ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. “I want to be sure you are getting the best loan possible,” the sales representatives would say.
But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.
Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.
“to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers”
What company does not have maximization of profits as its goal? As usual, the New York times gives a slanted version and even inaccurate version – why quote them?
The “best loan possible” to sub prime borrowers is by definition at a higher rate to the borrower because it is at a higher risk to the lender.
The mortgage industry that Countrywide operates in is very competitive. Their sophisticated use of computers helps them match their risk to the borrower’s ability to pay. What’s wrong with that? That’s good for Countrywide and good for Countrywide’s borrowers.
Their “sin” is not gouging, it is taking on too much risk for themselves. As to ARMs (adjustable rate mortgages), they’ve been around a long time. They’re not illegal or immoral, they are a mathematical formula that a high schooler can understand if they were only to pay attention to what is says.
Please don’t post New York Times articles – they’re worthless, not worth the space on your blog, and always slanted far left.
Not only do they press you into bad mortagages but they don’t have the common curtesy to say “no.”
I went back to my bank and got a mortagage I am very happy with.
Oops!
Should be; they don’t have the common curtesy to ALLLOW YOU TO say “no.â€
When does the lending of money become a game of raising hopes too high and of convincing a financially ‘shaky’ borrower that it’s a ‘good deal’ and ‘worth the gamble’ to place himself close to the edge of financial extremis?
While much of the criticism of Countrywide is true (including the points about employees receiving incentives to steer borrowers into more lucrative products), CW was not the worst Option ARM offender. That distinction is clearly held by Washington Mutual. With rare exceptions there has been no justification for placing borrowers in ARMs during a rising interest environment of the last 4+ years. The much ballyhooed “advantage” of “payment flexibility” falls apart under close analysis; the true interest cost of the deferred interest can easily exceed 200%, when the Option ARM is compared to 30-year fixed loans available even six months ago.
The fundamental problem with the mortgage system is that loan originators are salesmen; they have neither the education nor training to be financial advisors, which is what borrowers really need. The home loan is most Americans’ single most important financial transaction, yet only a tiny fraction engage in financial planning.
Borrowers need to look at much more than just “getting a house”. They should also consider college plans, investments, retirement, etc., in other words see where the loan fits into their entire financial picture. The ability to do that analysis cannot be taught in a 2-1/2 day course.
Borrowers should pay careful attention to the qualifications of the person who will arrange their loan. At a minimum, require a B.S./B.A. and an advanced degree or legitimate professional certification. (I suggest MBA, CPA, JD/LLM, CFP.) Only then will a borrower have a real shot at getting the right loan to fit their overall financial situation.