The Countrywide investment club

Because this blog has been so focused on Countrywide, it has lost sight of some other troubled companies with exposure to the housing meltdown. 

Commenter TakeFive points out that Standard Pacific stock has been in a Countrywide-like downward spiral lately. The homebuilder's shares, now trading at $2.18, have lost 95.5% from their recent peak. For comparison's sake, homebuilder KB Home shares have lost 78.7% from their recent peak.

Washington Mutual shares have also taken a beating, though they were propped up today by talk of a possible JP Morgan Chase takeover. WaMu shares, at $14.70 today, have lost 67.5% from their peak.

I'm happy to track these stocks -- the Countrywide Investment Club -- and will include others. Use the comment section to call attention to your favorite laggards. You can also predict survivors and winners in the category, if you care to. E-mail story tips to peter.viles@latimes.com.

Comments

[National Bubble]

Pretty much any home builder you look at is at a 4 year low.
Look at Toll Brothers (TOL), it closed today at 16.27
Back in mid 2005, the stock was close to 60 dollars per share.

The same goes for Home Depot.

http://www.NationalBubble.com

[Theorist]

It's pretty easy. Just use some those Ameritrade research tools that lets you "trade like a pro!" Choose housing sector or anything related and then search everything in the last year that's plunged more than 20%, or whatever you want. While you're at it, buy buy buy ETF's, the hottest new trend since flipping. The casino's open all day and all night. woohoo.

[TakeFive]

Thanks. I'll climb off my soapbox now.

Standard's stock took a big dive today, right at the opening bell. None of the other builders showed anywhere near as drastic of a change.

Late in the day, this article appeared:

Standard Pacific Falls on Bankruptcy Speculation

http://www.ocbj.com/article.asp?aID=
54196327.3301944.1574105.9346298.3004618.
103&aID2=121076

Yesterday Countrywide, today Standard?

http://finance.google.com/finance?q=NYSE:SPF

[Cal]

The GSE regulator recommends against allowing them to do Jumbos:

http://www.ofheo.gov/media/research/MMNOTE11108.pdf

Considering the realtor groups were hanging their hat on this one, it is rather big news

[bode]

Two big items for next week:

* Citigroup will write down $24 billion (CNBC report)
* Merrill Lynch will write down $15 billion (NYT report)
* Bond insurer MBIA will pay 14% interest on $1 billion bond offering

For the CFC haters out there, over the past year Mozilo and company managed to take a company worth $26 billion and turn it into a company worth $4 billion, a loss in shareholder value of approximately $22 billion dollars.

During this same time period, the executives at Citigroup managed to lose $138 billion dollars in shareholder equity and the executives at Merrill Lynch lost $38 billion dollars in shareholder equity. The CEO of Citigroup stepped down and received $140 million in severance, while the CEO of Merill Lynch stepped down and did not receive any severance (though he was allowed to keep his stock options, should they be worth something some day). Suddenly Mozilo isn't looking so bad (sorry to beat a dead horse).

The write-downs that these two financial powerhouses are going to make speak volumes about the magnitude of the problem at hand. You have to be foolish (or stick to reading the NYT and narrowly-focussed blogs) to think that CFC (or anyone else) could be responsible for dramatic losses such as these. This is an entire industry problem, and Mozilo is just a easy scapegoat.

Compared to the havoc dramatic losses such as these will have going forward, CFC is just one piece in the pizzle. Since this is LA Land, lets focus on jumbo loans. Who do you think will step up to fund these loans, which are all loans over $420k (i.e. all of Los Angeles county)? Hint: with losses like this, it won't be investment banks or hedge funds, prime or not. They'll be funded with high interest rates!

Finally, I'll just note in passing AAA-rated bond insurer MBIA. The AAA rating means that they are sufficiently capitalized to survive a great-depression like scenario. Except, maybe the right word is "were" instead of "are." AAA-rated bonds do not yield 14% in any normal financial market, unless we're perhaps teetering on a catastrophic precipice.

[Uncle Billy]

Not sure what this means (from Natn'l Mortgage News):

"There is plenty we still don't know about Bank of America's proposed $4 billion purchase of Countrywide Financial Corp. First off, was Fannie Mae consulted on the deal? Fannie has recourse agreements on all the loans CFC sold to it over the years."

Anyone? Major complication we hadn't heard about? Tempest in a teapot dome?

[Victor the Predictor]

bode,

Good info regarding the big boys.

You might be a recent-comer to the blog, though. We've hashed through pretty much all the villains in recent months. We've also learned that AAA ratings do not mean a whole lot anymore, especially in light of the fact that it was the ratings companies that had a major hand in the mess. Moody's, in fact has just hinted that they might be forced to downgrade the entire United States. First of all... what balls. Second of all, they're a little late.

[Cal]

If Fannie ever contemplates putting enough loans back onto a major bank to blow it up then things are far worse then any point in history. IMHO, It is simply a non-issue.

Lou Barnes take this week on CFC:
http://www.boulderwest.com/news/1831.html

I think its interesting (and I wholeheartedly agree) that he thinks the origination arm is a liability. This should be obvious to anyone watching the housing market. There are still too many lenders fighting over too few loans. What is interesting is where CFC and BAC rank in retail originations (#1 & #2). I think BofA will drop wholesale (origination from wholesale have a worse credit quality) and concentrate on retail. The broker boards think that BofA will save wholesale and grow it (thus, conveniently saving the brokers skins).

I think BofA will end up paying as close to 0 for CFC as possible. Because in the end the servicing portfolio (servicing is something Ken Lewis has consistenly said he doesnt want to be a part of) is the only thing really worth any amount of money and it is offset by the huge infrastructure costs (buildings, employees, etc) and liability from the loan portfolio. I think BofA is just going to liquidate it all and worry about the retail channel.

[Victor the Predictor]

Cal: BofA had already dropped the broker portion or their wholesale business (don't know if they dropped or even had correspondent channel).
Do you mean that if the deal ends up getting done that BofA would eliminate the Countrywide wholesale business?

[Cal]

I am referencing CFC large wholesale channel. In my opinion BofA didn't get rid of their wholesale side because they were planning to get CFC, they got rid of their wholesale side because the brokers originate worse performing loans.

Credit quality is all that is going to matter. And the broker channel has worse credit quality. By concentrating on retail they can manage the process end to end and get a better product. The BofA mortgage model from what I have seen could be called "portfolio-lite", they portfolio the loans for a few years to show they are performing and then sell them off to make a profit and free up capital.

CFC is all about volume not quality. But the only thing worse than a bunch of crappy loans is even more of them. The bubble popping has shown that CFC grabbed for the gold and ignored the fundamentals. BofA isn't going to make the same mistake.

This from Lou Barnes:
"The massive origination arm has negative value also. Absent the fee-rich subprime and option ARM game, Countrywide is a low-margin, commodity Fannie-Freddie shop just like the rest of us. BofA needs another brand name like a moose needs a hat rack, and assumes future losses from litigation, portfolio, and downsizing. A lot of branch landlords are going to have some re-leasing to do. Thus an industry re-sizes capacity from all-time-fantasy down to actual demand. Expect Washington Mutual to follow the merge-out parade"

CFC infrastructure was built on those rich fee loans continuining. They went away and everyone is (mostly) competing using the same loan products and restrictions. No way CFC in its present form survived that. They haven't even really pared down their operations, they have been trying to keep up appearances and look like a viable entity while trying to get sold. I think CFC starts cutting and cutting hard now. Its all about an (relatively) orderly liquidation of assets, there is no business that CFC has the BofA wants or needs.

[Victor the Predictor]

Well,

I don't understand... first you say:

"I think BofA will drop wholesale (origination from wholesale have a worse credit quality) and concentrate on retail."

Then you say in the next post:

"In my opinion BofA didn't get rid of their wholesale side because they were planning to get CFC, they got rid of their wholesale side because the brokers originate worse performing loan"

This is confusing. In the first you say they *will* drop it, then in the second you say they got rid of it. Which is it?

It looks like BofA still has correspondent lending going unless they were too lazy to take it off their website:

https://www6.bankofamerica.com/mortgage_network/

[DanS]

IndyMac (IMB) is a must on anyone's list of woulda-coulda-shoulda

[Tombstone Realty]

I bank with Wamu - thank GOD my credit card is paid off. Here we go with another round of bank consolidations and reduction of consumer choice.

YAAAAAAAAAAAAAAAAAAAAAAAAAAY.

I wanna shake Greenspan's Invisible Hand.

[Cal]

Because in the first I am talking about what I think BofA plans for **CFC**. And in the second I am talking (in response to your post) about what BofA is doing in house.

[Cal]

VtP,

Forgot the link.
#171 on ml-implode:
http://ml-implode.com/info/BofA-BrokerCommunication.pdf

[Victor the Predictor]

I think the confusion is regarding broker networks versus correspondent lending. Seems reasonable to assume that if deal is done that BofA would get rid of the CW portion of the broker relationships, but since it looks like BofA hasn't ridden themselves of their correspondent lending unit, they would merge CW's into theirs. Anyone know which companies, if any, have a correspondent relationship with BofA? (Those that fund in their own names using BofA credit facility)

[victor]

The ramifications of the BofA buyout of Countrywide for most people who wish to buy homes in los angeles is that it will delay the unraveling of the housing market. As Countrywide remains viable via cash infusion from BofA, they would be less likely to reduce the prices on their foreclosure inventory. BofA will not have a firesale on the inventory of foreclosed homes that it will inherit from countrywide therfore expect to see a slow price deflation of home prices alas Japan's real estate bust which took over 15 years to unravel. Japanese government and banks were doing everything they could to sustain the high real estate prices which only furthered the economic pain suffered by the Japanese public.

I think it is a mistake for Paulson, Bernanke and Bush to artificially prop up domestic home prices. Public will be much better served by letting the market weed out excess capital devoted to housing and allow home prices to be dictated by regular market forces instead of wasting tax dollars or further increase future inflation risk by reducing interest levels to soften the housing crash.

[tritonaggie]

Apparently a big factor in the acquisition is tax benefits: http://money.cnn.com/2008/01/11/news/companies/
sloan_countrywide.fortune/index.htm?cnn=yes

[Inland Empire]

I'm sorry, I was looking for the RE blog....where did it go?

[Michael Snyder]

It looks like these CDOs have come home to roost. If the consequences weren't so widespread, it might be fun to watch. Sadly, this is real trickle down economics.
I don't think "lefty" would invest in an instrument with the dubious documentation that accompanied many of these mortgage packages, yet Wall Street's "best & brightest" gobbled these things up. There's a poetic justice in thieves robbing thieves but the cash flow to fund this Ponzi scheme came from the bottom of the pyramid... In Pogo's words, "He is us."
Wall St. is now "betting on a .75% interest rate drop at the next meeting of the Fed. I'm betting on a .25% drop simply because anything more would result in a serious loss of confidence in the dollar. If history is any guide, this will result in a further depression in stock values. We might see the Dow at 12,000 by Valentines Day.
What's really worrisome is AMEX's report of increasing delinquencies and Tiffany's drop in Xmas sales. That means the people who actually could afford a home at the peak of the market are tapped out too.
These are the death throes of Reganomics. Any economic system that ignores the health of it's foundation is doomed to collapse. The consumer is the foundation of our economic health and small business the engine that drives it. Both have come under systematic attack for decades and the blatant corruption of this administration has allowed for an unchecked spiral into oblivion.
In a move that illustrates my point, Federal regulators are expected to allow an exception to the law that restricts any one bank to 10% of the deposits in the nation for BofA /CW I'd suggest it's the opportunity to open this floodgate that makes this $6 billion albatross worth the gamble by BofA.

[Tombstone Realty]

"""I'm sorry, I was looking for the RE blog....where did it go?""""

Didn't you hear? It got bought out by JP Morgan. Peter Viles is rolling in pennies as we speak.

;+}

[CD]

RE: looking for RE blog ?
That is what we were saying all along, it is no longer about RE, it is about the entire ship going down. Buying a house should be the less of our worries.
Paying for food , gas, health care with this inflation will have to be #1.
Shelter : Rent. Wait until the credit cards start defaulting in ernest.Panic city.
Read Nouriel Roubini's blog, it's a must. Newspapers are lying and doing a PR spin as usual.

[TakeFive]

Too late to add Levitz Furniture to the dead pool. Perhaps some other home furnishing stores are candidates for the list.

American Express and Mastercard are reporting an increase in delinquencies. Maybe put these on the watch list.

IndyMac bank and possibly WaMu are two to watch.

[Monkey Under The GPs Microscope]

Here's how a $50K play into the Home and Construction game might be structured:

SPF 1700 sh
LEN 1500 sh
HD 1000 sh

These companies are paying a dividends (SPF 6%, LEN 4.4%,HD 3.6%). If these corps can keep their heads above water and continue to pay dividends (Home Depot is obviously the most solid) this gambit could do well in the next go around in a few years. Stay away from the BA/CW play (and most of the other lenders for that matter) ...I don't like the 7.16 (GP) price. Being held in incommunicado isolation and subject to severe economic deprivation protocols by the clandestine subterranean lab producing subliminal microwaves, I cannot do this investment.

[Cal]

victor: "The ramifications of the BofA buyout of Countrywide for most people who wish to buy homes in los angeles is that it will delay the unraveling of the housing market. As Countrywide remains viable via cash infusion from BofA, they would be less likely to reduce the prices on their foreclosure inventory."

While I agree with your second point (though, theoretically the servicers shouldn't be liquidating just because they need cash, they should be basing prices on the market and with the bond holders best interest in mind).. I think what your missing is the effect of BofAs acquisition of CFC will have on new originations (both purchase and refi). Credit will absolutely tighten, BofA will stop offering many of the products CFC has on the menu. BofA will be cutting off CFCs wholesale side (maybe allowing GSE originations) .. all those refinances and purchases will have to come through the retail channel. That will have a further chilling effect on the market. You cant have the #1 wholesaler go away and not be hurt. Retail will pick up a bit of the slack but the NET effect is a further tightening of credit.

victor: "I think it is a mistake for Paulson, Bernanke and Bush to artificially prop up domestic home prices. Public will be much better served by letting the market weed out excess capital devoted to housing and allow home prices to be dictated by regular market forces instead of wasting tax dollars or further increase future inflation risk by reducing interest levels to soften the housing crash."

100% agree...

The reason why they are wasting their time is the vast infrastructure and leverage based on these excesses. They cant let things deflate too slowly otherwise the leverage will tear the system apart. They are buying time to allow them (financial institutions) to deleverage.

[Anti-GP Stock Scalpers]

This CFC/BAC isn't that tough of a read to see what their going to do. Simple absorbtion with, most likely, trying to rebuild the CFC brand. CFC is in deep dodo obviously; $33.5 billion in current assets with $88.5 billion in current debts and a decreasing cash flow.

BAC won't make much off this deal. It's clearly a White Knight-type bailout with nothing really for them profit from (other then restoring integrity to mortgage lending). For BAC to pay-off CFC's current negative asset-debt structure it would cut deeply into their NET TANGIBLE ASSET value of $62 billion. But they'll COOK the books after scratching their HEADS and it's really ALL THEY CAN DO.

If somebody really wanted to have fun go after Honeywell and have a lucrative garage sale...This BAC/CFC deal is like being a janitor a morgue cleaning up after the coronor as left.

[Theorist]

Inland: We probably feel like we have to figure out in which direction the dinosaurs are stampeding before putting our gardens back in order. Or maybe it's more like that movie, "The Gods Must Be Crazy":

The bushmen of Xi's group are living well off the land. They are happy because the "gods" have provided plenty of everything, so no one in the tribe has unfilled wants. One day, the pilot of a passing airplane drops a glass Coke bottle.

Initially, this strange artifact seems to be a boon from the gods — Xi's people find many uses for it. But unlike anything that they have had before, there is only one bottle to share among all members of the group. This exposes the tribe to a hitherto unknown phenomenon, property, and they soon find themselves experiencing things they never had before: jealousy, envy, anger, hatred, even violence. (wikipedia)

We have to get rid of that coke bottle before we can get back to regular life?

[SalseroPS]

Land Grab?

If CW has approximately 17% market share in California, and 600,000 homes are projected to be foreclosed upon (in California) then CW's share of those will be around 100,000 homes.

It appears that BofA just put down a deposit to buy 100,000 homes at $55,000 each for a $6 billion price tag.