Countrywide Financial 1969 Founded by Angelo Mozilo and David Loeb 1969 Went “public”, less than $1 per share offered FHA and VA loans only 1974 opened branch offices , Delivered investors a 23,000% return 2006 financed from 17 to 20% of all mortgages in the United States % of its subprime loans were in default

How it worked Countrywide sales people market loans –Charges variety of fees to originate the loan Sells bundles of loans on the open market –Countrywide still administers loans, collects fees for late payments and processing defaults.

Typical FHA loan 30-yr. fixed Good credit rating Max $200,000 loan 7% interest, + 1pt. (7.25, no points) 1% loan origination fee 2.25% downpayment - $5,000 Pay $700/mo. No prepayment fees Much paper work

Paying off a 30-year fixed rate loan: monthly payment

Subprime loans Any amount (not FHA, slightly higher rate) Adjustable rate: 2-3 years at a fixed rate, (lowers the interest rate) Teaser rates (with prepayment penalty) Poor or No credit history (much higher rate).No credit history Points added to mortgage amount (raises rate) High loan origination charges Bridge loans for downpayment

Why buy Countrywides’ loans? Much higher interest rate. Loan backed by value of property. BUT: Interest rates rise Loans default Subprime loans disappear, no refinacing available Property drops in price