From: 1383, 3174, 6526
Date: April 12, 2008
Subj: Countrywide Financial Services
In 1969 Angelo Mozilo and David Loeb, two enterprising New Yorkers fueled by a commitment to help break down the barriers to owning a home, cofounded Countrywide Credit Industries, later to be known as Countrywide Financial Services. Years of growth and prosperity would eventually lead them to become the largest independent residential mortgage lender in the United States. By the end of 2005, Countrywide funded over $500 billion in home loans, employed more than 62,000 workers, and accumulated assets approaching $200 billion.[1] Unfortunately for Countrywide, by August of 2007 they would be forced to tap their entire $11.5 billion line of credit from a group of over forty banks just to fund new loans as the secondary market for loans all but disappeared.[2] On the brink of bankruptcy in January of 2008, Bank of America Corporation announced a definitive agreement to purchase Countrywide in an all-stock transaction worth approximately $4 billion.[3]
What happened to this once successful corporation? What managerial strategies were employed that led them down this path to eventual destruction and were these strategies to blame? What could Countrywide have done different to lessen the higher risks associated with the subprime mortgage lending market? These are the questions now facing the incoming Bank of America executives as they begin to examine what went wrong at Countrywide.
Subprime loans were much more profitable for Countrywide than prime loans and they had significantly increased their subprime lending to realize these greater profits despite the inherent added risk that came with them. In 2006 more than $200 billion in loans were of this category.[4] Subprime lending is lending that occurs at an interest rate higher the prime rate and this type of borrowing is typically sought by those with a poor credit history and little to no cash...