Key Facts And Critical Issues Of The Countrywide Financial Meltdown

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.

Michael Hudson tells the stories of victims with many compelling storied who were tricked into signing up for risky high-cost loans, as well as the greedy lenders who scarified the lives of their victims to gain as much money and power as they could. Hudson begins his story with an explanation of deregulation and the resulting emergence of subprime mortgage lending firms in California. Roland Arnall was a pioneer of the S&L industry, and Hudson traces how Arnall’s lending operations grew into the nation’s biggest subprime lending empire, Ameriquest.

Financial Crisis of 2007-2008 originated in the United States spread to the financial systems of many other countries, including CIS countries, by means of the domino effect. Bankruptcy of one of the largest Americans Bank, Lehman Brothers Holdings PLC, in someway was a launcher of this global crisis the scope of that can be compared with the Great Depression of the 30s of the last century. No one could have even believed that a crisis in the local market of subprime mortgage loans in the USA would have such enormous affect on the financial systems over the world and crash banking sectors of many countries one by one.

The U.S. economy experienced a deep recession in years of 2008 through 2009. A huge factor in this was the number of large financial institutions that failed. Also, the stock market declined significantly which can be contributed to the bailout plan that was passed by our government. Third, spreads on many different types of loans over comparable U.S. Treasury securities has expanded significantly (Chari, Christiano, & Kehoe, 2008). The financial crisis is the result of the collapse of the housing bubble in the U.S., which can be seen as the starting point of a crisis in the global economy afterward.

Although I was fairly “green” to the business, I could recognize some loan programs and practices that sent chills down my spine and raised the hair on the back of my neck. What were worst of these programs and practices? The overall consensus agrees that risky lending practices and sub-prime mortgages were key influences in the housing disaster. Inflated market and sales prices also played an important role.

The financial crisis that put our economy on a downhill rocky road is known as the Great Recession of 2008. The U.S. Governments resolution to one the biggest panics was revolved around multiple bailout and fiscal measures. The fight to pull our weakening economy out of a dark hole left the American people with hope of advancing what gets thrown their way. The many bailout programs implemented by the U.S. Government can only hold the economy together for so long until were up to our knees in debt.

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,

hroughout History, our great Nation, the United States of America, went through many era's of financial crises that resulted in depressions. This also happened in 2008, when we experienced an immense financial crisis known as the Great Depression of 2008-2009. In an effort to end the financial crises, the government established three major bailouts: the Emergency Economic Stabilization Act of 2008 (EESA), the Troubled Asset Relief Program (TARP), and the American Recovery and Reinvestment Act (ARRA). Overall, the financial crises of the Great Recession of 2008-2009 caused the government to implement various bail-outs in an attempt to stabilize the economy. These programs have their own advantages and disadvantages that affect individuals and

There is no need to brow beat and second guess, or even provide verbal and other forms of reprimand for those who had succumb to their reign. It could have happened to anyone, may seem redundant, but the application is all over many situations that ultimately end this way. Transparency is a nasty word in the business community, but when people’s lives are at stake, it should be as common as the word hello. Another troublesome word to business owners, executives, and managers is regulations. The lessons from Countrywide’s failure are many: The Company lost touch with its mission. It got carried away by its own success and grew so fast after 2003 that its culture changed and customers were no longer protected by its lending practices. I think that more regulatory authority should be given to The Securities and Exchange Commission so that companies will have to provide month end, instead of quarterly reports which can be monitored by institutions designated in their particular operating field. Checks and balances are of vital importance to any organization that provides services to people who will rely on a purchase (like a house) long-term. Above all, the economic crisis exposed that the assets touted by Countrywide, other subprime lenders, Lehman Brothers and others couldn’t be counted on in the long term. The dream can be an

The mortgage and financial collapse of the United States economy had a very devastating impact on thousands upon thousands of Americans. I count myself as one who also had been affected as well.

The problem to be investigated is the ethics and effects of subprime loans on the financial institutions, borrowers and stakeholders. The subprime market was created to provide borrowers with a FICO score below 570 access to home loans. Inopportunely these loans were a major financial risk as most of the borrowers did not have the long-term income to pay for the high interest rate loans. (Jennings, 2012)

The Meltdown is a PBS special on the events of the financial crisis of 2008, in a timeline format, revealing the thinking behind decisions made during the fateful months before the stock market crash in August of that year. Some financial gurus on Wall Street devised a plan to bundle several mortgages together into a group, and then selling that bundle to another group of investors looking to invest in securities. The lender did not need to earn money from the loans he was giving out, he merely gained enough of a profit from the bundling operation that billions were being made on Wall Street from 2005-2008. The problem is that these bundles were risky, and as credit unworthy individuals defaulted on their mortgages, the entire system crumbled into what is now known as the Stock Market Crash of 2008, and have subsequently lived during the Great 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

The financial crisis of 2008 is known to be the worst disaster in our economy since the great depression in 1929. When federal reserve dropped interest rates to just 1%, investors turned away from such a low return. However, this 1% interest rate is beneficial to banks because they now can borrow from the fed much easier for less. Now there is a bunch of cheap credit across the country. Banks would use leverage to create great deals for profit, they continued the process and became beyond rich, then payed back the government. Investors see this occurring and want to start using leverage in their own way to make money. The investors connect themselves to homeowners and use leverage with mortgages. A family that wants to purchase a home pays

The initial cause of the financial turbulence is attributed to the U.S. sub-prime residential mortgage market. The sustained rise in asset prices, particularly house prices, on the back of excessively accommodative monetary policy and lax lending standards during 2002-2006, increased innovation in the new financial instruments, unusual low interest rates resulted in a large rise in mortgage credit to households; particularly low credit quality households, the greed of investors’ for ever higher returns coupled with very minimal down payments, along with the dependence on major global rating agencies, allowed complex investments products to be sold to an