Arrow Case

1230 Words Nov 11th, 2012 5 Pages
1. What are the two ways Countrywide – or any mortgage lender - made money? In the beginning, Countrywide started making money by offering people mortgages that had very low rates. That didn’t make them #1 in the industry and when Angelo Mozilo became the only owner and the CEO of Countrywide, he decided to enter the risky-mortgages business so that he has the biggest share in the industry. This is how Countrywide started making the big money. Angelo’s theory was that all people should have the equal right to get mortgages so Countrywide started giving mortgages to everyone no matter their credit history or other mandatory requirements. The problems were that, “Minimal FICO scores were often ignored”; "Many mortgages were made based …show more content…
What is the conservative (low risk to Countrywide) type of mortgage loan that Countrywide made? The conservative or low-risk mortgages that Countrywide was making were the so-called “prime mortgages”. These mortgages are typically described as 30-year, fixed-rate mortgages given to people with very high FICO scores and income levels. These mortgages are usually given to “their best customers”. “They feature interest rates at least as low as the current prime rate offered by the Federal Reserve to banks. Some prime mortgages, though, feature rates considerably lower than that rate. These loans almost always require down payments on the part of borrowers, which may be as much as 20 percent of the home's sale price, although 10 percent is more common.” So basically, the prime mortgages are everything that the risky, subprime mortgages are not. Countrywide also became famous with the prime mortgages that its CEO Angelo Mozilo created for his friends. This program was called "Friends of Angelo (FOA)" VIP program. They received prime mortgages only because they were his friends.

3. Countrywide, beginning in 2004, greatly decreased the percent of conservative type of mortgage loans. It greatly increased the percent of loans that had a high risk to Countrywide. Briefly describe some of these high risk loans, but make sure you tell me why such a loan is high risk to Countrywide (i.e. higher risk of default) a) Nonprime (also called Subprime)

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