Countrywide & Subprime Lending Crisis

4911 Words20 Pages
Executive Summary
Even though Countrywide stopped offering subprime loans 4 months ago, the company is still in the forefront of the subprime mortgage lending and foreclosure crisis.
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.
The company has lost its place as America 's Home Lender and has been quoted by few as America 's Home Wrecker.
Countrywide reacted to the crisis, but reacted slowly. Originally Countrywide denied the existence of the problem and downplayed its importance. As the problem developed into a crisis,
…show more content…
The goal of this lending program is to reach minorities and groups with low- and moderate income.

Subprime lending
Subprime mortgage lending is the origination of residential mortgage loans to customers with impaired credit histories. Typically, these borrowers have lower credit scores and/or other credit deficiencies that prevent them from qualifying for prime mortgages. 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 payments.

Subprime Mortgage market
Since mid 1990s, the subprime mortgage market has grown rapidly experiencing a phenomenal 23% compound annual growth rate to 2006. The total subprime loan originations increased from $65 billion in 1995 to $613 billion in 2006. The subprime sector has become a significant sub-sector of the total residential market accounting for 21% of all residential mortgage originations in 2006. Similarly, by year-end 2006, total outstanding balance of subprime loans grew to $1.2 trillion, approximately 12.6% of all outstanding mortgage debt.

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
Get Access