Countrywide Subprime Loan Business

Countrywide Subprime Loan Business

Thinh, Vu Q

tvu0193@student.bristoluniversity.edu

Bristol University

BUS 500: Business Foundation

14-Dec-2013

Countrywide Subprime Loan Business

Countrywide Financial was one of the largest provider home loans in U.S before involving in subprime lenders scandal that causes the financial crisis. Its predatory lending practices resulted in disgustingly large payouts for executives while sticking low-income borrowers with explosive mortgages they had not a hope of paying back. Numerous "liar loan", loans that required no proof of borrower's income or assets allowing consumers to purchase homes while having few or no assets, are traced back to the company. Some of these "liar loans" was made up to 50% of the customer's actual income1. Many homeowners with liar loans could not pay their mortgages nor were they able to refinance their homes. In the wake of headline-grabbing corporate financial scandals, management and boards of directors of Countrywide are under intense pressure to answer the public regarding company strategic and operational activities that cause the crisis.

Which management function did Countrywide fail to implement properly?

The first failure in Countrywide occurred at management C level was the planning, whether strategic plan, tactical plan or operational plan. According to Ferrell, Hirt and Ferrell (p.181), a strategic plan establishes the long-range objectives and overall strategy or course of action by which the firm fulfills its mission. Countrywide planning is to make "liar loans" in exchange for quick profit. Countrywide official, including CEO Angelo Mozilo, were found conduct criminal act in company subprime mortgage scandal. Mozilo has been publicly excoriated as one of the real villains of the subprime scandal. He has been agreeing to pay a $67.5 million penalty and reparations to investors, and accepting a permanent ban from serving as an officer or director of a public company2. Mozilo did not tell investors the truth about Countrywide's exposure to risky mortgages, which was an evidence for management failure at director level. Directing is another failure in management function, Countrywide's salesperson has made deceitful conduct and careless standards in the way they provided sub-prime mortgages to customers. Lower interest rates helped more people afford homes. However, Countrywide began advertising a technique that allowed people who already owned their home to take advantage of lower rates to buy another. They also accused of using misleading marketing to sell mortgages packed