Countrywide Home Loan Problems

At one time, before the subprime mortgage crisis that started in 2007, Countrywide Financial was the biggest mortgage lender in the United States. Countrywide's home loan problems became so great that Bank of America purchased Countrywide Financial Corporation in 2008.

Identification

Countrywide's practice was to sell their mortgages to investors, who put the loans into pools, according to MSN Money. Countrywide received cash from investors that this company would lend to new borrowers. Selling loans to investors kept the money flowing. Countrywide's problems began when investors stopped buying the mortgages this company underwrote.

Features

Countrywide sold mostly traditional loans to people with good credit, according to CNN Money, but this company also sold a fair share of subprime or risky mortgages. When homebuyers started to default on their mortgages, causing foreclosures, investors could not be sure of the worth of the new mortgages Countrywide was trying to sell them. With no new investors, the flow of money to Countrywide stopped. Countrywide also had trouble paying off debt and was headed toward bankruptcy.

Effects

Countrywide saw an opportunity for subprime lending because this company could charge higher interest rates for those loans. Countrywide became the fourth largest subprime lender in 2006, with $40.6 billion in risky loans, which ultimately caused this company's downfall.

References

• MSNBC: Bank of America to Acquire Countrywide
• CNNMoney.com: Countrywide Not Getting Proper "Credit"
• MSN Money: Countrywide, the Mortgage Mess and You