Discuss the ethical issues that caused the downfall of Countrywide Financial.
Not too long ago, Countrywide Financial seemed to have everything going for it. Co-founded in part by Angelo Mozilo in 1969, it had become the largest provider of home loans in the United States within a few decades. By the early 2000s, one in six U.S. loans originated with Countrywide. In 1993, loan transactions reached the $1 trillion mark. Additionally, it was the number-one provider of home loans to minorities in the United States and had lowered the barriers of home ownership for lower-income individuals. Countrywide also offered loan closing, capital market, insurance, and banking services to its clients. In the 1970s, Countrywide had diversified into the securities market as well.
In 1992, Countrywide created a program called “House America” that enabled more consumers to qualify for home loans, as well as to make smaller down payments. In 2003, the company proposed the “We House America” program with a goal to provide $1 trillion in home loans to low-income and minority borrowers by 2010.
At the time, Countrywide’s reputation in the industry was stellar. Fortune magazine called it the “23,000% stock” because between 1982 and 2003, Countrywide delivered investors a 23,000 percent return, exceeding the returns of Washington Mutual, Wal-Mart, and Warren Buffett’s Berkshire Hathaway. In 1999, the company serviced $216.5 billion in loans. By 2000 the continued increase in revenues was attributed, in part, to home equity and subprime loans. The annual report for that year states: “Fiscal 2000 shows a higher margin for home equity and sub-prime loans (which, due in part to their higher cost structure charge a higher price per dollar loaned).”
Subprime loans were a key factor to Countrywide’s immense success and rapid growth. However, the company’s reliance on what was originally intended to aid low income individuals also ended up contributing to its downfall.