Countrywide Financial Case Summary

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.

The responsibilities of the mortgage brokers to the borrowers, lenders, and investors were to promote the subprime mortgages to these groups of people in order for them to take out a loan. Although they did fulfill their responsibilities of promoting and having people sign up for it, they mishandled on how people should be granted for a mortgage loan. These brokers were to desperate about earning huge amount of money due to the expanding market that they ignored the proper precaution that they should have taken when they

After the optimistic forecast from the realstate that the houses value were going to increase, many institutions started to make adjustments to take profit from this trend. In some cases, prime mortgages were allowed for subprime borrowers to take. This might look like a great idea to financial institutions because the house values were rising: if a people (who in the first place couldn’t afford a house) stop paying their mortgages then the bank could sell the house for a value greater than the one at the moment of default. Everything was going well, so how is it that the crisis unfolded? Well, these institutions wanted to make more profit

Subprime lending became prevalent in the early 2000’s when property values were sky-rocketing and many Americans thought they would fulfill their home ownership dreams, by obtaining loans they may not otherwise qualify for. A subprime loan is a loan offered to an individual who does not qualify for a loan at the prime rate due to their credit history. Subprime loans have higher interest rates because of the risk that the lender is taking. During the early 2000’s the housing market was great for homebuyers, since interest rates where low and property values

The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary policy moves and poor housing policies. The federal government encouraged the expansion of risky mortgages to under-qualified borrowers. Congress pushed for the support of affordable housing through extended procurement of non-prime loans for applicants with low income (Zandi, 2008). The cutting down

The decision to expand the subprime mortgage market back in 1999 was consider by the experts a good solution to grow the economy quicker, but I personally think that the bank leaders knew that it would have come down at one point to that crash. The higher home prices went, the more creative lenders got in an effort to keep them going even higher, they seemed not worried about the future consequences, because the lenders were making a lot of money and if something would have go wrong they would not really care about their bank going bankrupt. In conclusion, the whole system the bank created to make more money was really wise because it was basically making everyone richer. But when it got to the point of the “subprime”, the banks were really trying to look for trouble and that is what they

There is no doubt that subprime lending was a major cause of the Recession. It was a tactic used by investment banks in order to get more money from unsuspecting homeowners. However, lenders found out that most of the people who were qualified to have a mortgage already had one. In turn, the lenders had to lower their credit criteria for people to take out a loan on a house. This is how the term subprime lending came to be in the financial world. As a result of subprime lending, the investors were able to make millions off of these mortgages. People who qualified for a subprime mortgage usually had a credit score below that of 620. To make the subprime mortgage deal more customer friendly, the lending banks decided to have the people who qualified for these mortgages didn’t have to have a down payment. Normally, the down payment would be as much as 20%, but this made it easier for people to get mortgages without having to worry about how much money they needed at the beginning of their purchase. “ Many American homeowners bought houses they could not afford,

The problem was everyone who qualified for a mortgage already had one. Lenders knew if they sold a mortgage to a person that defaults the lender gets the house, and houses were always increasing in value in that market, that would be a valuable asset to sell. To keep up with the demand from investors, lenders started selling mortgages to borrowers who wouldn’t have qualified before because of the risk for default. These mortgages are called sub-prime mortgages and lenders started creating tons of them. In the unregulated market, lenders employed predatory tactics to get more borrowers with attractive offers such as no money down, no credit history required, even no proof of income. People never would have qualified before were now buying large houses, and the lenders sold their mortgages to Investment bankers. The investors packed subprime mortgages in with prime mortgages so credit agencies would still give a AAA rating. The rating Agencies who had a conflict of interest by receiving payments from the investment banks, had no liability if their credit ratings were correct or not. They turned a blind eye to the risky CDOs and kept giving AAA ratings. This worked for a while and everyone was happy including the new homeowners. The housing market became hyper inflated with more homeowners than ever. Wall Street continued to sell their CDO’s which were ticking time bombs. The subprime mortgages began

The U.S. subprime mortgage crisis was a set of events that led to the 2008 financial crisis, characterized by a rise in subprime mortgage defaults and foreclosures. This paper seeks to explain the causes of the U.S. subprime mortgage crisis and how this has led to a generalized credit crisis in other financial sectors that ultimately affects the real economy. In recent decades, financial industry has developed quickly and various financial innovation techniques have been abused widely, which is the main cause of this international financial crisis. In addition, deregulation, loose monetary policies of the Federal Reserve, shadow banking system also play

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage

Loans at the time were nonamortizing and required a balloon payment at the expiration of the term. Mortgages were available to a limited client base, with home ownership representing about 40 percent of U.S. households. Many of these short-term mortgages went into default during the Great Depression as homeowners became unable to make regular payments or find new financing to pay off balloon payments that became due. The United States government intervened in the housing market in 1932 with the creation of the Federal Home Loan Bank (FHLB). The FHLB provided short-term lending to financial institutions (primarily Savings and Loans) to create additional funds for home mortgages. Congress passed the National Housing Act of 1934 to further promote homeownership by providing a system of insured loans that protected lenders against default by borrowers. The mortgage insurance program established by the National Housing Act and administered by the Federal Housing Administration (FHA) reimbursed lenders for any loss associated with a foreclosure up to 80 percent of the appraised value of the home. With the risk associated with default on FHA-backed mortgage loans reduced, lenders extended mortgage loan terms to as long as 20 years and LTVs of 80 percent. In 1938, Federal National Mortgage Association (FNMA) was established

During house price “bubbles”, subprime loans were introduced to people with low ability to pay off their mortgage, especially to households with low income. Unfortunately, these loans were distributed unevenly across the country (Silje Pileberg, 2014). His article pointed out that this loan was specifically for borrowers with low credit scores (FICO scores less than 640, for example). However, the system seemed not to work fairly just as Pileberg (2014) described. A recent research by Barth (2009) demonstrated that 31 out of 32 types of available mortgage products were chosen by prime borrowers from January 1999 through July 2007. This is because the difference between prime and subprime lending becomes artificial due to the fact that lender can define on its own which borrowers are subprime. The subprime lending eventually grew rapidly. Barth (2009) showed that subprime home mortgage originations went up

The word meltdown no longer applies to just nuclear reactors, unruly toddlers or Popsicles and is extended to sub-prime as well. The sub-prime mortgage crisis was a slight tremor that turned into a disaster, threatening to plunge the U.S. economy into its worst recession since the tech bubble in the early 2000s. The only consensus on the issue of who caused the financial sub-prime crisis of 2008 has been that there were many who did. In the instance of sub-prime mortgage woes, there is no single entity or individual to point the finger at. Instead, this mess is a collective creation of the world 's central banks, homeowners, lenders, credit rating agencies and underwriters, and investors.

The effects of subprime mortgage were horrendous, as it causes domino effect in the entire chain. The risky ARMs loan had become a toxic debt, causing financial fragility (Ebrahim, et. al., 2014) which leads to economic collapse. There were too many debt in the economy and financial institutions starts to fall out. Large financial institutions in the United States like Bear Stearns, Merrill Lynch, Goldman Sachs, Morgan Stanley and Lehman Brothers, were either taken over, bailed out by the government or went bankrupt (Wikipedia, 2015). The collapse of Lehman Brothers and government’s refusal to bail-out had been the starting point for extraordinary downturn in global economy (Garnaut, 2009). Stemming from that, financial institutions now believe that no one is safe. Government

Subprime represents the borrowers with weak credit history including defaults, bankruptcies etc. The U.S subprime mortgage crisis was a situation where the subprime borrowers started defaulting their loans and sharp reduction in home prices occurred as a result of which the heavy investors in mortgage sector suffered substantial losses. These crises created a global impact and triggered adversity throughout various sectors in the economy.