CASE ANALYSIS

Case Analysis: Countrywide Financial Corporation

Table of Contents

Introduction1

Background2

History of Mortgage Lending in United States2

Subprime Mortgage Market3

Global Mortgage and Crisis4

The U.S Financial Crisis4

Countrywide Financial Corporation6

Financial Ratios and Analysis7

Analysis of the Strategic Issues9

External Environment Factors9

Government Policies9

Interest Rates10

Internal Environment10

Weak Corporate Governance11

Conflicts Of Interest11

Unethical Management Behavior12

Predatory Lending Practices12

Recommendations13

References15

Case Analysis: Countrywide Financial Corporation

Introduction

Countrywide financial corporation was founded by the chairman Angelo Mozilo, who was also considered to be the driving force behind the company success and efforts to become the largest real estate mortgage originator in America. The company was established in 1969 by Angelo and former partner David, with the strategic intent of developing a nationwide mortgage lending firm. The company started by opening a retail branch in California in 1974 and established 40 offices in eight states of America. The company also launched a securities subsidiary which specialized in the sale of mortgage backed securities. The company began to grow and its annual loan production exceeded to $1 billion. The market value of financial corporation has reached to more than $24 billion in the year 2006, but in the year 2007, it growth was affected and it decreased rapidly. The reason behind the downfall was that it invested in risky loans, which were likely to default (Eastburn, 2001)

The main reason behind the default was the strategic issues in the management of countrywide financial corporation. The main issues were the predatory lending, which means the company was involved in fraudulent and they also sold unsound dangerous financial products to its customers. The company also had weak corporate governance. Even it was in loss, the directors allows Mozilo to reap personal gains.the main reason behind the decrease growth was the ineffective strategic keyed to the development of the subprime mortgages and no down payment loans.

The paper will give a brief overview of the industry and the organization and the key players of the case. The paper will also highlight the key strategic issues the company countrywide financial corporation is facing in the industry and also the analysis of the internal and external environment, followed by the recommendations that will improve the growth of the countrywide financial corporation.

Background

History of Mortgage Lending in United States

The first mortgage was recorded in England, in which an individual used to borrow money to buy a house and if they didn't pay their debt, the creditor would take the property. In the United States, the home mortgage instruments came into being before the great depression. Initially the instruments were short term for a period of 3- 10 years. In this period, all loans were none amortizing and they also required a balloon payment at the expiration of the term. The mortgages were only available for a limited number of clients with home ownership which represented around 40 percent of the U.S households. During the great depression many short term mortgages went into default and losses because people were unable to afford the regular payments (DiMartino & Duca, 2007)

In the year 1932, the government of America intervened in the housing industry and they ...