Countrywide Financial
Countrywide Financial:
Failure of Corporate Governance, Incentive Compensation, & the Sub-Prime Crisis
Executive Summary: Countrywide Financial was a mortgage-banking firm. They had one of the largest market shares in the early 2000s, when the mortgage market was booming. “No company pursued growth in home loans more aggressively than Countrywide” (NY Times 12/10). They were the leader of their industry, with 500 billion in home loans, 62,000 employees, 900 offices, and $200 billion in assets. Everything had been going well for the company and its employees, until the mortgage crisis began to unfold at the end of 2006. In June 2009, the SEC filed a civil suit against the founder of the business and some of his top management for fraud and insider trading. This came at the height of the mortgage crisis in the US. The founder of Countrywide, Angelo Mozilo, finally agreed to pay $45million in profits and $22.5 million in civil penalties, in which he still admits no wrongdoing.
Company’s Profile and History Countrywide was founded as Countrywide Credit Industries in 1969 by Mr. Mozilo, a butcher’s son from the Bronx in New York and David Loeb, who had founded another mortgage bank in New York. By 1974, they already had eight offices but were still struggling with cash flow. Loeb grew increasingly upset with the way business was going and eventually fired 92 of Countrywide’s 95 employees and shut down all the offices at once. Loeb believed that this decision would shift Countrywide’s philosophy from its emphasis on the sales team, towards a more “product driven” philosophy, as most of the 92 people fired were highly paid salesmen. They begun to see signs of hope, as interest rates in the economy lowered. By 1978 profits resumed at the company, and Countrywide experienced constant growth throughout the 1980s. But even as Countrywide experienced consistent growth during this period, it was in the early 1990s that revenues begun
Failure of Corporate Governance, Incentive Compensation, & the Sub-Prime Crisis
Executive Summary: Countrywide Financial was a mortgage-banking firm. They had one of the largest market shares in the early 2000s, when the mortgage market was booming. “No company pursued growth in home loans more aggressively than Countrywide” (NY Times 12/10). They were the leader of their industry, with 500 billion in home loans, 62,000 employees, 900 offices, and $200 billion in assets. Everything had been going well for the company and its employees, until the mortgage crisis began to unfold at the end of 2006. In June 2009, the SEC filed a civil suit against the founder of the business and some of his top management for fraud and insider trading. This came at the height of the mortgage crisis in the US. The founder of Countrywide, Angelo Mozilo, finally agreed to pay $45million in profits and $22.5 million in civil penalties, in which he still admits no wrongdoing.
Company’s Profile and History Countrywide was founded as Countrywide Credit Industries in 1969 by Mr. Mozilo, a butcher’s son from the Bronx in New York and David Loeb, who had founded another mortgage bank in New York. By 1974, they already had eight offices but were still struggling with cash flow. Loeb grew increasingly upset with the way business was going and eventually fired 92 of Countrywide’s 95 employees and shut down all the offices at once. Loeb believed that this decision would shift Countrywide’s philosophy from its emphasis on the sales team, towards a more “product driven” philosophy, as most of the 92 people fired were highly paid salesmen. They begun to see signs of hope, as interest rates in the economy lowered. By 1978 profits resumed at the company, and Countrywide experienced constant growth throughout the 1980s. But even as Countrywide experienced consistent growth during this period, it was in the early 1990s that revenues begun