Monday, February 9, 2009

Quiet Countrywide Bailout Serves as Warning for Congress

Consequences Continue From the Failed Effort to Prop Up the Mortgage Giant

By Mary Kane 2/9/09 6:00 AM

As the Obama administration launches a new bank rescue plan and prepares to overhaul the financial regulatory system, lawmakers will look closely at the lending practices of major banks and mortgage firms. But some think they also should probe the government-chartered Federal Home Loan Banks, which served as lenders of last resort as the credit crunch intensified - propping up the very banks that made the kind of risky mortgages that led to the housing crisis in the first place.

With credit tightening in 2007, the Federal Home Loan Banks played a crucial role in the economy, helping Countywide Financial Corp. and failed subprime lenders IndyMac Bancorp. and Washington Mutual stay alive longer by lending them money when no one else would. The sharp expansion lending, which went mostly unnoticed at the time, was one of many emergency measures used by the government and the private sector to keep the financial system from collapsing.

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