Forecasting failure : a systems perspective on the fall of Countrywide Financial

Countrywide Financial was acquired by Bank of America on January 11th , 2008 for $4.1 B after losing $1.3B in 2007. Not only was it losing money, its financial prospects at the time looked bleak due to their large stake in subprime mortgages. This effective failure of Countrywide Financial set off a chain of events that eventually ended up almost crippling the global economy in late 2008 into early 2009. It will be shown that the financial crisis hit the housing market hard in 2007-2009 due to low mortgage standards in the preceding few years and an oscillating federal funds rate. Using publically available data from Countrywide Financial, prices of individual mortgage backed securities will be calculated using the standard pricing models and an author-developed simple pricing model that utilizes actual default rates at the time. Using these mortgage backed securities' prices along with a stakeholder value network analysis and system dynamics, it will be shown that Countrywide Financial could have been predicted to fail in the 2007-2008 time period. Suggestions for architecting a new housing market are then given after reviewing what was learned.

Department dc:contributor.department

Massachusetts Institute of Technology. Engineering and Management Program

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2016

Author dc:creator

• Friedl, Andrew P. (Andrew Philip)

Advisor dc:contributor.advisor

• Walter N. Torous.

• Engineering and Management Program.
• System Design and Management Program.
• Engineering Systems Division.

Statement dc:rights

• MIT theses are protected by copyright. They may be viewed, downloaded, or printed from this source but further reproduction or distribution in any format is prohibited without written permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/107371

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/107371