A new type of affordable 15-year mortgage aimed at moderate-income and flawed credit borrowers is getting a tryout by Bank of America and Citigroup.
Countrywide's Tactics Taint the Mortgage Industry
Reuters and other major news agencies recently reported that the nation's number one mortgage lender-which services about 15 percent of all mortgages in the U.S.-is under scrutiny for allegedly unethical practices. The head of a Senate panel investigating the current housing and mortgage crisis has publicly called for Countrywide to cease and desist from aggressive sales tactics, which, he says, have encouraged homeowners to take loans that they couldn't afford.
Senator Schumer speaks
According to Reuters, Sen. Charles Schumer, the democrat from New York, who heads the housing panel on the Senate Banking Committee, held a recent press conference to air his grievances about Countrywide. Senator Schumer said that the company seemed to display "greed that motivated widespread, irresponsible lending that contributed to what could have been the largest home foreclosure crisis in our country."
The senator believes that Countrywide gave its sales personnel added incentives to market mortgage loans that were the most expensive, and would generate the largest profit margins for the company and its various financial subsidiaries. The powerful senator was quoted as saying: "We have learned that Countrywide's promise to get borrowers the 'best possible loan' have been nothing more than a commitment to squeeze every dollar possible from homeowners. In fact, Countrywide's lending business model prioritizes fees and commissions over the financial viability of the loans."
Lawmakers and mortgage refinance
As the mortgage market has come unraveled, lawmakers have initiated more oversight, auditing, and investigation. The harder that they scrutinize the industry, the more they seem to find questionable practices such as those Schumer attributes to Countrywide. Some mortgage brokers and lenders have too frequently been involved in schemes to push people into risky loans, and Countrywide is fast becoming the symbol of this type of seemingly improper behavior. Almost 25 percent of the firm's subprime loans are now delinquent, and many contain hefty prepayment penalty clauses, making it impossible for homeowners to refinance out of them to a better loan without paying prohibitive fees that would defeat the whole purpose of a mortgage refinance in the first place.
Passing the blame
Countrywide founder, Chairman, and CEO, Angelo Mozilo, has stated that his company is not to blame for the crisis. Earlier this year, he told the Mortgage Bankers Association that the real problems causing the mortgage crisis were the Federal Reserve's interest rate hikes, lower real estate prices, and tighter regulation of interest-only and other high-risk loans. Meanwhile, SEC filings show that Mozilo made a cool $13 million in a single month this summer as Countrywide's financial situation worsened. Many shareholders and customers of Countrywide were upset to learn that Mozilo will reap about $128 million this year by exercising his stock options and selling off his own Countrywide shares.
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