Countrywide Financial Corp is identified as one major organization that was acquired by Bank of American Corporation. Considering the general operation of the company, Countrywide Financial Corp is working on offering home loans with the company working on offering finance mortgage solution, home equity lines of credit, home loans for new loan purchases, investment homes, commercial loans and the general mortgage products. The company was founded in 1969 with its headquarters being located in Calabasas California. Historically, the company has changed gradually and this has even been reflected when the company decided to change their name to countrywide financial Corp from Countrywide Credit Industries Inc.
Countrywide Financial was listed among the greatest mortgage lenders in America during the period when the housing market was at its peak. In order to become one of the market leaders, the company shifted from conventional and fixed-rate mortgages to tempting loans. Thus, Countrywide started giving out loans to borrowers with poor credit leading to a failure in income realization. Seemingly, a lot of people began borrowing with Countrywide and as a result, their short-term revenues grew massively(Bellwether Report,2006). However, when the people were unable to repay their loans, the company was forced to maximize their reserves to recover the loses. Moreover, the stock prices reduced and close to 90% of Countrywide's value was lost.
It is very clear that the company is offering loans to clients who are high-risk client's and banks are not fully qualified to take care of qualified conventional clients. In this case, it is recognized that Subprime loans are considered to be an unethical financial instrument. This is unethical since, during the time period that the company was offering the loan, they were very aware that the time they were being offered a loan, most of them were not capable of paying back since they fell in the low-income bracket(Rothacker, 2014). Hence it can be considered that Subprime loans are some of the unethical financial instruments which a company can use improperly to maximize the profit ratio and increase its market share.
The events led to several lawsuits against the company and the executives at Countrywide board. The lawsuits claimed that the company had been involved in securities fraud by withholding the full information of the nature of the products from investors offered by Countrywide Financial. The loans offered were of subprime loans which are mortgages with a higher interest rate as compared to normal loans. Typically, subprime loans get offered to borrowers with poor credit scores. The interest rates fluctuate over time which caused both shareholders and borrowers to encounter huge debts. Therefore, the lawsuits aimed Countrywide and its long-time auditor KPMG. Notably, Countrywide ended up paying $ 600M while KPMG was charged $ 24M for the settlement. In the end, the CEO ended up selling the company to Bank of America at $ 4.1 billion which is a fraction of what it was worth.
There were a couple of ethical issues and legal issues that took place in the crisis that befell Countrywide Financial. First of all, the subprime loans imposed on borrowers were issued in an unethical manner. The company failed to explain to borrowers the process involved in loan payment and the consequences associated with it. Moreover, Countrywide deceived the borrowers by the act of issuing loans without having an understanding of their income and assets in the move to maximize their short-term profits. In addition, the company issued out loans frequently by means of forging borrower's information for the approval of the loan which is a critical legal issue. Also, there was no approval of income and assets as in the case of subprime mortgages which was a leading cause of the crisis.
The real estate appraisers started on inflating the value of homes so as to make sure that loans would go through when the company was going through a serious organizational crisis. This was to result in one of the chief acquisition against Countrywide. Additionally, the company is offering loans to clients who are high-risk client's and banks is not fully qualified to take care of qualified conventional clients.
Several factors contributed to the crisis that befell Countrywide Financial. The first aspect was greed. The company, the board, and employees were after increasing their profits and forgot the needs of the clients. Employees focused on maximizing their commissions to the extent of offering sublime loans to ineligible borrowers who later failed to pay back their loans. Hence, bringing down Countrywide. Secondly, the shareholders influenced the downfall of the company. Countrywide issued an enormous amount of sublime loans to benefit their investors, company executives, and shareholders(Ferrell, 2014). Lastly, the global financial crisis experienced in 2007-2008 saw Countrywide reduce over $ 20billion and the losses approximated to $ 1billion.
There are various ways in which Countrywide could have avoided the crisis especially when it came to management of subprime loans. The subprime loan offers would have been made as scarce as possible instead of in abundance at it was the case. Another move would have been a critical analysis of poor credit history and a debt-to-income ratio of borrowers which is a determinant of loan repayment(Fkigstein & Roehrkasse, 2013). Thus, the company could have identified whether the credit score and debt-to-income ratio were too low to offer borrowers subprime loans. In addition, Countrywide employees could have taken the borrowers through the subprime loans process before granting loans. Therefore, the crisis could have been well handled and avoided.
The best lesson that can be learned in the case of Countrywide financial Corp is that by simply following the ethical policies and taking a step further to document the likely ethical conflicts, the ethical crisis can be prevented in organizations. The move helps in preventing loss of money and planning ahead of time (Crane & Matten, 2016). Furthermore, businesses can learn the importance of strictly abiding by the ethical norms as well as helping create awareness among their employees on the vitality of avoiding unethical practices.
Notably, Countrywide managed to handle the situation at hand through Countrywide Comprehensive Home Preservation Program before it was sold to Bank of Africa. The program allowed gave the homeowners opportunity to refinance their loans at lower interests. The approach was a clear indication of how Countrywide cared for their clients and they were ready to help where they could. Also, it was a good lesson portraying that in case of a crisis, the management must rise up and try to fix the mess. Furthermore, Countrywide created divisions that informed borrowers about existing options when it comes to mortgages. The countrywide company has been well recognized as one of the most successful brands that are existing in the United States. The existing ethical challenges that have presented are not just small challenges, however, all can be described to be keeping the Country Wide company name to be untarnished in nature(Ferrel & Fraedrich, 2015). Generally, a big company like Country Wide is supposed to be careful with what they can do in the eye of the public since one dangerous mistake is capable of destroying the reputation of the company and even destroying the general success of a company.
Bellwether Report .com is tracking Country wide Financial Corp. (2006). M2PressWIRE,
DiLellio, J., & Forsyth, J. (2014). Income falsification on mortgage applications during the housing bubble. (DiLellio & Forsyth, 2014)
Ferrell, L., & Ferrell, O. C. (2014). Examining Organizational Integrity Failures. Business and Corporate Integrity: Sustaining Organizational Compliance, Ethics, and Trust [2 volumes]: Sustaining Organizational Compliance, Ethics, and Trust, 181.
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.
Fligstein, N., & Roehrkasse, A. (2013, February). All the Incentives Were Wrong: Opportunism and the Financial Crisis. Conference paper. American Sociological Association Annual Meeting, New York.
Grabosky, P. (2013). Beyond Responsive Regulation: The expanding role of nonstate actors in the regulatory process. Regulation & Governance, 7(1), 114-123. (Grabosky, 2013)
Rothacker, R. (2014). The deal that cost Bank of America $50 billion-and counting. News, Business, Banking', The Charlotte Observer, published by The McClatchy Company, Charlotte, NC, 16. ( Rothacher, 2014)
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