Countrywide was a diversified financial services company engaged in mortgage lending, banking, mortgage loan servicing, mortgage warehouse lending, securities, and insurance. Countrywide became the largest mortgage lender largely through aggressive sales techniques, and lowering their lending standards. Founded by Angelo Mozilo, California-based Countrywide had exponential growth by offering subprime mortgages to people with credit problems. They had several poorly framed strategies one of which was "Matching strategy" or "Supermarket strategy”, a process by which Countrywide would learn about and evaluate loan product offerings from its competitors and expand its product offering to match or exceed its competitors’ product offerings. The …show more content…
Subprime lending is risky because clients are less likely to be able to pay back their loans. Subprime borrowers pay premium above the prime market rate in order to compensate the lender for bearing greater default risk. In addition, subprime borrowers pay higher origination and continuous costs, such as applications fees, appraisal fees, mortgage insurance payments, late fees and fines for delinquent …show more content…
That worked as long as housing prices rose. But when prices started to fall, a huge percentage of the company's subprime housing loans went delinquent. Countrywide lost $704 million in 2007, and thousands lost their jobs. The stock fell 79 percent in 2007, the second-worst performance on the S&P 500. A number of legislative and economic factors contributed to the growth of the subprime market: • In 1980 the Congress passed Depository Institutions Deregulation and Monetary Control Act (DIDMCA) allowing lending institutions to charge high interest fees and rates to borrowers. Before that, only prime homebuyers had access to the mortgage market. . Countrywide has been plagued with multiple accusations of ethics violations from its CEO down to its personnel loan officers. In one such example a former employee explains how he tried to ring alarms at some of the questionable practices he noticed while working at the company. Some of these questionable practices range from: -Inflating home appraisals—so buyers could borrow enough to cover closing costs...but end up owing more than the house was worth. -Flipping loans—moving an unqualified buyer from a conventional loan to one that doesn’t require documentation, knowing they couldn't afford it. -Coaching borrowers—to overstate, even double, their income to