Arrow Case

People started to buy houses that they couldn’t afford and then they were left behind leaving. The economy is falling and so are the communities. Insects, graffiti, dirty pools are left behind since people are evicted and people don’t have were to go.

The responsibilities of the mortgage brokers to the borrowers, lenders, and investors were to promote the subprime mortgages to these groups of people in order for them to take out a loan. Although they did fulfill their responsibilities of promoting and having people sign up for it, they mishandled on how people should be granted for a mortgage loan. These brokers were to desperate about earning huge amount of money due to the expanding market that they ignored the proper precaution that they should have taken when they

The regulation that I have chosen for this paper is amendment in the Regulation X i.e. “Real Estate Settlement Procedures Act” and Regulation Z which is for “Truth in Lending”, for establishing the new disclosure requirements and forms in Regulation Z for the most closed-end consumer credit transactions secured by the real property. This regulation is controlled by the Bureau of Consumer Financial Protection. The role of the Consumer Financial Protection Bureau (CFPB) is to provide consumers information related to the terms of their agreements with financial companies during their application for a mortgage, choosing among credit cards, or using any number of other consumer financial products. The mortgage market is the single largest market for the consumer of financial products and the services in the United States, with approximately $10.4 trillion in loans outstanding. Since last decade, market went through an unprecedented cycle of the expansion and the contraction that was fuelled in the part by securitization of mortgages and the creation of increasingly sophisticated derivative products. This led to the collapse of financial system in 2008 and sparked the most severe recession in United States.

However, these mortgages required no income verification, or resources to pay for the mortgage, as long as they signed the mortgage papers. Fanny Mae and Freddie Mac were the lending arms that provided the money. Both are now government run, but formerly were privately held companies, unlike Ginnie Mae, which is fully backed by the government. When the homeowners could no longer pay their mortgages, the house of cards collapsed. With the lack of education in this country, the middle and lower class were greatly affected by the government’s intervention in Mortgage rates. The subprime mortgage crisis can be blamed for much of this country’s economic problems, but we don’t need to point fingers at what went wrong, we need to address the problems and find solutions.

EXAMINE THE FACTS. The housing market was making huge financial gains by misleading buyers into buying home that were out of their budget, lenders and originator created unconventional mortgages to people who were at high risk for default.

27). You now had highly leveraged mortgage loans, with a decreasing 30-year conventional mortgage rate, and rising home prices (Exhibit 1 & 3). According to the National Bureau of Economic Research the trifecta of, “rising home prices, falling mortgage rates, and more efficient refinancing lured masses of homeowners to refinance their homes and extract equity at the same time, increasing systemic risk in the financial system” (Belsie). As home prices continued to rise from 2000-2006 (Exhibit 1), individuals could then refinance their homes, collect their equity, and then use that money to purchase another home with no background information needed. As Michael Lewis mentions in The Big Short, “Steve Eisman’s baby nurse and her sister said they owned six townhouses in Queens. After they bought their first one, and it’s value rose, the lenders came and suggested they refinance and take out $250,000-which they used to buy another” (Lewis, 2010, p. 98). This would eventually happen multiple times as home prices rose until they owned five townhouse. Moving forward, it was the brokers & lenders who would fall next in line of greasing up the doomsday machine. From 2003 to 2006 sub-prime mortgage lending as a percentage of all mortgages originated tripled in quantity, of which for than 75% would be securitized into collateralized debt

“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

If I’m having lunch with a male co-worker, and his conversation causes me to laugh and smile, one may interpret that as flirting, or maybe even question the nature of our dine because I am married. Values and morals are important when it comes to ethics, the lower the principles and standards; the less likely one is to be considerate of how their actions may influence the outcome in a negative direction. Moreover, culture, in respect to ethical relativism, is another animal in and of itself. The culture of Countrywide was paved by a path of deceit, misappropriation, dishonesty, selfishness, pretentiousness and greed. It spread with upper category level hurricane force winds through an endless channel of investors, public officials, financial institutions, to harmless, innocent consumers. With that being said, we have a natural instinct to want to improve ourselves and our lives, especially when one has become a family. Everyone has the ultimate dream in some form or another, and homeownership is usually very high on the list. Mozilo’s parents had been too poor to own their own home, a fact that was definitely a force that drove him to entrepreneurship. He co-founded Countrywide in 1969 with the mission of making home ownership affordable for everyone. One would probably offer that there was joy and happiness for a series of excited buyers and builders when the

I was unlucky enough to be front and center working for a homebuilder at the time of the real estate crisis. The mindset of sellers, realtors and mortgage brokers before the “bubble burst” was something that was very obvious to me as a lack of care for the long term homeowners and their financial welfare. While the banks like Countrywide Home Loans and Bear Stearns (JPMorgan Chase Bank) were making billions of dollars on mortgages, they were ridiculous in thinking that this would not come back on them tenfold. How can you purchase a loan and approve it through underwriting without first verifying the documents were accurate? How could I get a home loan when I was 21 and had a credit score of 1? Well, this definitely happened. I had a cosigner, of course, but still, the qualifying standards back in 2005 were relaxed to a fault. I liked to think that I was responsible enough to have this investment in a property to call my own, but we bought at the height of market in Orlando, and only gained in equity for about 6 months. In 2007, our house was worth $40,000.00 less than what we purchased it for.

In 2008, one of the biggest financial recessions of our time occurred. The blame that should be placed on the unexpected crash of the housing market should come from the shady business strategies used by banks and investment agencies, which caused millions of everyday people to lose their jobs and homes. The role of subprime mortgages, CDO’s, and illicit ratings caused the biggest financial crisis since the Great Depression. The culmination of these things led to the downfall of the economy and start of a recession.

Countrywide was fueled by several incentives to write subprime loans. Over 28 percent of Countrywide’s earnings are related to subprime loans offered by the business to assist low income families obtain a home (Ferrell, et al, p. 387). With this said, Countrywide evolved their financial earnings through utilizing subprime loans. The most powerful incentive Countrywide obtained was being acknowledged as America’s leading home lender. Countrywide became so large and strong that they felt impregnable (Olster, 2010). With impeccable profits comes the desire to expand. Expansion incentives radiated throughout the housing market. Countrywide sought to expand their subprime loan offerings to contractors and those outside of the low income market

Countrywide Home Loans (Countrywide HL) provide, service, and sell mortgage loans and after-loan services such as collections and payment processing. As a leader in the mortgage industry, they provide these products and services to homeowners through prime and subprime mortgage loans and subsequently resell these loans to investors. In 2009, the United States (US) Treasury Department (Treasury) invested (i.e., US taxpayer-based funding) in Countrywide HL under the Treasury’s 2009 Troubled Asset Relief Fund aka TARP (treasury.gov).

The problem was everyone who qualified for a mortgage already had one. Lenders knew if they sold a mortgage to a person that defaults the lender gets the house, and houses were always increasing in value in that market, that would be a valuable asset to sell. To keep up with the demand from investors, lenders started selling mortgages to borrowers who wouldn’t have qualified before because of the risk for default. These mortgages are called sub-prime mortgages and lenders started creating tons of them. In the unregulated market, lenders employed predatory tactics to get more borrowers with attractive offers such as no money down, no credit history required, even no proof of income. People never would have qualified before were now buying large houses, and the lenders sold their mortgages to Investment bankers. The investors packed subprime mortgages in with prime mortgages so credit agencies would still give a AAA rating. The rating Agencies who had a conflict of interest by receiving payments from the investment banks, had no liability if their credit ratings were correct or not. They turned a blind eye to the risky CDOs and kept giving AAA ratings. This worked for a while and everyone was happy including the new homeowners. The housing market became hyper inflated with more homeowners than ever. Wall Street continued to sell their CDO’s which were ticking time bombs. The subprime mortgages began

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).

Risk management changed around the world since the bankruptcy of Enron in 2001 however, it was found by many that it was still not enough since the mortgage crisis of 2007 and 2008 took place after many risk management safeguards had already been put into place. One company emerged a leader among all others in what was failing in the mortgage servicing industry. The industry had sustained unprecedented losses and could be not able to deal with the ensuing financial meltdown that was about to occur. The company is Ocwen Financial. Ocwen Financial grew tenfold during the housing crisis due to their unique positioning and expertise in the mortgage servicing industry. It became the largest non-bank mortgage servicer at a place that many banks such as Bank of America and J.P. Morgan Chase would soon be placing their mortgage servicing with.