One in three sub-prime mortgages delinquent

Here's a shocking (no irony intended) piece of news from Countrywide Financial this morning: "Countrywide Financial,  the largest U.S. mortgage lender, Tuesday said more than one in three sub-prime mortgages were delinquent at year-end..."  Countrywide said borrowers were delinquent on 33.64% of sub-prime loans it serviced as of Dec. 31, up from 29.08% in September, and that said borrowers were at least 90 days late on payments on 17.25% of sub-prime mortgages.

Now, here's a shocking (irony intended) piece of news from Countrywide: The company reported a loss of $422 million, or 79 cents a share, for the fourth quarter. No big surprise here, but the loss was deeper than analysts expected, and Countrywide's most recent guidance had been that it would make a profit in the fourth quarter.

In announcing a $1.2 billion loss in the third quarter, Countrywide said that would be the bottom: "We view the third quarter of 2007 as an earnings trough, and anticipate that the Company will be profitable in the fourth quarter and in 2008," Countrywide president David Sambol said in a press release on Oct. 26.  "Over the longer term, we believe that prospects for the U.S. housing and mortgage markets, as well as for Countrywide, remain very attractive."

The L.A.Times reports that, while Bank of America says it has every intention of continuing with its announced purchase of Countrywide, some investors are betting the deal will be renegotiated: "At Monday's closing stock prices, Bank of America's offer was worth $7.50 a share. But Countrywide stock was at $5.95, reflecting sentiment that the price could fall if Countrywide's troubles persisted."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[Tombstone Realty]

Um.....did Bank of America already sign the papers? Because I don't think you'd be making so much money if 1/3 of your business was foreclosed, and another 17% was well on their way to Reddotville.

Oh, to be the smallest of flies in the next board meeting of BoA...

[amir]

How come real estate keeps dropping and builders and banks are rallying on wall street? There's a disconnect. If the next year will be as horrible as I expect, many of them will drop and some will go bankrupt. The recent market rally is a bear trap.

The same goes for real estate prices. We haven't seen any panic selling yet, but I think we will, later in the year. People still have hope that this summer and rate cuts will save us. They won't. September will be the month when we see the big drops (just like 2007), and in 2009 there isn't an election so expect no candy from the federal government.

[Uncle Billy]

Thank you David Sambol. Did you get a bonus this last year? And will you be taking an advisory position with any hedge funds this coming year?

Speaking of David Sambol, what ever happened to Stanford Kurland who used to be numba two at Countrywide? Did we ever find out circumstances as to why he left CW at the beginning of last year? Interesting to note... both Sambol and Kurland were products of Cal State Northridge. Both came from the accounting side. Kurland according to link below used to audit CW's books. Here's some gossipy speculation on this titillating triumvirate:

http://tinyurl.com/24bo3v

[TakeFive]

"Over the longer term, we believe that prospects for the U.S. housing and mortgage markets, as well as for Countrywide, remain very attractive."

Well yes, over the longer term people will still need houses. Will they still need Countrywide?

[Cal]

I still cant believe how little writedowns they've take on their loan portfolio.

I am very happy to see how fast their loan production is dropping, 44% YoY and 28% QoQ.

[Joseph... the Real Estate Guy]

You rip what you sow!

These idiots(who created these loans) should return all of their profits.

Real Estate is a "Cyclical Business". Eventually it was going to give in. It's been like that in the United States for about 150 years that I know of.

Coming soon....
www.asktherealestateguy.com

[Ace]

I'm actually a bit suprised that 2/3 of the borrowers are actually current. If you loan people money that have a proven track record of not paying their bills, how can you expect to be paid? It is just a matter of time before these subprime borrowers default.

[Lou]

I've been a BofA customer since I got my first job in high school but once I heard that they were going to buy Countrywide, I closed my accounts and went to a credit union.

One in three subprime mortgages delinquent? Think about it, that's an astounding number. One third of their subprime paper is absolutely worthless. Who did their underwriting? Where was their controls?

I think they should change their name to Countrywidespread Fraud.

[Rob]

So, let’s see,

This was held onto till the last possible minute, circumventing the look of criminal negligence. Now BofA says see you later, Countrywide goes into freefall, just then big brother steps in to give us another dead cat on the doorstep.

This is more entertaining than a Quentin Tarantino flick, and just as morbid.

[Joseph... the Real Estate Guy]

I agree Lou!

[MyLessThanPrimeBeef]

I am surprised only 1/3 of subprime mortgages were delinquent.

I was expecting something like 5 out of every 4...you know, 125%. Why 125%? Because I know Angelo always gave 125%.

[RicoS]

I personally know people who re-fied, just to grab some of the equity that they've put into their homes over the years. But instead of adding to the value of their property, a lot of them paid off their existing debt(ie: cars, tuition, etc). And most of the time, they never realized that the money had to be paid back by adding to their current mortgage. Oh, I love America. I can only hope that the market will correct itself, so that everyday working people can again afford homes, children, and retirement.

[l.a.guy]

If I heard the CNBC reporter clearly this morning, two other bits of information caught my attention. 1) I don't know what portion of their loan portfolio they were referring to, but on some portion of it I believe the CNBC reporter said half the loans were not insured. (Of course with the mortgage insurers facing collapse maybe that was a good move). 2) She said was that CW intends to still pay a 15 cent dividend to share holders, BUT the class of shares BofA bought with their 2 Billion dollar infusion will pay $18 dollars a share. I don't know the details of the deal so I assume the BofA shares are the equivalent of some multiple of common shares, if not that would be a hell of a premium.

[Ace]

Rico said 'But instead of adding to the value of their property, a lot of them paid off their existing debt(ie: cars, tuition, etc).'

Ok, you hit two of my pet peeves in one sentence.

First, I hate it when people say they took out a home equity loan to do improvements to add value. Unless you are doing an addition, you are not adding value. Even a really good kitchen remodel will only return 90 percent of what you spent. That is a loss in my book. I guess it is just easier to justify the must have granite countertops and stainless steel fridge.

Second, you can't take out a home equity loan to 'pay off existing debt'. When you borrow money to pay another loan, you are only moving your debt... not paying it off.

[Rob]

Looks like we are just getting started.

FBI Raids

http://tinyurl.com/yqb4gh

[LeavinLA]

Ace: Wrong. A top-flight kitchen remodel will return more than the investment. Bathrooms can return more than the cost. But why let facts get in the way of a rant?

[sunsetbeachguy]

Leaving LA - prior to the bubble all renovations returned less than the cost.

It was only during the bubble when renovations provided a return.

Now that sanity is coming back to the market. Those renovations will go back to the durable consumption that they always have been.

Renovations DO NOT increase value greater than their cost. Unless you have designed a perpetual motion machine....

[Ace]

'Ace: Wrong. A top-flight kitchen remodel will return more than the investment. Bathrooms can return more than the cost. But why let facts get in the way of a rant?'

Ok, I didn't think I would have to quote my source of facts on something that I thought would be obvious common sense to anyone... but I guess that I must.

According to the Wall Street Journal 'homeowners could recover 83% of the cost of a minor kitchen remodel at resale, compared with 78.1% of a major kitchen remodel.'

That is if you sell your house shortly after the renovation. Most people renovate when they buy and the style quickly goes out of style. Now if your spouse or the guy at Home Depot says it will improve value, how can you argue with that? They must know more than a Wall Stree Journal study.

[robert No longer in L.A.]

LOTS OF WINDOW DRESSING last year for countrywide; deny, deny, deny, delay, delay delay, and when all THAT b.s, fails...obfuscate!! BofA, if the deal goes through, will like start jacking up your impound accounts for taxes and insurance. It's call 'O.P.M.' or actually, YOUR MONEY! Watch for it in your mail box.

[LeavinLA]

Ace: I know four sellers who have recouped more than their investment, even in this market. If it's done right, you get your money back. But don't let real world examples get in the way of some statistician's suppositions.

And before the whiners start in with "only 4 -- hah! That's not valid..." let me remind you that you made a blanket statement that you "never" recoup your investment. I just proved your "never" to be wrong.