Devoted to Managers and those that seek to improve their management skills

The growing crisis in the US mortgage industry underscores why we must stay with what we know in business, as we talked about last post.

One of the biggest mistakes businesses and business leaders make is doing something because everyone else does. This isn't the first banking crisis in the country, the Savings & Loan debacle was much worse and came about because leaders did the same thing current leaders did: everyone else was doing it. In that case it was the loans to the big oil companies that was the downfall of the industry.

Today, Countrywide Financial had to tap its credit line to the tune of $11.5 billion dollars, across a group of 40 banks to get the liquidity they needed to survive the credit crunch. They had to do this to continue making home loans.

One analyst said if the liguidity problems continue for over three months, it could drive Countrywide to bankruptcy.

Now that the company has the $11.5 billion, others like John Kriz, a managing director of Moody's real estate finance team, believe the company now will be liguid enough to meet its debt obligations through 2008.

Truthaboutmortgage wrote: "...before you jump on the bankruptcy train, look for Countrywide to wind down some of their departments, namely wholesale and correspondent lending." He also thinks once things are shored up by the company, the may be a candidate for a takeover by Bank of America.

One thing the company has done changed its product mix to just about exclusively originate Fannie and Freddie-approved loans. Most of the risky alt-A, subprime and jumbo loan products will be dropped.

That of course is an attempt at stopping the source of the bleeding and more problems from arising. It will then allow the company to focus on growing the business with more safe, conservative products while dealing with the continuing fallout from its past loans.

This is a good lesson in not following the herd. What makes this worse in my estimation is people have been talking for quite some time on the impact the risky loans would have on companies and where this was all headed. The business leaders of these companies decided not to listen, and here we are today reaping what was sowed.