Sunday, March 09, 2008

Countrywide Financial

I saw yesterday that Countrywide Financial is under SEC investigation surrounding its massive sub-prime loan debacle. Specifically it sounds like they are investigating exactly how much the executives at the company knew about the precariousness of their mortgage positions and whether they misrepresented the situation in financial filings.

When we were in Chicago last month, I was talking with one of my cousins who works for Countrywide as a mortgage originator about the sub-prime collapse. It was interesting to hear what he thought of the whole situation. While he acknowledged that the loan standards were too loose, he also laid some of the blame on the borrowers who took on far too much debt. For example people with dual $800/month car loans who taking out huge interest-only mortgages, of the infamous NINA loans (no income, no asset loans).

The catch is, of course, that while the company shouldn't necessarily protect people from themselves, it is their responsibility to protect themselves and their shareholders from undue risk. And loaning someone 500k for a house without verifying any income or assets seems like undue risk to me. Keep in mind, these are the same companies who were booking negative amortization as profits back in 2006.

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