Countrywide

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

Lawsuits seem to be coming from all directions, federal and state investigative probes are launched against them, stock price tumbled to 1/5 of its value, even desperate lenders demonstrated outside their offices. 2007 has definitely not been Countrywide 's year.

In 2008 the real estate market crashed because of the Graham-Leach-Bliley Act and Commodities Futures Modernization Act, which led to shady mortgage lending or “liar loans” (Hartman). The loans primarily approved for lower income and middle class borrowers with little income or no job income verification, which lead to many buyers purchasing homes they could not afford because everyone wants a piece of the American dream; homeownership. Because of “reckless lending to lower- and middle-income borrowers who could not afford to repay their loans many of the home buyers lost everything when the market collapsed” (Tankersley 3). Homeowners often continued to live in their houses for months or years without paying any

As we now know, the U.S. economy, the middle class, and its job growth was damaged by the overwhelming collapse of Wall Street, which was triggered by the downfall of the housing market and sub-prime loan defaults. One of the main things that need to be addressed in our economy today is the housing market and making sure that our banks and credit unions are not allowing people who do not have the necessary income to pay their mortgage disbursements. In an article entitled Thinking outside the Housing Bubble, the author John Vogel remarks how the economy is generally supported by the housing market. Vogel states:

In 2007-2008 the US went into a recession, a financial crisis that has since then taken five years to rebuild. During that time millions of Americans were unemployed and faced many economic struggles which negatively impacted the real estate market causing a multitude of foreclosures. The reason for this recession was because there was no authority over banks and they were not being monitored properly. Banks were able to gamble with the finances of millions of people with no consequences towards their actions. The Dodd Frank Act Wall Street Reform and Consumer Protection Act of 2010 was put into place to make sure that nothing like this ever happened again; The Dodd Frank Act implemented and set laws into place to make sure that banks and financial

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

All the economy’s parts seem to be working together for a change: joblessness is under 5% - a 24 year low – yet inflation is holding steady at 3%, a combination that economists thought impossible” (Pooley). This article placed the economy in very favorable position, but the economy collapsed back in 2008 when Wall Street folded. In a video published by Johnathan Jarvis titled “The Cause and Effects of the 2008 Financial Crisis,” the video explains how the economy went from being healthy and vibrant, to desperate and helpless because investors were creating mortgages with people who were not financially stable, and those mortgagors were more than likely struggling to pay their debts prior to attaining a sub-prime mortgage loan. When these sub-prime mortgages defaulted, the house was reposed by the mortgagee and put on the market to sell. When the house went up for sale because of the default, the

Countrywide, co-founded in 1969 by Angela Mozillo had become the largest home loan provider in the U.S. with decades (Ferrell, Fraedrich, & Ferrell, 2013). During the 90’s, Countrywide’s loans reached $1 trillion and were known as the number one loan provider that help qualify people with low incomes to purchase a home. Countrywide also created a program called ‘House America” which was to assist people to get a home with lower down payments. By the year 2000, Countrywide provided one in six of the loans provided to consumers in the U.S. During 2003, Countrywide had formed another program called ”We House America”, which was put in place for low-income consumers as well as the minority consumer. Countrywide goal for the program was to provide

The mortgage crisis we are experiencing in the United States today is already ranking as among the most serious economic events since the Great Depression of the 1930’s. Hardly a day goes by without a story in the newspaper or on the cable news stations reporting about the increase in the number of foreclosures across the United States. The effects of this crisis have spread across all financial markets, where in the end all of us are paying a price for this home mortgage crisis. When the housing market collapsed, so did the availability of credit which our economy depends upon. The home mortgage crisis, the financial crisis and overall economic crisis all need to address by the

Michael Lewis, The Big Short, film strategically provided three separate but parallel stories of the U.S mortgage housing of 2008. The movie demonstrated how Wall Street, in a desperate search for profits, lunched “bonds” products with riskier mortgages. As a result, lenders were no longer interested in if a borrower could pay them back. In disbelieved, I noticed deceitful tactics that lenders used, throughout the movie, to convince Americans to take out mortgages they could not afford. Chronologically, Americans’ saving levels dropped while countries ' savings tripled. Once the Recession was in full effect, the US government rescued Wall Street, passing an unimaginably large bill, the bill we are still paying off. To most Americans’ surprise, nearly all of the rescue money went into Wall Street executives’ pockets.

Failure to implement homeowner relief programs would yield results that far exceeded local and state boundaries creating a nationwide catastrophe. As it is with the wide array of relief programs that “30% of those who qualified for relief have defaulted again” (ElBoghdady, 2014). Now, imagine the level of defaults if such programs did not exist. The lasting impacts of such programs could do wonders for the borrowers receiving help from the modifications or aid associated with the aforementioned relief programs. However, this would be less than desirable from an investor position who contributed to or agreed to offer relief in various forms. The unknown variables in the housing market could fall and result in the borrowers being upside again. Further affecting the banks with undervalued assets could result in a loss of investor confidence and face a collapse similar to that of Lehman Brothers. Although Lehman Brothers had other contributing factors to their collapse, contributory actions in the collapse was a result of bad mortgages and lack of investment to sustain its debts and operating expenses. Not having programs such as these could result in large investment firms either going out of business or the government deciding to use tax-payer dollars to bail-out the investment banks. Either way this depreciates property value and reduces income. The second and third order affects associated with reduced income and plummeting property values will directly affect consumer spending. This absence of consumer spending will create a ripple effect that could result in less supply and demand and increase unemployment. All of which could put the country into a depression that it may not be able to get out

“Not long ago, Countrywide Financial seemed to have everything going for it. Cofounded by Angelo Mozilo in 1969, by the early 2000s it had become the largest provider of home loans in the United States. At that time one in six U.S. loans originated with Countrywide. In 1993 its loan transactions reached the $1 trillion mark. Additionally, it was the primary provider of home loans to minorities in the United States and had lowered the barriers of homeownership for lower-income individuals. Countrywide also offered loan closing, capital market, insurance, and banking services to its

The logic behind Countrywide’s initial thinking of offering people loans with poor credit ratings was the ease of access to persuade the consumer. They believed they could initially sell a product that was too good to be true, to people who normally could not achieve this because of their financial status in society. This is a great marketing pitch because it appealed to a different kind of consumer for different reasons. “Corporate culture has been associated with a company’s success or failure and some cultures are so strong that to outsiders they come to represent the character of the entire organization” (Ferrell, et al. 2013, pg. 184). On one hand the people getting access to the subprime loans were noticed for what they did not have instead

Countrywide’s tactics often led borrowers to expensive and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s sales forces, fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America. Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, was intended to wring maximum profits out of the mortgage lending boom no matter what it cost borrowers (Morgenson, 2007).