A $1.2 billion loss for Countrywide

News item from Reuters via CNBC: "Countrywide Financial posted a $1.2 billion third-quarter loss Friday as the housing market slumped, but its shares soared after the largest U.S. mortgage lender projected a return to profit this quarter as it slashes jobs and regains its footing."

More: "Shares of Countrywide

Countrywide Financial Corp CFC 15.02                      1.95                        +14.92%    NYSE

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rose $2.87, or 22 percent, to $15.94 in pre-market trading. Stock futures also moved higher."

Comments? Thoughts? E-mail story tips to lalandblog@yahoo.com.
Photo Credit: Los Angeles Times

Comments

[x-man]

these guys are the masters of the pump and dump! watch Mozilo unload shares into this psuedo rally. sheer those sheeple!

4th Q profitability is a sure thing for CFC. JDSU is also a steal at 40 btw...

[Hula Girl]

Are they serious?!! How do you go from a 1.2 billion write-down in the 3rd quarter to a profitable 4th qtr? People are buying Countrywide stock because the day-glo man behind the curtain says their profits will soar?
Is this a great country(wide) or what? I dunno know about you, but I'm NOT buying any Countrywide stock, but I have a new weight -loss formula to sell to their investors - it even comes with instructions on how to write a screenplay in 21 days!

[Semphris]

meh. It won't last. Calling for profitability in the 4th quarter of an already dismal season is unrealistic. More likely they are still trying to keep the specter of death away for another 3 months. Not that I think they will completely tank. I don't. In its current incarnation, I don't think its likely that CFC will be the same come the 2nd quarter of 08. Mozillo "The Umpa Lumpa King", will take a walk.

[MyLessThanPrimeBeef]

Imagine, if Mozilo had tried harder and lost $2.4 billion instead of just $1.2 billion, hey, that billions with a 'b' as Carl Sagan would say, the stock would be up twice as much.

Either he's not too smart or he's too selfish to sacrifice the tanning hours to work.

[TakeFive]

"...but its shares soared after the largest U.S. mortgage lender projected a return to profit this quarter ..."

Ah, but will Mozillo modify is trading plan based on this good news? I keep hearing "Ignore that man behind the curtain..."

[Matt]

Mozoli looks like a cartoon charactor to me.

[150 multiple choice questions]

I didn't listen to the call or have any time to look, did they say any reason why they think they're going to be profitable? I'm sure the geniuses on wall street are all over it...

[Michael Snyder]

While the under/unemployed whiners celebrate what they see as an opportunity or vengeance in the sub-prime crisis, it's important to look at the larger picture. Those of us who remember the "Carter years" may recall the "pain index" and its' components; primarily the cost of money. I can assure all of the smug renters drooling over plunging prices that there is a corresponding increase in the cost of money meaning the payments will remain about the same. The primary propellent for the run-up in prices over the past few years was the availability of "cheap money", not just greed. Well, I hope you kept a scrap book because those days are over. Investors who saw easy profits in the sub-prime market are headed to the burn ward and the smart ones have tightened their standards so as to create a stasis in the market. I don't have the exact numbers; but it's safe to say it's a lot harder to qualify for any loan now than it was last year.
Real Estate prices are falling not just because homes are "overvalued" (Remember, a "fair price" is one the buyer and seller agree on.) but because money's becoming scarce & expensive.
The Fed's reduction in interest rates may have staved off a few loan re-sets, but it cost the dollar almost 10% in the international market. Do not be foolhardy enough to brag about driving a Ford; most of everything we use is made in multiple locations often crossing international borders. Check the price of gas, clothing and almost anything else not made in China and you will see this price increase. China has fixed its' currency to the US dollar refusing to allow the yen to float on the international market. (If you don't know what economic warfare is, this would be a good example.)
We've seen this happen before and as soon as people forget this "meltdown" we'll see it again. Our "free market economy" or what's left of it is amazingly resultant and capable of healing itself. Sadly some good folks are going to get hurt in the process; but if history is any guide those who bought at the peak will be blessing their wisdom in another five years. All we got to do is "hang in there."

[CD]

Bad news cannot all come the same day on Wall Street, otherwise the stock market would crash.... So each week someone will report huge losses and Wall Street will be repeating " the fundamentals in the US economy are good, no worries, be happy" The spin is unbelievable, Those guys are like real estate agents, all crooks....

[MyLessThanPrimeBeef]

I know this has absolute nothing to do with Countrywide, but hey, C'est la Vie.

For those who think less homeowners will mean more renters, the Census Bureau says 'no, thank you.'

---------------

http://www.marketwatch.com/news/story/us-homeownership-rate-falls-4-year/story.aspx?guid=%7B0EF6F4A3%2D0573%2D434F%2D9ACA%2DFB87880DFACE%7D

WASHINGTON (MarketWatch) -- Fewer Americans live in their own home than did a year ago, the Census Bureau reported Friday. The seasonally adjusted homeownership rate fell by a tenth in the third quarter to 68.1%, the lowest in four years, and down from the peak of 69.2% in the first quarter of 2006. The number of housing units occupied by owners fell by a half million over the past year to 75.2 million. The number of vacant housing units has increased by 1.3 million in the past year to 17.9 million, 2.1 million of which are for sale. Nationwide, 110.3 million housing units were occupied. In the third quarter, the vacancy rate for units typically occupied by owners rose to 2.7% from 2.6%, while the vacancy rate for rental units rose to 9.8% from 9.5%.
--------------

Of course, the increase in rental vacancy rate could be from a huge increase in available rental units due to new construction or converted homes, and not a decline in the number of renters. I won't rule that out. Alas, the Census Bureau didn't provide that info. Either that or Marketwatch failed to report the info. In any case, someone was not doing their job. Or people could actually be disappearing. I suspect alien abduction... Or, illegals going home. Or, the saddest of all, people turning back into frogs because pretty girls are not kissing them often enough.

[inland Empire]

Its time for your graphic artist to do their work. The editing on this picture is hideous.
Or was it enhanced to create more comment on his "tan'?

[ace]

I love this. Dump your worst loans on the government and then borrow a boat-load of money. Then you can say you'll turn a profit and be able to keep paying your dividend and everyone is happy.

I Didn't Here Angelo say he would reduce his pay to 1 Dollar a year!!!!
i guess everything is OK.........................NOT

[MyLessThanPrimeBeef]

I just remember.

Future profits will come from the generous fees charged to those who come on their knees begging Countrywide to save them from foreclosure by modifyng their loans.

I mean, come on, you, as in Countrywide, or Widecountry, and please keep in mind Shakespeare's pun, you are going to cap your interest rates and forgo additional interest income as you work to save those people from financial ruins and in today's market, you are going to go from losing money to making money?

[jb]

Michael,
I am a renter who has been saving only to see my dollar devalued by the government. I did not take on a crazy loan because of the risk of the market turnaround. I am not however a "smug renter drooling over plunging prices" because I do see the consequences to the economy but I do not see a way out. Do we artificially prop up prices of houses and drag out the pain for decades or let things reset? It seems to me the vast majority of people in LA can handle even a 30% reduction in prices with no "cost" to them as they will still be making buckets of money because they bought before 2003

[MyLessThanPrimeBeef]

OK, here is another way for Widecountry to add value to their company Merrill Lynch style - just starting thinking about oust your CEO and let the world know.

[MBwatcher]

$1.2b is a drop in the bucket compared to all the losses reported this week:

http://mbcon.blogspot.com/2007/10/ghastly-losses.html

And there's more to come after Moody's finishes re-rating CDOs.

[Michael Snyder]

jb
There no easy answers, only historical precedent. I bought a home in 1988 for $425,000 only to see it appraise at $389,000 eighteen months later after sinking over $60,000 into the property. That same home is now worth nearly a million dollars. As a buyer you're looking for a juxtaposition of low interest rates and low prices coupled with you're having the where-with-all to do the deal. Not unlike finding the love of your life... A great horse... Best friend...
The market will "find its' own level" in time. Where that will be is anyone's guess; but history tell us that in time last year's prices will look like a bargain. It's important to remember the interdependence of our economy and the ripple effect that any one sector has on all of the others. There can be no joy in another's loss because in truth it is our loss too.

[vultur]

Profitability will be quite easy. Lay off 10,000s of staff to trim overhead and exorcise your balance sheet of all the problems loans and *pppooooooooffffffff* back to profitability.

The stock is trading at $17 people. Recall that it was worth over $40 in the past year. Don't you think that trimming the fat and tightening up on lending standards will boost it back in the black? George Hamilton Mozzillo wouldn't boldly predict profitability if he didn't believe it b/c the stock will get clobbered in they miss their Q4 numbers. What's the benefit to that?

[rubber band man]

Countrywide has owed our HOA approx $6000 dollars (4 REO properties) for 4 months now.. when you call and ask for the payment.. they say "sorry we do not have that billing info can you re-send it": We have sent it to them 6 TIMES NOW

...Give me a break Angelo..Pay Your Bills.

Maybe this is how he is going to be profitable next quarter.. Not pay any bills including the employees.

[Enlightenment]

That is $1,200,000,000 dollars. Assume each dollar bill is 0.0043 inch thick. So that amount of money is dollar bills is 81.44 miles long.

That over tanned dumb ass burned 81.44 miles worth of money.

[Cal]

rubber band man, have the HOA start foreclosure proceedings on the properties (and tack those fees onto what is owed) and I bet you get your money right quick.

[mike]

ANGELO MOZILLO IS A BUSINESS GENIUS

[MyLessThanPrimeBeef]

Again, report of TimerWaner's Parsons sent the stock up almost 4% today.

Imagine what Mozilo's ousting would do for the company.

[Stump]

Michael Snyder: "I bought a home in 1988 for $425,000 only to see it appraise at $389,000 eighteen months later after sinking over $60,000 into the property. That same home is now worth nearly a million dollars."

Michael,

Don't get too excited about your paper capital gains. If you had $485,000 invested in a house in 1989, adjusted for inflation that money is now worth $806,899. (Check this website if you are curious:
http://www.minneapolisfed.org/research/data/us/calc/ )

Now, factor in property taxes, insurance, HOA fees, and maintenance, and I would not be surprise if your house is close to a break even investment. Of course, that's predicated on you actually being able to sell your house. Unfortunately, the SoCal real estate market has become quite illiquid in most areas.

[joeinlosangeles]

Good for you. Personally, though, I would still prefer to be the person who bought a similar home to yours a year later for for $105,000 less. And that's the way I feel today. Sure, I'd be happy to buy a house today for $500,000 that will be worth $1 million in 15 years. However, I would be much happier to spend $425,000 a year from now on a house that will be worth $1 million in 14 years.

--Michael Snyder: "I bought a home in 1988 for $425,000 only to see it appraise at $389,000 eighteen months later after sinking over $60,000 into the property. That same home is now worth nearly a million dollars."--

[dog-walker]

"...history tell us that in time last year's prices will look like a bargain." -Posted by: Michael Snyder

Um... this argument amounts to nothing more than the conclusion that home values will continue to appreciate because they have appreciated in the past.

My understanding of the history of markets suggests the opposite. Bubbles and panicks aside, assets tend to trade in a range based on measurable underlying values. Security prices, for example, fluctuate in relation to earnings (at varying multiples depending on the growth potential and risks, etc., of the particular economic sector.) That is, past appreciation, especially if has been quite rapid and prolonged -- absent an increase in underlying value -- actually argues for future DEpreciation. There is no question that underlying value in the housing market has been increasing in certain areas where gentrification has changed the profile of the average household, but that increase is measurable and has substantially lagged prices. In other areas (which are the majority), stagnant and falling wages have actually hurt underlying values.

Michael says he paid $425,000 for his house in 1988 and that over 19 years it has increased to a value of $1,000,000. Forgetting the argument that current valuations have substantially outstripped current and likely future incomes, let's say Michael's experience will be exactly repeated over the next 19 years. Michael's investment has grown at a rate of 5% per anum. The DJIA has averaged about 10.5% over the same period and $425,000 invested in 1988 would be worth about $2,888,000 now.

I've left out all those factors that savvier posters include: loan costs, rent, dividends taxes, interest tax deductions, maintenance, etc. But unless they tilt SUBSTANTIALLY in favor of the house, the view that housing represents a particularly smart investment just doesn't hold up. And note that this calculation comes after an historically anomalous price run up favoring his asset choice. Without the returns of the last six to eight years the return looks a lot worse.

I would like to amend the conclusion: history tells us that housing represents an inferior investment vehicle and future appreciations (at any point, but especially after a prolonged and intense price run-up) are likely to lag those of other vehicles (including riskier ones, such as securities, and safer ones, such as treasuries.)

Right?

[Michael Snyder]

For the "investment experts commenting on my 1988 purchase; my point is with time real estate historically increases in value. There are no HOA fees on single residences, and property taxes are tax deductible. It's not about being excited about paper profits, but illustrating the overall tendency of the market to increase in value over time.

[MyLessThanPrimeBeef]

I am reminded of that standard economist phrase, 'in the long run, we will all be...'

Well, you fill in the blank. And if you don't know it, one day you will.

Trust me on this one.

[MyLessThanPrimeBeef]

Any discussion about investment should always, I repeat, always, start with this word - DIVERSIFICATION, spelled D-I-V-E-R-S-I-F-I-C-A-T-I-O-N.

Sure, have your home(s).

But don't forget gold, commodities, stocks, fixed income and cash...oh, and a good mattress.

[dog-walker]

Michael,

I'm no investment expert. I'm a schmo trying to figure out how to survive. I answered your assertion about the market increasing over time because it's an important factor in weighing the decision whether to buy or rent. It's often cited as a primary justification for buying. You offered it to assuage JB's fear that buying now might be a costly mistake.

How often have we heard it? "If you rent, you're just throwing away money. Interest payments are tax deductible and it's a good investment. The market will appreciate over time."

My question is: is that true?

[joeinlosangeles]

Dog Walker says: "How often have we heard it? "If you rent, you're just throwing away money. Interest payments are tax deductible and it's a good investment. The market will appreciate over time. My question is: is that true?:

Nothing is always true. Yes, as a general rule, if you buy a house and hold it long enough, you'll tend to do well in the long run -- same as buying stocks. There are good reasons to rent, like you don't know how long you'll stay in an area. And now might be a good time to buy -- I could see going in and finding a house you like that's already been marked down five times from the 2004 top price and offering 25% less than the current asking price and getting it if everything played out right. But sure, as a general rule, it's always a good time to buy a house if you are thinking in the long run. Just don't be influenced by the people who think there is never an exception to the general rule, like realtors, who always want people to guy because that
's how they make their living.

[AnnS]

A little off topic by Myless (etc) mentioned it above.

Here is more of an explaination of the US Census data that just came out.

Owner-occupied went down, renters went up, 2nd homes are still out there and normally owner-occupied but now vacant ticked up from 2.5 -2.7% year over year

"“The nation’s housing stock increased by nearly 2 million units in the past year, but two-thirds of those newly built homes stand vacant, the Census Bureau reported Friday.”

“The trend toward second homes is evident in the government data, accounting for most of the new housing stock. The number of unoccupied seasonal homes rose by 14% to 4.6 million, while the number of vacant year-round homes that are neither for rent nor for sale rose by 8% to 7.4 million.”

“Only about 11% of the extra vacant units were for sale at the end of the quarter. The number of vacant housing units for sale rose by 139,000, or 7%, to 2.1 million. Vacant units for sale spiked by 38% in 2006.”

[samonymous]

Dog-walker:

Your calculation fails to factor the most important item that makes real estate a great investment: "Leverage". Re-do your calculation assuming that Michael Snyder put 20% down.

With the right mix of leverage, a 3% - 5% annual increase in real estate asset prices can still be a great investment.

[Tombstone Realty]

I guess Countrywide has hired the well known accounting firm of Abra and Cadabra LLP.

[BetterVillage]

Whoa... these guys have been busy bees over the last few years:

http://biz.yahoo.com/t/18/6026.html
http://biz.yahoo.com/t/46/6047.html

Bofa seems to be absorbing the countrywide business on a few different fronts... new expensive televsion campaign where bofa promises to refi 4 out of 5 borrowers. Curiouser and Curiouser.

Has anyone ever seen/heard Mozillo interviewed on television? Been watching/listening to the news for 20 years in California, and don't remember a single instance (selective memory?).

So many questions, so little buying power. The meek are inheriting dirt.

[BetterVillage]

Angelo's been out in the woodshed alone for far too long now. Can we get a group photo of the board and top executives? And what about Henry Cisneros? Has he been discussed at all on this blog? Now THAT fellow has had a career.

[Stump]

Samonymous & Michael Snyder:

Yes, most people leverage when they buy a house, However, you then need to include the interest payments in your calculation of the net inflation-adjusted value of your house. Also, you would need to adjust for inflation the value of those interest payments. With prime mortgage interest rates approximately ranging between 5% to 8% over the past 19 years, 3% to 5% annual increase in your home value isn't so great.

Yes, the mortgage interest and property taxes are tax deductible. However, that's a tax deduction not a tax credit. So, even if you are in the top tax bracket, you will still be paying 60% of the cost of the interest and property taxes.

I'm not suggesting people should not purchase homes. Afterall, you do receive the value of avoid rent payments. I'm simply arguing that most homeowners vastly underestimate the aggregate cost of their home when they make simplistic comparisons of price differences over a multi-decade period.

Unless the cost to Michael to rent the equivalent home would have been equal or greater than his mortage payment for much of period of his ownership, his real finanical upside is probably quite small when it is adjusted for inflation and all costs are considered.

[RichW]

Did anyone else notice how he looks a little unnatural orange, kind of the way John Kerry looked during the last election after the botox and fake tanning pills ? Or is it just the camera being a little unfavorable to him ? I've been wondering about this since seeing the last 3 or 4 photos.