Countrywide Financial, co-founded in 1969 by Angelo Mozilo and David Loeb became the largest provider of home loans in the U.S., where one out of every six loans originated with Countrywide (Olster, 2010). Countrywide found its niche providing loans to minorities, those with less than stellar credit, and by issuing loans to low income families. Numerous families, unable to achieve the American dream, had the capability of becoming home owners, because Countrywide diminished the barriers preventing this group from obtaining home ownership (Ferrell, Fraedrich, & Ferrell, 2013). “House America” and “We House America” were two programs created at Countrywide to assist low-income and minority individuals with home ownership by offering lower …show more content…
market began to slow and consumers began to spend less of their disposable income. Contractors continued building homes and Countrywide continued loaning money (Ferrell, et al, 2013). Accordingly, many homes were on the market for sale with a decreased number of buyers. By late 2007 and early 2008, foreclosure rates were rising and borrowers and investors were dealing with the aftermath of high-risk loans (Ferrell, et al, 2013). New homes sat vacant with no buyers in sighy, homeowners were unable to continue paying, some in part due to increased payments accrued from variable interest rates, and banks were feeling the strain. By 2008, Countrywide accrued over $8 billion in subprime loans with seven percent delinquent, while the industry average was nearly five percent deliquent (Ferrell, et al, 2013). By this time, Countrywide was facing a serious trouble. In an effort to assist homeowners facing foreclosure, Countrywide created Countrywide Comprehensive Home Preservation, which enabled consumers’ with the opportunity to refinance or modify adjustable rate loans for a lower interest rate or a fixed rate (Ferrell, et al, 2013). Although, the program was created in an honest effort to help, the damage had already occurred. Unfortunately, the program was too late as the government was now questioning the lending practices at Countrywide (Ferrell, et al, …show more content…
Bank of America, under the impression they had made an excellent business decision was unaware of the totality involving Countrywide’s loan practices. Only a small group of Bank of America’s employees were involved in the assessment of Countrywide’s books and operations techniques, yet had no input in the acquisition (Rothacker, 2014). Only a matter of time, Bank of America would realize the magnitude of legal issues it had acquired from Countrywide. However, Bank of America, which was much larger, had the ability to manage the negative media and confront the rising legal troubles better than Countrywide. Ironically, in 2001, Bank of America discontinued subprime mortgages and higher priced loans to riskier consumers (Rothacker,
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.
This power helped white families considerably in gaining ownership of houses, but severely crippled home ownership ability for African American families. The role of the HOLC was to provide low interest loans and refinance homes to prevent foreclosure; the role of the FHA was to guarantee mortgages from default. Both of these organizations worked to minimize the risk of home loans for banks, making it easier for families to obtain loans and mortgages to buy homes. This resulted in an explosion of home ownership from the 1930’s to the 1960’s, “In 1930, only 30 percent of Americans owned their homes; by 1960, more than 60 percent were home owners.”
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
The desire for home ownership is something embedded in our DNA. Claiming property and owning a house is a critical part of the “American Dream.” Home ownership represents more than just a place to rest your head at night. Your home is the environment that serves as a setting for your journey through life. It’s the place of your children’s first steps, family birthdays, barbeques, amongst many other significant events. Your home is the backdrop that describes you and your family. Although many American’s were financially hurt by the trillions lost in the home equity market during the housing bubble, there is and will always be a desire to own a home. The most vital part is that American’s who lost their homes during the crash, learn from their past, so that they do not repeat a foreclosure.
The Home Owners Loan Corporation was established in 1933 by Franklin D. Roosevelt to protect homeowners from foreclosure. Its purpose was to increase housing investments after the Great Depression when the values of homes were halved and the efforts of Herbert Hoover failed. The Home Owners Loan Corporation was able to refinance mortgages with loans from private lenders with federal backing. This federal backing gave private lenders the confidence of security. In order to determine who would get loans the Home Owner Loan Corporation developed the neighborhood rating system which would categorize and discriminate the value of neighborhoods based on race, ethnicity, age, and religion. There were four classes used to determine whether a neighborhood was a good, fair, risky, or bad investment. The colors were respectively green, blue, yellow, and red. To be considered a good investment, homeowners had to be white, Christian, and live in new housing. A fair investment consisted of the same type of people but in older housing. A risky investment would consist of older housing and homeowners who were black, Jews, or foreigners. A bad investment was considered
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
FDR’s affordable housing initiative was responsible for the rapid expansion of home ownership throughout the United States (Allen and Barth, 2012). This was accomplished in part through the creation of The Federal National Mortgage Association, which provided affordable low down payment mortgages extended over a 30-year period of time. Over the past several decades the United States economic policy has been to encourage home ownership (Bluhm, Overbeck and Wagner, 2010).
Until every home loses value, buying a home will continue to be a prudent investment for those who can’t buy stocks or bonds. Purchasing my home was a major milestone in my life as well as an investment I could make for my future. Adalberto Aguirre believes that “For many Americans, homeownership is synonymous with success, independence, and the achievement of the American Dream.” Homeownership is seen as a pathway to aspects of the American dream; for instance, the ability to pay for a college education, providing start-up capital for a family business, or funding retirement plans (Aguirre 6). Owning a home, like earning a college education, is something I thought was supposed to be coveted for not only ourselves, but also for our friends and family. Helping others attain the American Dream certainly took a backseat to profits in the minds of countless mortgage brokers and lenders during the 2000 housing boom.
Countrywide’s logic in thinking that originating loans for people with poor credit ratings would yield positive results because it gave them an opportunity to get their credit issues fixed. The subprime loans came with many options for people. Some options were the adjustable rate mortgage use to pay low introductory rates and the balloon payment which allowed people to pay only the interest on the loan for the first few years and then pay off the principle or sell their home when the life of the loan expired (Fraedrich, Ferrell, Jackson, 2013).
Brooklyn, NY – December 30, 2009 Foreclosures continue to rise drastically across the United States due to the recession, and have effected, and continue to affect thousands of families and individuals every day. One aspect we must take into consideration is that most people are not informed of what foreclosure means, or the process, even those who are homeowners. I believe that one step to preventing foreclosure is to educate first-time homebuyers. In addition, first-time homebuyer programs should not only assist potential buyers with financially preparing them to buy a home, but to keep the home once
The 2008 mortgage crisis was preceded by a series of missteps and unfortunate circumstances culminating in a perfect storm that triggered the worst financial meltdown since the great depression. After experiencing an 87% increase in average home prices between January 2002 and mid –2006, the mortgage market steadily declined and the boom began to subside. Unfortunately, the boom soon became a bust and by the end of 2008, housing prices were about 25% below the peak level achieved in 2006. As a result liquidity and capital disappeared from the market. (Jeune Renay. Lessons Learned In The Aftermath Of The Mortgage Crisis). A period of unusually high home foreclosure rates that caused an impact on the economy is still some years later an unfolding story in many American cities. It was not just a subprime event, but a much broader phenomenon that was among the most notable economic events of recent years. This was the result of irresponsible buyers who borrowed much more than they could afford. Regardless of the cause, foreclosure was difficult for the individuals who experienced it. They simply were buyers who had not done their homework. Today is safe to say that home buying isn’t for everyone. Despite all that has been said and done about this crisis, one realizes a need to understand and discuss the lessons learned as well as determine silver linings drawn from the event which will more fully illustrate how buyers are benefiting today. The following paragraphs will explain
In order to discuss the financial crisis of 2008, a person must understand the history of the mortgage industry. This case study shed light on one of the leading companies in the mortgage industry, Countrywide Financial, helping people recognize the events that led up to the crisis of 2008 by providing a breakdown of the company and showing the range of their operations (Eastburn, 2010, p. 247-262). To help people understand the crisis of the mortgage company, strategies and plans will be discussed as well as a SWOT analysis on the industry that includes financial ratios, and recommendations for the organization. By the end of this paper, there should be a better understanding of the issues that led to the financial crisis as well as some ideas that may help them get back on track.
Since 2006, the number of foreclosures in the housing market has sparked dramatically. This is due to the fact that banks have given out subprime mortgages or interest-only loans to consumers regardless of their credit score. One of the main reasons why banks did not care about consumers’ credit history is because they resold the loans as mortgage-backed securities. This caused the loans to fall into the hands of credit rating companies that rated the loans too positive; thus, these assets were expanded and helped lead to the foreclosure crisis without hurting the banks directly. The goal was that banks lustily sought the big payoff that these mortgages could provide. The mortgages and loans let low-income consumers pay only a low rate of
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).