Countrywide defaults rising

We know that Countrywide CEO Angelo Mozilo is a favorite target on the comment section of this blog, but let's put aside the cheap shots and look at the big picture for a moment here: If Countrywide runs into serious trouble, the entire mortgage market in this country breaks down.

So... news item from Reuters: "Countrywide Financial Corp shares fell as much as 9.2 percent today after the largest U.S. mortgage lender was downgraded to 'sell' from 'buy' by a Merrill Lynch & Co. analyst, who said bankruptcy might be possible if liquidity worsens."

Whether liquidity worsens or not, Countrywide has another problem: rising delinquincies and foreclosures in its own loan portfolio. The LATimes: "Countrywide said mortgages in foreclosure surged in July to 0.79% of the loans it serviced from 0.48% a year earlier and 0.74% in June. Delinquent loans accounted for 5.1% of the mortgages on which Countrywide collects payments, up from 4.11% a year earlier and 4.98% in June."

Earlier this year, Countrywide said it was going on a hiring binge, hoping to pick up workers, and market share, from failing sub-prime lenders. A bold strategy, and a statement of confidence in the mortgage business, but sometimes business strategies are best left unsaid, and unannounced: Countrywide's sub-prime lending is down 46% from year-ago levels, which call into question the need for 1,100 recent hires.

Thoughts? Comments?
Note: This is an edited post.
Photo Credit: Reuters

Comments

[Donald Brewster]

Uh, the foreclosures are still under 1%. This is a REALLY small number. Over 99% of loans are NOT in foreclosure and 95% are NOT delinquent. This is an absolute panic on the part of Merrill, and I question if there was really much analysis done. You are correct -- if Countrywide goes down, the mortgage system will have totally have broken and we will have far bigger problems in the economy than just mortgages. However, Countrywide is a strong company and will weather this -- they've been through these cycles before, unlike many of the shops that have gone under to date.

[pugtv]

Liar Loans + All time highs in home prices to income ratio = people buying homes they can't pay for with their real incomes = mortgage default = bankruptcy.

So how much of this is going on in Countrywide's portfolio? I'll bet a hell of a lot. It's a done deal. Countrywide is going bankrupt. This year or the next, it's a done deal. Countrywide is going bankrupt.

[Cal]

I'd be careful with terminology, there are loans that a lender portfolios and loans that they service, one they own the loan (and in case of most portfolio lenders, service it as well), the other someone else owns the loan and they collect payments and manage the asset.

For Donald, that number is about loans currently in delinquency and foreclosure, as they get sold off they drop out of the data stream. So it isnt "only" 1% it is 1% of the current portfolio, they dont report how many of the originated loans actually went non-performing.

[East Coast Reader]

We might have to wait until next year to find out the real consequences of what's going on in Countrywide's portfolio. Lots of the ARM mortgages they issued in 2005 and 2006 are going to reset before the end of 2008. Many of the people who bought houses with those loans probably assumed that they could do a refi when the rate reset to get their monthly payments from substantially increasing. But if Countrywide either doesn't have the assets to write new mortgages for those people, or if the appraised value of their homes can't support a refi for the outstanding balance of the loan, the housing recession might continue into 2009 and could spill over into the larger economy in 2008. How much will Countrywide's delinquency rate go up if their borrowers can't make the higher payments on ARM loans next year?

According to a Reuters/Zogby poll released today (see link below), consumer confidence is fair at best, and depending what happens with Countrywide and other big players in the mortgage market, consumer confidence could drop significantly over the next six months to a year.

http://www.reuters.com/article/ousiv/idUSN1444607920070815

[x]

If Countrywide needs to increase cash flow, why don't they at least try to sell some of those 7000+ properties they own in California for realistic prices, instead of holding out for 2005 prices?

[BetterVillage]

If the CEO of Countrywide, and other top executives are worth about a Billion.. I did the math before... we could give the future ex-ceo $50,000 to go hunting for a job and a new house in central america, china, or that little island where they sent Napoleon, and they'd still have enough left over to give all the employees about $100k severance (and they'd better make sure their benefits package stays intact as well).

[fyi]

Countrywide now has a hiring freeze, and earlier this week they released a slew of independent contractors who were working in the funding division.

[Cal]

Countrywide and Amgen are Ventura Countys bread and butter, Amgen just announced they are reducing headcount by 12-14% and it looks like Countrywide will make some cuts as well. This will really hurt the local economy and housing market for the area.

[Stacy]

When you have rumors like this the Fed will soon intervene. What is a concern is perception can easily become reality in the world of finance and Countrywide could file as soon as next week.

[fyi]

now I hear those contractors let go by Countrywide on Monday were told to report to a different Countrywide office on Wednesday.

[no not really]

a bunch of independant contractors were released today from CHL funding division in tampa, not asked to go anywhere but home