Did subprime mortgage loans contribute to the housing bubble? Why did the bubble burst? What were the consequences of the housing bust to borrowers, loan originators, and MBS and CDO holders? Did subprime mortgages contribute to the U.S. financial crisis of 2008? 4. How did Federal legislation concerning mortgage loans affect Countrywide Financial Corporation’s (CFC) business strategy? Did the government’s encouragement of subprime mortgages have an impact on the company’s number of loan originations between 1990 and 2007? 5. What effect did the housing boom and the growth in origination of subprime mortgages have on CFC’s financial performance? Evaluate the financial ratios presented in case Exhibit 8 and calculate compounded annual growth rates for items in CFC’s Statements of Operations? Did the company’s growth rate vary significantly between 2003 and 2007? Did CFC retain most of the loans originated for investment? What is your overall assessment of CFC’s financial performance between 2003 and 2007? 6. Was CFC pursuing an ethical strategy? Were all of CFC’s business practices ethical? Were CFC’s compensation practices ethical and in the best interest of shareholders? Did its lending practices harm borrowers? Is there anything unethical about its VIP loan program? To what extent, if any, were unethical strategies or business behavior a problem at CFC? To what extent, if any, was CFC’s CEO involved in unethical behavior? 7. What recommendations would you make to Bank of America executives to ensure that lending practices at its subsidiaries will promote homeownership in a manner that is in the best interest of borrowers, investors in the secondary mortgage market, and the company’s own long-term financial interests?
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