Origins
Countrywide Financial was founded in 1968 by Angelo Mozilo and David Loeb as a nonbank mortgage company intended to operate everywhere, rather than being limited to a local niche. In its early years, the company struggled because it lacked the deposit funding of traditional banks, relying instead on “warehouse lines” of credit to fund loans that were eventually sold to Fannie Mae and Freddie Mac. The primary problem Countrywide solved was providing a high-volume bridge between individual home buyers and the newly emerging securitization markets.
Originally, Mozilo was a fierce advocate for strict underwriting standards, publicly criticizing competitors who took shortcuts to increase market share. However, the company’s DNA was defined by a naked ambition to be the number one lender in America, a goal that eventually forced it to abandon its conservative roots to compete with aggressive subprime pioneers.
Structure & Function
Countrywide’s business model was characterized by aggressive, high-volume growth and a “matching strategy,” in which the firm aimed to offer every loan product available in the market to meet any level of consumer demand. To achieve national scale, the company pioneered the use of independent mortgage brokers, a move that allowed it to grow faster than traditional banks by avoiding the overhead of physical branch networks. By 1992, Countrywide had become the largest originator of single-family mortgages in the United States.
A core function of the firm shifted in the 1990s from helping people buy homes to enabling them to use their residences as “piggy banks.” This was achieved through aggressive refinancing and cash-out equity loans, which at one point accounted for 75% of the company’s total business. By the mid-2000s, the company specialized in “risk-layered” products, such as 80/20 loans (where a borrower took two loans to cover 100% of the home price) and “no-doc” programs that required no verification of income or assets.
Historical Significance
Countrywide is historically significant as the primary embodiment of the “originate-to-distribute” model that fueled the housing bubble. Its success was once unparalleled, with its stock price rising 23,000% between 1982 and 2003, outperforming major corporations like Walmart. However, its relentless drive for market share led it to abandon strict underwriting standards based on credit and collateral in favor of a model that prioritized volume over the borrower’s ability to repay.
The firm’s collapse in 2008 served as a major trigger for the broader financial crisis, exposing how the delinking of borrower and lender through securitization encouraged systematic fraud. Its acquisition by Bank of America in early 2008 marked the end of the subprime era, though the $5.2 billion in subsequent write-downs and massive legal liabilities it brought nearly compromised the solvency of its acquirer.
Key Developments
- 1968: Founding of Countrywide by Angelo Mozilo and David Loeb.
- 1982: Stock begins its long climb, eventually rising 23,000%.
- 1992: Becomes the largest originator of single-family mortgages in the U.S.
- c. 1990s: Shift toward refinancing and cash-out equity loans.
- 2003: Peak stock performance; Mozilo celebrated as a visionary leader.
- 2004: Launches “Full Spectrum” division to compete in subprime lending.
- 2006: Originates a record volume of mortgages as the bubble peaks.
- 2007: Early payment defaults spike as the housing market turns.
- 2007: Stock price collapses as the company faces a liquidity crisis.
- 2008 (January): Bank of America announces acquisition of Countrywide for $4 billion.
- 2008–2010: Bank of America writes down billions in losses from Countrywide mortgages.
- 2010s: Mozilo pays $67.5 million in SEC settlements but avoids criminal prosecution.