should also have a similar code of ethics. We would not want to have established a solid process only to not have ethical supporting teams that we do business with outside our organization. We will need to provide our loan originators with the training they need to do the job
...t up to par. The mortgage brokers allowed many high risk borrowers to obtain loans that they could not afford. When the price of houses fell, the values of these homes were well below what was owed for the mortgages. This caused many borrowers to default on their loans. Before we knew it, the balance sheets of banks deteriorated, the stock market crashed, and large investment banks began to fail. This was all started with financial innovation that had gone out of control.
Although not as big as the 1929 crash, the crash of 2008 still had a huge impact on Americans. Unlike the crash of 1929, the crash of 2008 was caused by activities outside of Wall Street, namely, the failure of congress to pass the bank bailout bill. The bank bailout bill was made to bailout companies like HSBC and Lehman Brothers, who went bankrupt as a result of poor and illegal business practices. Some of these business practices included money laundering. Money laundering is when someone makes illegally obtained money look like it was legally obtained, or in other words, making dirty money look like clean money. The rejection of the bank bailout bill by congress sent the Dow into a nosedive, dropping almost 800 points in one day, the largest point drop in any single day in history. Another cause of this crash was the subprime mortgage crisis. This crisis occurred when companies hired rating companies like Standard and Poor’s to give good ratings to the mortgages that these banks were giving out to people. These mortgages were sold to other places, such as investment banks and government agencies, as mortgage-backed securities. Mortgage-backed securities are paid like regular mortgages, except that interest and principle payments don’t go to the company that lent you the money. For example, if you get a mortgage from Chase bank, Chase can sell your mortgage to the Federal Home Loan Mortgage Corporation (Freddie Mac). Freddie Mac then
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
Keeping in mind that the main reason for the mortgage crisis is the high number of defaulted home loans, which triggered foreclosures and sell offs. The other four contributing factors include high-risk loans, the bust in the housing market, mortgage fraud, and speculation. High-risk loans are loans that are over leveraged, where the financing is done more than the suggested values to be given. (Greenspan) This can result in immediate sell off when the property falls below that loan amount and to avoid further loss the banks start raising the installment. The housing market has seen pressure as a result of the over pressure on most homeowners by increasing rates. This affects people ability to make the payments, resulting in defaults. This is the problem with the burst in the housing market. The third major factor that is causing the mortgage crisis is, mortgage fraud.
Freddie Mac was accused of either lying or misrepresenting the facts in order to make the amount of risk they were taking appear smaller. Investigators believed that this was done in order to comfort investors. The mortgages they were talking about, the ones that were considered risky were sub-prime loans, and they were prone to failure. A lot of these people should never have been given loans with interest rates that high. It was the job of Freddie Mac to hel...