Countrywide: "Saving its own skin"?

More on Countrywide's announced plans to help borrowers restructure their mortgages: Fellow real estate blogger Diana Olick of CNBC, in a quick piece of analysis, observes, "... Countrywide is saving its own skin, as well as saving home ownership. The company simply has to do this because there is no way it can survive otherwise. Obviously they are seeing the recovery rates and just don’t want to risk it. This is a pre-emptive strike, and I say no matter what the motivation, it’s a positive move from Countrywide."

Backstory: Olick quotes mortgage data expert Janet Tavakoli, who in turn reports that sub-prime loans are failing at shockingly high rates -- far higher than any financial institution has yet acknowledged: “Last week I met with a major mortgage servicer of geographically diverse U.S. subprime loans. They work 13-hour days trying to salvage what they can, doing anything to avoid reporting a delinquency or foreclosure. They disclosed disturbing information unavailable even on trustee reports. The servicer asserted the rating agencies are incorrect in their optimism; recovery rates of 60% are unattainable. My average recovery rate assumption of 30% is also currently unattainable."

Our take: We would add one more piece of analysis: The Bush administration, in the person of Treasury Secretary Paulson, took the mortgage industry to the woodshed, in public, recently. He all but ordered lenders and servicers to take the moves Countrywide took today.

Thoughts? Comments? More soon on this story.

Comments

[amir]

Nothing will help. When a person who can only afford a $250,000 house buys a $800,000 house, no amount of restructuring will help.

We are only at the beginning of the cycle.

[MyLessThanPrimeBeef]

What Paulson can do for the mortgage industry is re-open Alcatraz and invite many in the industry for a little extended carefree stay there.

It's much better than fearing fear itself for those people - no more bookcooking, number fudging and most importantly, no more of their 'financial innovations' for the American public, things like CDO (Collaterized Debt Obligation) and SIV (Structured Investment Vehicle).

And it's a good thing too becuase without this nice vacation in Alcatraz, before you know, they will spring something like the dreaded 'Hidden Investment Vehicle' (HIV) on us.

Do you really want that Armageddon?

[Jeff]

Countrywide REO goes from 13k to 195k?
http://thegreatloanblog.blogspot.com

[TakeFive]

And this:

"Tavakoli says the servicer has been selling loans for 3-6 cents on the dollar."

Sounds to me like the negotiating position of CW borrowers just got better.

Is troubled CW borrower "Nicky" from an earlier blog post still out there? Any offers in compromise from CW yet? Don't let them tack on thousands in fees to "help" you. You can help them by offering 50 cents on the dollar for your First and cancellation of the HELOC. Oh yes, they can also eat all those garbage fees they helped themselves to.

[Paul Hiller]

This looks more like a public relations play than anything else. Many of us in the industry believe that most of the sub-prime loans that are resetting are not salvageable. There will be a few that fit the right profile and they will benefit. The rest have too much going against them. Most were highly levered going in, and with declining values are underwater. The agency products that are offered [Fannie, Freddie, and FHA] for sure are not lending over 100%. Many borrowers will not be able to show enough income or prudent reserves, as the “fog a mirror-get a loan” days are over. The agencies who will be buying this paper don't want to end up as bag-holders, and as a taxpayer, neither do I. There were lots of borrowers who were in safe, traditional loans with manageable balances who had owned for quite a few years who refinanced into these loans to pull cash out. Do they deserve the same sympathy?
Finally, I think we might be surprised at the number of borrowers who walk away without too much of a fight. It's one thing to hold on for dear life to an asset that is going up 20% a year. When things are going south, many lose their enthusiasm for the fight. Home ownership is more expensive, and entails more responsibility than many were prepared for. Until recently, the belief that things were only going up, was nearly unshakable. The shock of falling market will have many of us licking our wounds for some time to come.

[Cal]

I think its purely a PR move.

16 billion of mods and refinance from a servicing portfolio of 1.5 trillion-ish dollars. The refinance portion is the strongest portion that appear to be ones that should have never been slammed into a subprime loan to begin with, but should have been in either FHA or fannie/freddie (avg loan amount for this program is 192k). These people were probably never in danger of losing their homes.

I dont think any of this is really "new" I think that CFC is just trying to PR it up and say "look we are doing something!".

[nicky]

Dear Take 5,

I am still here. I am still talking with Countrywide. I have been transferred to different departments only to discover that its the wrong department. No one in the Countrywide system has helped me. Now, it turns out that I don't have much equity left in my home. Countrywide stole about $33,000 or more from me.

I have thought about going to a different company, but I don't know if that is the right answer or not. I am still searching for the right answers. I spoke with someone who works in the refi department at Countrywide, who basically said that I should probably seek legal advice about my situation. Any thoughts for me?

[Jeff]

I can only laugh. It is so funny how every day it gets worse. Because it was and is so obvious. The bottom line is no matter how much you restructure people will not be able to pay it. Many people bought way more then they could afford and then took out loans against that to buy more stuff. A lot of financial people are just way too close to the situation and lose the forest for the trees. To me it is that simple. We will go on here every week and it will be a never ending cycle. One week there will be analysts saying we have reached the bottom. The next week they will say they didn't realize how bad it was and it is worse. But NOW it is the bottom. Repeat. From my perspective there is a long, long way to go.

[TakeFive]

Nicky -

You're talking to the wrong dept, unless you're planning on trying to hang on to the house. You need to talk to the workout dept, loss mitigation, REO, or whatever they're calling it these days.

When I did a short sale, my realtor told me flat out that the bank would not talk to me if I was current on my payments. It was true. I begged for a longer term, lower interest, temporary postponement of payments, anything to help me hang on to the property. Every idea I proposed was answered with no,no,no.

Making the decision to withhold payment was frightening, but that's what it took for my lender to accept the short sale offer that was presented to them.

I suspect dealing with countrywide is going to be difficult for a while. With all the layoffs and properties they're taking back, things must be a mess over there.

I'll repeat my earlier suggestion. Call some of the brokers that are handling CW's foreclosures in your area and ask them about doing a short sale. They are already in contact with the proper dept:

http://www.countrywide.com/purchase/f_reo.asp

If you get really lucky, the lender may even allow you to do a short sale to one of your relatives.

[investorguy]

Nicky: you got tons of advice in your initial thread. And it's still the same -- talk to a lawyer, STOP doing business with Countrywide, and decide whether hanging onto this house is worth ruining your financial life (it's not).

[mark]

"16 billion of mods and refinance from a servicing portfolio of 1.5 trillion-ish dollars"

lipstick on a pig....this amounts to just 1.5% of their loans.
Looks like pr window dressing.Wall street wasnt impressed they slammed the stock to under 15 dollars.
Bank america bought a big chunk of cfc at 18 dollars.Either they know something or they are eating crow.
what i want to know is,who can afford a 10 or 20% down payment on a 300k house-let alone 400 or 500k or 600k?

[Cal]

Countrywide just recently hired a big PR firm to work on its image.

That is all this is.

[Rob]

Maybe 1 in 10 will see any long-term effect. The rest are just prolonging the inevitable (till the next administration)

House poor is House poor; I think jambalaya was invented this way. Throw all the leftovers in a pot, add a ton of seasoning add serve hot...

[Cal]

For those in the San Fernando Valley:

http://www.dailynews.com/business/ci_7253257

"Sales of new and previously owned houses and condos plunged 54.3percent to 760 transactions in September. "

"Last month, 302 home and condominium owners from Glendale to Calabasas lost their properties because they could not make the mortgage payment."

760 transactions.. 302 closed homes. Best case scenario for SFV last month, if nobody put their home on the market but the banks, was that inventory would go down.

Or another way to look at it is that 39 % of motivated sellers who actually moved their homes got replaced by even more motivated sellers (the bank).

p.s. Pending sales in September were lower than September closed sales. With the usual 10-15% fallout in transactions it is easy to "predict" that October sales in the SFV will be worse than Septembers which were the worst single family home sales on record.

[Cal]

"A Countrywide spokeswoman said that the fees levied on borrowers who refinance into prime loans would vary based on the types of mortgages they assume, but that the charges would be typical of those currently found in the market. If the borrower’s existing loan carries a prepayment penalty, Countrywide said it would “take steps to schedule the closing so that the penalty is no longer in effect.”"

http://www.nytimes.com/2007/10/24/business/
24lend.html?_r=1&oref=slogin&ref=business&page
wanted=print

Basically the people most able and likely to refi (and who should never been in the loan to begin with) will be encouraged to get a current market rate loan through Countrywide. This helps CFC in two ways, they make money on the fees and they bail out the bond holders of the loans they are servicing. No prepayments forgiveness in this group.

"There will be no fees and prepayment penalties assessed on borrowers whose loans are modified or on delinquent borrowers, the spokeswoman said."

The mod crowd arent getting new loans so prepayment penalty forgiveness isnt really an issue.

[Cal]

Completely forgot about CFC earnings on Friday.

They need a PR smokescreen because this one will be brutal. They will need something positive to talk about.

[Cal]

"Tavakoli says the servicer has been selling loans for 3-6 cents on the dollar."

p.s. This servicer has to be talking about 2nd lien mortgages, no 1st lien would sell for 3-6 cents on the dollar. So they are talking about HELOCs and the 20s of the 80/20 loans. Otherwise that comment makes no sense.