Countrywide Financial

Countrywide Financial Corporation was an American financial-services company best known for originating, purchasing, securitizing, and servicing residential mortgages. Founded in 1969 by David S. Loeb and Angelo Mozilo, the company grew from a mortgage originator into a large, vertically integrated real-estate finance group whose activities included mortgage banking, deposit-taking, warehouse lending, securities dealing, insurance, loan-closing services, technology, and international mortgage administration. Its principal operating businesses were conducted through subsidiaries such as Countrywide Home Loans, Countrywide Bank, Countrywide Warehouse Lending, LandSafe, Balboa, and Countrywide Securities. The company’s central business model combined high-volume mortgage origination with secondary-market distribution and loan servicing. Countrywide produced loans through direct retail channels, mortgage brokers, correspondent lenders, and wholesale partners. It commonly sold newly originated loans into mortgage-backed securities while retaining servicing rights or continuing to administer borrower payments, escrow accounts, insurance, taxes, and investor remittances. This model allowed the company to earn income from origination, securitization, servicing, ancillary closing services, and related financial activities rather than relying solely on interest income from loans held on its own balance sheet. Countrywide expanded rapidly in the 1980s and 1990s. Its stock was re-listed on the New York Stock Exchange in 1985 under the symbol CFC, and the company became one of the most prominent publicly traded mortgage businesses in the United States. In 1997, it spun off Countrywide Mortgage Investment, which became IndyMac Bank. By the middle of the 2000s, Countrywide had become one of the country’s largest mortgage originators and servicers. Reference materials associated with its successor business state that Countrywide financed approximately one-fifth of U.S. mortgages in 2006, illustrating the scale it had reached before the crisis. Growth was accompanied by increasing exposure to nontraditional and higher-risk mortgage products, including subprime loans, adjustable-rate mortgages, pay-option adjustable-rate mortgages, and loans distributed through broker and correspondent channels. As housing prices weakened and mortgage delinquencies increased, the company faced rising credit costs, valuation losses, reduced access to short-term funding, and impairment of mortgage-related assets. Countrywide reported a full-year net loss of $704 million for 2007, its first full-year loss in more than three decades, according to its 2007 annual report. The deterioration of the U.S. mortgage market made Countrywide a prominent symbol of the financial crisis. In January 2008, Bank of America announced an agreement to acquire the company in an all-stock transaction valued at approximately $4.1 billion at announcement. The Federal Reserve approved the transaction in June 2008, Countrywide shareholders approved it later that month, and Bank of America completed the acquisition on July 1, 2008. Bank of America subsequently reorganized the mortgage operations under the Bank of America Home Loans name and later integrated them into its broader consumer and mortgage businesses. The Countrywide brand was eventually retired. Countrywide’s legacy is therefore mixed. It demonstrated how technology, centralized processing, capital-markets distribution, and national-scale servicing could transform mortgage finance, but its expansion also exposed weaknesses in underwriting controls, broker oversight, risk disclosure, fair-lending compliance, and governance. Former executives faced Securities and Exchange Commission enforcement actions alleging that investors were misled about the quality and risk of Countrywide’s loans. The company and its successor also became subject to major settlements and judgments involving alleged discriminatory lending, foreclosure…

Countrywide Financial began in 1969 when David S. Loeb and Angelo Mozilo established a mortgage-lending business in the United States. The founders pursued a model based on expanding access to home finance while using standardized processes and capital-market funding to support large-scale loan production. The company’s initial public offering was unsuccessful, with its shares trading over the counter at less than one dollar. It later regained market visibility and was re-listed on the New York Stock Exchange in 1985 under the ticker CFC. During the 1980s and 1990s, Countrywide expanded beyond a traditional mortgage originator. It developed a nationwide mortgage-banking network, added loan servicing and closing services, entered banking and warehouse lending, and established capital-markets and insurance operations. The resulting structure allowed the company to participate in multiple stages of the mortgage value chain: sourcing borrowers, underwriting and funding loans, purchasing loans from third parties, selling or securitizing loans, servicing borrower accounts, and providing ancillary title, appraisal, credit, insurance, and technology services. A notable corporate development occurred in 1997, when Countrywide spun off Countrywide Mortgage Investment. That business became IndyMac Bank, which later developed independently before being seized by federal regulators in July 2008. Countrywide itself continued to pursue diversification and scale. Through Countrywide Home Loans, it originated loans directly to consumers and through brokers, while its correspondent unit purchased loans from banks, credit unions, mortgage bankers, builders, and other originators. Countrywide Warehouse Lending provided credit lines that allowed mortgage bankers to fund loans before selling them into the secondary market. The company also built significant servicing and capital-markets capabilities. Mortgage servicing generated fees from collecting principal and interest, administering escrow accounts, handling taxes and insurance, and remitting funds to mortgage-bond investors. Countrywide Securities and related capital-markets entities traded and underwrote mortgage-related securities for institutional customers. Countrywide Asset Management handled delinquent and illiquid loans, including government-supported FHA and VA loans. The Balboa businesses provided property, casualty, life, credit, and lender-placed insurance, while LandSafe offered appraisal, title, flood-determination, and other closing services. Countrywide pursued international opportunities as well. In the United Kingdom, Global Home Loans was formed in 1998 as a joint venture with Woolwich, later associated with Barclays. The operation processed and subserviced mortgages and expanded after Barclays transferred additional mortgage operations into the venture. Countrywide later acquired Barclays’ remaining stake, although Barclays eventually brought much of the work back in-house. Countrywide also established offshore technology and business-process operations in India in 2004 and maintained a UK valuation-services venture that was sold to First American in 2007. The company reached extraordinary scale during the U.S. housing boom. By 2006, reference material associated with the successor Bank of America Home Loans business described Countrywide as financing approximately 20 percent of U.S. mortgages. Its growth depended partly on securitization and continued access to wholesale funding, making it vulnerable to disruptions in credit markets. Countrywide increasingly originated or acquired products with higher credit and interest-rate risk, including subprime loans, adjustable-rate mortgages, pay-option ARMs, and loans made through channels where broker discretion played an important role. The housing downturn exposed the weaknesses of that strategy. Falling home prices, rising defaults, losses on mortgage-related assets, and reduced liquidity placed pressure on the company during 2007. Countrywide’s 2007 annual report described severe disruption in the U.S. mortgage and global capital markets and recorded a $704 million full-year net loss, the company’s first such annual loss in more than 30 years. Public confidence and market access deteriorated rapidly, and the company became one of the most visible financial institutions associated with the subprime mortgage crisis. Bank of America announced its intention to purchase Countrywide in January 2008. The Federal Reserve approved the transaction on June 5, 2008, and Countrywide shareholders approved the merger later that month. Bank of America completed the acquisition on July 1, 2008. Countrywide’s mortgage assets, technology, personnel, servicing platform, and legal exposures were absorbed into Bank of America. The mortgage business was subsequently presented under the Bank of America Home Loans name, and the Countrywide brand was retired. The post-acquisition period was marked by extensive litigation and regulatory enforcement. The SEC charged former executives with allegedly concealing the deterioration of Countrywide’s underwriting and credit risks from investors. The Justice Department reached a major fair-lending settlement over alleged racial and ethnic disparities in pricing and steering. Additional proceedings addressed foreclosure and servicing practices, allegedly defective loans sold to government-sponsored enterprises, and mortgage fraud. Countrywide’s history is consequently significant both as a business case in vertically integrated mortgage finance and as a central episode in the institutional history of the 2007–2008 financial crisis.

• 2014

  Mortgage-fraud judgment is imposed

  [9]Justice Department statement on Countrywide mortgage-fraud penaltiesjustice.gov

  A federal court orders Countrywide and Bank of America to pay approximately $1.267 billion in a case involving allegedly fraudulent mortgage loans sold to Fannie Mae and Freddie Mac.

• 2011

  Fair-lending settlement is announced

  [7]Justice Department fair-lending settlement involving Countrywidejustice.gov

  The Justice Department announces a $335 million settlement concerning alleged discriminatory pricing and steering of African-American and Hispanic borrowers.

• 2009

  SEC files securities-fraud charges against former executives

  [5]SEC charges former Countrywide executives with securities fraudsec.gov

  The SEC charges Angelo Mozilo, David Sambol, and Eric Sieracki over alleged misrepresentations concerning Countrywide’s mortgage credit risks.

• 2008

  Bank of America announces acquisition

  [3]Federal Reserve approval of Bank of America’s acquisition of Countrywidefederalreserve.gov

  Bank of America announces a planned acquisition of Countrywide in an all-stock transaction valued at approximately $4.1 billion at announcement.

• 2008

  Bank of America completes acquisition

  [4]Bank of America completes Countrywide Financial purchaseinvestor.bankofamerica.com

  The acquisition closes on July 1, 2008, ending Countrywide’s existence as an independent public company.

• 2007

  Countrywide reports a full-year loss

  [12]Countrywide reports a full-year losssec.gov

  Countrywide reports a $704 million net loss for 2007 amid mortgage-market and capital-markets turmoil.

• 2006

  Countrywide reaches peak mortgage-market scale

  [1]Bank of America Home Loansen.wikipedia.org

  Reference material associated with the company’s successor states that Countrywide financed approximately 20 percent of all U.S. mortgages during 2006.

• 2004

  Offshore operations begin in India

  [1]Bank of America Home Loansen.wikipedia.org

  Countrywide establishes Indian operations focused on technology and business-process support for its U.S. and UK businesses.

• 1998

  Global Home Loans joint venture is formed

  [1]Bank of America Home Loansen.wikipedia.org

  Countrywide and Woolwich establish Global Home Loans to provide mortgage processing and subservicing in the United Kingdom.

• 1997

  Countrywide Mortgage Investment is spun off

  [1]Bank of America Home Loansen.wikipedia.org

  Countrywide separates Countrywide Mortgage Investment as an independent company that becomes IndyMac Bank.

• 1985

  Shares are re-listed on the New York Stock Exchange

  [1]Bank of America Home Loansen.wikipedia.org

  Countrywide’s stock is re-listed on the NYSE under the ticker CFC after its earlier over-the-counter trading history.

• 1969

  Countrywide is founded

  [1]Bank of America Home Loansen.wikipedia.org

  David S. Loeb and Angelo Mozilo establish the mortgage lender that becomes Countrywide Financial.

A national, vertically integrated mortgage and real-estate finance provider built around high-volume loan origination, secondary-market securitization, servicing, and related financial services.

• Residential mortgage lending

  Countrywide Home Loans

  Countrywide Home Loans was the company’s principal mortgage-origination platform. It produced and funded residential loans through consumer-direct, retail, wholesale, and correspondent channels. Consumer-facing units offered a broad range of mortgage products, while Full Spectrum Lending focused more heavily on borrowers with weaker credit profiles. Wholesale lending worked with mortgage brokers, and correspondent lending purchased loans originated by other financial institutions. Most loans were sold into the secondary market, often through mortgage-backed securities.

• Loan servicing

  Mortgage servicing

  Countrywide serviced many of the mortgages it originated or acquired. Servicing activities included collecting borrower payments, administering escrow accounts, processing tax and insurance payments, handling delinquencies, and remitting scheduled advances to mortgage-bond investors. The business generated servicing fees and ancillary charges and gave Countrywide an ongoing relationship with borrowers after loan origination.

• Banking and deposits

  Countrywide Bank

  Countrywide Bank, FSB was a federally chartered thrift whose activities centered on mortgage loans, home-equity lines of credit, and retail deposits. Deposits were gathered through online channels, call centers, and financial centers, and were used alongside other funding sources to support mortgage-related investments and lending activities.

• Mortgage warehouse finance

  Countrywide Warehouse Lending

  Countrywide Warehouse Lending provided short-term credit lines to mortgage bankers. These facilities funded the origination of loans before the loans were sold to Countrywide or other investors. The business linked Countrywide’s financing activities with its correspondent and capital-markets operations and helped maintain a flow of mortgages into the secondary market.

• Securities and mortgage capital markets

  Countrywide Capital Markets

  The capital-markets segment operated securities broker-dealers, traded debt securities, underwrote mortgage-related securities, managed mortgage loans, and participated in commercial mortgage finance. Its principal customers were institutional investors and financial institutions, including banks, insurers, asset managers, pension funds, broker-dealers, and government agencies.

• Mortgage closing services

  LandSafe

  LandSafe and related subsidiaries supplied services used in mortgage closing and underwriting, including residential appraisal, automated credit reporting, flood-zone determination, title services, and other real-estate documentation. These operations supported Countrywide’s vertically integrated mortgage workflow and also served external customers.

• Insurance

  Balboa insurance

  The Balboa businesses underwrote and distributed property, casualty, life, credit, lender-placed, homeowners, automobile, and credit-disability insurance. Balboa Reinsurance also provided reinsurance associated with private mortgage insurance on portions of Countrywide’s servicing portfolio.

• International mortgage administration · 1998

  Global Home Loans

  Global Home Loans was a UK-based third-party administrator and mortgage subservicer formed with Woolwich. It processed mortgage applications and serviced loans, including work associated with Barclays. Countrywide later acquired Barclays’ remaining stake, although Barclays subsequently brought major parts of the operation back in-house.

• 2014

  Mortgage-fraud judgment involving Fannie Mae and Freddie Mac loans

  A federal court found Countrywide and Bank of America liable for mortgage-fraud conduct involving loans allegedly misrepresented and sold to Fannie Mae and Freddie Mac, imposing a penalty of approximately $1.267 billion.

  Source

• 2012

  Foreclosure and mortgage-servicing abuses

  Countrywide’s successor operations were included in the national mortgage-servicing settlement addressing allegations involving foreclosure processes, servicing conduct, borrower treatment, and loan-modification practices.

  Source

• 2011

  Fair-lending discrimination settlement

  The Justice Department alleged that Countrywide charged qualified African-American and Hispanic borrowers higher fees and interest rates and steered some borrowers into subprime loans despite their qualification for prime products. The settlement provided $335 million in compensation.

  Source

• 2009

  SEC securities-fraud and insider-trading case

  The SEC alleged that senior executives misled investors about the deterioration of Countrywide’s underwriting standards and the risks of its mortgage portfolio. The agency also alleged that Angelo Mozilo sold Countrywide shares while aware of material nonpublic information about credit deterioration.

  Source

• 2008

  Friends of Angelo political-loan controversy

  Reports alleged that politically connected individuals received favorable mortgage terms through a Countrywide program associated with CEO Angelo Mozilo. The controversy led to ethics scrutiny involving several public officials and intensified criticism of Countrywide’s governance and relationships with political figures.

  Source

• 2003

  Overtime class-action lawsuit

  Employees alleged that Countrywide required account executives to work long hours without legally required overtime compensation. The case was settled in May 2005 with a reported $30 million payment to approximately 400 account executives.

  Source

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• 2008

  Agreement to sell Countrywide to Bank of AmericaM&A

  Background

  Countrywide faced severe market pressure, declining investor confidence, and funding challenges during the financial crisis.

  Action taken

  Bank of America agreed to acquire Countrywide in an all-stock transaction valued at approximately $4.1 billion when announced.

  Aftermath

  The transaction closed on July 1, 2008. Countrywide’s mortgage operations were subsequently rebranded and integrated into Bank of America.

  Announced transaction value. Approximately $4.1 billion in Bank of America stock (January 2008 announcement)

  Source

• 2008

  Retirement of the Countrywide brand after acquisitionStrategy

  Background

  Following the acquisition, Bank of America sought to consolidate Countrywide’s mortgage operations within its own consumer-finance structure.

  Action taken

  Bank of America rebranded the mortgage offering as Bank of America Home Loans and later integrated the business more broadly.

  Aftermath

  Countrywide ceased operating as an independent consumer-facing mortgage brand, although its systems, assets, personnel, and legal exposures continued within Bank of America.

  Source

• 2007

  Liquidity and risk-management response to mortgage-market disruptionStrategy

  Background

  Severe disruption in mortgage and capital markets impaired Countrywide’s funding access and increased losses on mortgage-related assets.

  Action taken

  Countrywide pursued measures to manage liquidity, credit exposure, loan production, and mortgage-market losses while continuing to operate its major business segments.

  Aftermath

  The company recorded its first full-year loss in more than 30 years and became a takeover candidate.

  Net loss. $704 million net loss (Year ended December 31, 2007)

  Source

• 2006

  Expansion of high-volume and higher-risk mortgage productionStrategy

  Background

  Countrywide sought to preserve market share and expand its national mortgage platform during the U.S. housing boom.

  Action taken

  The company continued producing and acquiring large volumes of conventional, nonconforming, adjustable-rate, subprime, and other nontraditional mortgage products through retail, wholesale, and correspondent channels.

  Aftermath

  The strategy increased exposure to credit deterioration, funding stress, and secondary-market disruption when housing and mortgage conditions worsened.

  Share of U.S. mortgage financing. Approximately 20 percent of U.S. mortgages financed in 2006 (2006)

  Source

• 1997

  Spin-off of Countrywide Mortgage InvestmentStrategy

  Background

  Countrywide separated its mortgage-investment subsidiary as an independent company during a period of expansion and diversification.

  Action taken

  The subsidiary was spun off and later became IndyMac Bank.

  Aftermath

  IndyMac operated independently from Countrywide and was eventually seized by federal regulators in July 2008 after a bank run.

  Source

1. 1Bank of America Home Loansen.wikipedia.org
2. 2Countrywide Financial Corporation 2007 Annual Report on Form 10-Ksec.gov
3. 3Federal Reserve approval of Bank of America’s acquisition of Countrywidefederalreserve.gov
4. 4Bank of America completes Countrywide Financial purchaseinvestor.bankofamerica.com
5. 5SEC charges former Countrywide executives with securities fraudsec.gov
6. 6SEC distribution page for former Countrywide executivessec.gov
7. 7Justice Department fair-lending settlement involving Countrywidejustice.gov
8. 8National mortgage-servicing settlementjustice.gov
9. 9Justice Department statement on Countrywide mortgage-fraud penaltiesjustice.gov
10. 10Bank of America financial-crisis settlementjustice.gov
11. 11Countrywide Financial political loan scandalen.wikipedia.org
12. 12Countrywide reports a full-year losssec.gov
13. 13Retirement of the Countrywide brand after acquisitionfhfa.gov