Case Study on Countrywide Financial. Mathematics & Economics Essay

Countrywide Financial Corporation Case Study
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Countrywide Financial Corporation Case Study
In 1969, David Loeb and Angelo Mozilo established the Countrywide Financial Corporation. The primary mission of the firm was to provide home loans to low-income earners nationwide. Throughout the 1970s, Countrywide maintained a slow, steady growth, which contributed to the firm restructuring its operations. As such, the company included low-cost products after standardizing its processes and implementing the computer technology. By 1978, Countrywide had started to make more profits since its products became popular and highly competitive. However, the low-cost products targeting low-income earners, some of who did not have strategies to repay their mortgages, was the beginning of the company’s downfall.
Countrywide’s decisions to maximize its profits on loan generation and giving mortgages to middle and low-income families were inappropriate. Since 1978 to the late 1990s, the company was growing gradually, and it expanded its operations in different parts of the United States of America (USA). For instance, in 1981, the company started selling mortgage-backed securities, became a bank holding, and in 1987 Countrywide began servicing loans borrowed from different lenders. By 1992, the firm was the biggest mortgage banker in the USA, with revenues amounting to $2.59 billion (Gale Business Insights, 2019). The most uninformed economic decision that Countrywide made was to focus on the minorities, middle, and low-income families, which were the populations that drew little or no attention from other lenders and traditional banks. At this point, Countrywide was committing suicide unknowingly.
The introduction of Alternative-A (Alt-A) mortgage and flexible underwriting programs that focused on low-income families was another bad economic decision that Countrywide made. Specifically, Alt-A mortgages are riskier than prime loans. Although individuals who qualified for these loans must have good credit scores, Countrywide failed to consider significant factors, such as borrowers’ income and the debt-to-income ratio. The Bank of America’s chief executive offic...