Countrywide Financial Case
Gamble−Thompson: Essentials of Strategic Management: The Quest for Competitive Advantage, Second Edition
II. Cases in Crafting and Executing Strategy
15. Countrywide Financial Corporation and the Subprime Mortgage Debacle
© The McGraw−Hill Companies, 2011
Case
15
Countrywide Financial Corporation and the Subprime Mortgage Debacle
Ronald W. Eastburn
Case Western Reserve University
Angelo Mozilo, founder and Chairman of Countrywide Financial Corporation, was the driving force behind the company’s efforts to become the largest real estate mortgage originator in the United States and, according to some, was also the driving force behind the company’s eventual collapse. Mozilo and partner, David Loeb, founded Countrywide in 1969 in New York with the strategic intent of creating a nationwide mortgage lending firm. The company opened a retail branch in California in 1974 and, by 1980, had 40 offices in eight states. Mozilo and Loeb launched a securities subsidiary in 1981 that specialized in the sale of mortgage-backed securities (MBSs).1 The company’s annual loan production exceeded $1 billion in 1985 and began to grow at dramatic annual rates on the back of the U.S. housing market bubble which began in 1994 and ended in 2006. The company’s greatest number of annual loan originations had occurred by the time of David Loeb’s death in 2003, with more than 2.5 million mortgage originations that year. Countrywide Financial Corporation originated more than 2.2 million loans totaling $408 billion in 2006. By 2007, the company had 661 branches in 48 states and, in July 2008, was acquired by Bank of America (BoA) for $4 billion in an all-stock transaction. The market value of the company had reached $24 billion in 2006, but fell rapidly in 2007 when it became evident that many of
Copyright © 2010 by Ronald W. Eastburn. All rights reserved.
the mortgages Countrywide made during the housing boom were overly risky and likely to go into default. Problems
II. Cases in Crafting and Executing Strategy
15. Countrywide Financial Corporation and the Subprime Mortgage Debacle
© The McGraw−Hill Companies, 2011
Case
15
Countrywide Financial Corporation and the Subprime Mortgage Debacle
Ronald W. Eastburn
Case Western Reserve University
Angelo Mozilo, founder and Chairman of Countrywide Financial Corporation, was the driving force behind the company’s efforts to become the largest real estate mortgage originator in the United States and, according to some, was also the driving force behind the company’s eventual collapse. Mozilo and partner, David Loeb, founded Countrywide in 1969 in New York with the strategic intent of creating a nationwide mortgage lending firm. The company opened a retail branch in California in 1974 and, by 1980, had 40 offices in eight states. Mozilo and Loeb launched a securities subsidiary in 1981 that specialized in the sale of mortgage-backed securities (MBSs).1 The company’s annual loan production exceeded $1 billion in 1985 and began to grow at dramatic annual rates on the back of the U.S. housing market bubble which began in 1994 and ended in 2006. The company’s greatest number of annual loan originations had occurred by the time of David Loeb’s death in 2003, with more than 2.5 million mortgage originations that year. Countrywide Financial Corporation originated more than 2.2 million loans totaling $408 billion in 2006. By 2007, the company had 661 branches in 48 states and, in July 2008, was acquired by Bank of America (BoA) for $4 billion in an all-stock transaction. The market value of the company had reached $24 billion in 2006, but fell rapidly in 2007 when it became evident that many of
Copyright © 2010 by Ronald W. Eastburn. All rights reserved.
the mortgages Countrywide made during the housing boom were overly risky and likely to go into default. Problems