1. In a narrative format, discuss the key facts and critical issues presented in the case.
2. What were the incentives for Countrywide to write so many subprime loans?
3. What was Countrywide's logic in thinking that originating loans for people with poor credit ratings would result in positive outcomes?
4. If you were CEO of Countrywide Financial, how would you have structured the evaluations of salespeople to prevent them from making loans to anybody without following specific guidelines on income, appraisals, and documentation?
I added two articles, 1) "How the roof fell in on Countrywide" and 2) "The deal that cost Bank of America $50 billion - and counting" to the Unit 4 Course Materials. You should read and review at least one of those articles and incorporate material from it into your responses to the Countrywide case study. Both were published after the case was written and include information that should be useful with at least one of the case questions in the Complete section.
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The key facts are that during the 1980s and beginning of 1990s Countrywide Financial was performing very well. It had become the largest provider of home loans and in 1993 the loan transaction reached the $1 trillion mark. At that time it created programs that qualified more consumers for home loans. The customers were also allowed to make smaller down payments and smaller interest payments during the initial years. The company made loans to low income and minorities. These were subprime loans. This means lending to borrowers, who were people who would not qualify for traditional loans at higher rates. This was risky lending because the customers are likely to default on repayments. It used adjustable rate mortgage requiring borrowers to pay low introductory payments for three to five years that would be adjusted annually. However, the economy began to ...
This solution of 623 words explains Countrywide Case Study in key facts and critical issues in the case such as incentives on subprime loans, logic on loans, and recommendations for future scenarios . The sources used are also included in the solution.