The final days: BofA may swallow Countrywide by July 1

Countrywide Financial Corp.’s demise as an independent business is near.

A Bank of America Corp. spokesman in Charlotte confirmed today that the company could complete its takeover of the loss-ridden mortgage giant by July 1.

Countrywide shareholders are to meet on Wednesday at the firm’s Calabasas headquarters to vote on the deal. (Not that they have any real choice.)

Once it gets that approval, BofA could complete its stock swap by July 1. That would be the end of Countrywide as run by CEO Angelo Mozilo, who of course has become the personification of the outrageously sleazy lending that fueled the housing market bubble.

It isn’t clear whether July 1 also would be Mozilo’s last official day of work. A call to Countrywide’s media relations line wasn’t returned.

BofA CEO Ken Lewis has said he expected the 69-year-old Mozilo to "stay until the deal gets done, and I would assume he would then want to go have some fun."  Maybe taking a computer-learning class?

Given the lightning rod that Mozilo has become, BofA probably wishes he would have departed months ago. But until it gets the stock, the bank can’t officially boot him.

As for Countrywide shareholders, including Mozilo, their payoff in the takeover was never much, relatively speaking -- and it’s getting smaller by the day, as BofA’s stock sinks with the latest blistering sell-off in financial shares in general.

Under terms of the deal, announced in January, BofA will exchange 0.1822 of its shares for each Countrywide share. When the takeover was announced on Jan. 11, BofA shares were at $38.50. That put a value of $7.01 a share on Countrywide.

Today, BofA’s stock fell 23 cents to $28.14, its lowest since 2001. That values Country- wide at $5.13 a share -- 89% below its record high of $45 in February 2007.

Even as the takeover nears completion, Wall Street has continued to price Countrywide stock below the theoretical deal value. The shares ended at $4.83 today on the NYSE. Still, the discount was far wider a few weeks ago when worries kept surfacing that BofA might pull out.

Right now, it looks like a new master is about to take control in Calabasas.

Photo: Countrywide CEO Angelo Mozilo. Ric Francis/Associated Press

Foreclosure data getting meaner, especially in California

There is one ugly conclusion to be drawn from the first-quarter numbers out today on mortgage delinquencies and foreclosures: There will be a lot more homes coming on the market, especially in the Golden State.

Home builders’ stocks look like they’re reflecting that cold reality. Shares of KB Home, Ryland Group and others are mostly lower even as the broader market is rallying.

As expected, the delinquency and foreclosure data from the Mortgage Bankers Assn. showed things got significantly worse in the first quarter. The national delinquency rate, meaning the percentage of home loans 30 days or more past due on payments, jumped to 6.35% (seasonally adjusted) as of March 31 from 5.82% at the end of the fourth quarter.

Breaking that down, the national delinquency rate was 18.8% for sub-prime loans as of March 31 compared with 17.3% as of Dec. 31. For prime loans the rate rose to 3.71% from 3.24%.

California actually ranked below the national averages on delinquencies. A total of 16.9% of sub-prime loans in California were delinquent at the end of the first quarter, down from 18% in the fourth quarter.

The prime-loan delinquency rate for California was 3.52%, up modestly from 3.43% in the fourth quarter.

But Jay Brinkmann, research chief at the mortgage bankers' group, says the problem in California is that delinquent loans have less of a chance of being cured than in other parts of the country because of the severity of the home price declines here. In other words, delinquencies are more likely to turn into foreclosures in the Golden State.

The first-quarter data bear that out: The percentage of the state’s prime loans in foreclosure soared to 1.49% as of March 31 from 1% three months earlier.

The national prime-loan foreclosure figures, for comparison: 1.22% as of March 31, up from 0.96% in the fourth quarter.

For sub-prime loans, the state’s foreclosure percentage surged to 14.6% from 10.6% at the end of last year, compared with national rates of 10.74% and 8.65%.

The foreclosure data overall suggest "a flood of homes back on to the resale market," worsening the outlook for prices, Merrill Lynch & Co. economists warned in a note today.

Shares of home builders are taking the hint. The Standard & Poor’s index of 15 major builders’ stocks was off about 2.3% at noon PDT to its lowest since March.

Photo: A foreclosed home in Egg Harbor Township, N.J. Mel Evans/Associated Press

A poll on pocketbook issues -- and your chance to weigh in

The country is in a surly mood about the economy, energy prices and inflation prospects, a Los Angeles Times/Bloomberg poll suggests.

But many people aren't feeling surly enough to say no to government help for strapped homeowners -- or to say no to a boost in the capital gains tax rate.

I'm highlighting here some of the findings in the nationwide telephone poll of 2,208 adults conducted May 1-8 -- and inviting blog readers to chime in with their views.

Here goes:

--The economy: Those tax rebates landing in Americans' mailboxes aren't doing a lot to brighten the mood. Most people in the poll (78%) believe the economy is in recession, and few see much hope for things to improve in the next six months. Just 19% of all respondents predict the economy will be in better shape in six months, while 37% say things will be worse and 40% see things staying about the same.

The rally in stock prices since mid-March indicates much more optimism about the economy on Wall Street than on Main Street. Who's going to be right this time?

--Crude realities: Almost no one believes oil prices will come down -- which naturally means this would be the perfect time for prices to break because it would contradict conventional wisdom. Asked where they expected oil prices to be in one year (compared with the cost of about $119 a barrel at the time of the survey), 67% of all respondents predicted higher prices. Just 14% predicted a lower price and 14% said they expected the price to be about the same.

--Inflation angst: The majority believe inflation will continue to rise over the next year from the current annualized rate of 4% in the consumer price index: Sixty-one percent of respondents expect inflation will be higher in the next 12 months. Just 11% foresee lower inflation.

If the public is right on inflation, the Federal Reserve will be hard-pressed to keep holding short-term interest rates at 2% -- and there will be a lot of shocked investors in the Treasury bond market, where a 10-year note now pays just 3.9%, or less than the current inflation rate.

--Housing help: In something of a surprise to me, 60% of respondents said they supported "the federal government providing assistance to individual homeowners who have been caught between rising mortgage payments and falling home values." Just 25% opposed the idea of government help; 15% said they weren't sure.

But I wonder if the majority would have had the same view if the question had been phrased differently -- say, to include the words "taxpayer-funded bailout." Some respondents' idea of "government assistance" may not extend that far, but we can't tell from the simple poll answers of "support" or "oppose."

In any case, there is more sympathy for government help for struggling homeowners among lower-income groups than higher-income groups. Among poll respondents earning less than $40,000 a year, 68% support the idea of government aid. Among those earning $101,000 or more, just 40% are in favor.

--Capital gains give-back: Investors seem to be mentally preparing themselves for an increase in the long-term capital gains tax rate, which many people presume would be on the agenda if either Hillary Clinton or Barack Obama wins the White House.

Asked if an increase in the tax rate to 20%, from the current 15%, would cause them "to sell shares, for tax reasons, that you otherwise would not sell," just 20% of people who own stock said they would be motivated to sell. By contrast, 66% said they wouldn't sell; 14% weren't sure. The results weren't materially different for investors above and below the $100,000 income line. For example, 65% of those earning between $60,000 and $100,000 said the prospect of a tax increase from 15% to 20% wouldn't drive them to sell, and that was echoed by 70% of those earning $101,000 or more.

There is a threshold for pain out there with a higher capital gains tax rate, but 20% apparently isn't it.

Why your mortgage broker never touted his test score

I had high hopes on Monday for a Milken Institute global conference panel on "the future of the mortgage market." Turned out to be more of a look back at all that went wrong. But there was a testy and entertaining exchange between two of the panelists -- Ethan Penner, a securitization-industry pioneer who now is executive managing director of CB Richard Ellis Investors; and Ellen Seidman, who directed the federal Office of Thrift Supervision from October 1997 to July 2001 and now is an executive of the New America Foundation.

Seidman was making a point about the incentive a mortgage broker had for getting a borrower the biggest possible loan, regardless of whether the person could afford it. "The whole compensation structure was make a loan, take a fee, take a bigger fee if you make a worse loan -- a loan that's worse for the borrower -- and you have no responsibility after that," she said.

She blamed, in part, the fact that mortgage brokers weren't subject to any significant government regulation.

Penner then interjected: "Is it really right to regulate salespeople?"

"Yes," Seidman shot back. "Yes. Securities brokers are regulated by suitability rules, and these guys might also be too." (The suitability rule means a securities broker has a responsibility to be sure an investment is suitable for a client.)

"Let me just give you a really simple example of how bad this was," Seidman said. "In the state of Illinois they put on a regulation that required mortgage brokers to take a really simple examination -- you know, sort of, when bond prices go up do interest rates go down or vice versa, that kind of affair. Half of them didn't show up, and a significant portion of the ones who did failed."

In case there still were any questions about how it was that, during the boom, truly anyone could get a mortgage.

Posted April 29, 2008

A bottom in housing? That's a big 'No' at this confab

I'm at the annual Milken Institute global conference today in Beverly Hills, where 3,000 people from around the planet get together to hear 130 panel discussions on the big issues of the day.

Naturally, you couldn't have a meeting like this without the U.S. housing crisis being at the top of the list of hot topics. So what follows are some of the highlights from a packed morning session entitled "Real Estate: Where Is the Bottom?" (The short answer: not here.)

Brian Fabbri, chief economist for North America at global investment bank BNP Paribas: He sees no chance that home prices will bottom anytime soon, given the glut of supply on the market. Despite that glut, "Builders are still building more homes for sale than people are buying today." As for hopes that mortgage delinquencies might peak soon, "We're going through a recession. In every recession we lose 1.5 to 2 million jobs. We'll lose most of those jobs through the second half of this year."  So the math doesn't add up at all for a respite from mortgage-loan defaults, he figures.

Sam Zell, real estate investment legend and now the head of Tribune Co., the L.A. Times' parent: "What this country needs is a cleansing" in the residential market. "We need to clear out all of those people who should never have been in houses in the first place and who for sure shouldn't be getting sympathy." He blamed another Sam -- Uncle in Washington -- for encouraging homeownership at any cost in recent years. The rise in the U.S. homeownership rate from 63% to 69% during the boom was totally unjustified, Zell said, other than by "the political impetus of, 'Let's put more people into homes they can't afford. ' "

Bobby Turner, managing partner of investment firm Canyon Capital Advisors: He and Canyon are big fans of urban real estate in cities with growing immigrant populations (Canyon has partnered up with Earvin "Magic" Johnson in urban development). But the real estate market in general, he suggested, has too many buyers hovering, thinking it's time to grab bargains. "I think you've got this universe of investors that really don't understand the nuances of real estate." Although Canyon has capital to invest, Turner said, he's content "to sit on the sidelines awhile and let people make mistakes."

Posted April 28, 2008

The housing fix as envisioned by Baucus and Grassley

Sens. Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa) today put forth their bipartisan proposal for a housing rescue.

There may not be something for everyone but they're certainly offering up help for the main constituencies: homeowners, home buyers, and builders.

The Baucus/Grassley proposals are expected to be part of a broader housing-rescue plan to be drafted in the Senate.

Read the specifics from Baucus and Grassley here, though keep in mind we have a long way to go before any legislation gets through Congress and reaches the White House.

What's worse -- the blatant bailout or the indirect kind?

Bill Gross, the bond market guru at Pimco (Pacific Investment Management Co.) in Newport Beach, is on the web with his April commentary.

Gross, 63, continues to assert that the federal government should be prepared to take bolder steps to stop the decline in home prices. This has been a Pimco theme for months now, and it grates on some people who believe the firm itself would be a beneficiary of a broader federal bailout.

The reason: Pimco's $750 billion in assets under management include tens of billions of dollars worth of mortgage-backed bonds, albeit the higher-quality kind, not the worst of the sub-prime trash.

Gross points out that investors and savers already have begun to pay for a housing rescue as the Federal Reserve has slashed short-term interest rates to help ease the credit crunch.

He writes: "Politicians –- especially those on the Republican side of the aisle -– are adamant about not using taxpayers’ funds to bail out Wall Street or housing speculators, or whoever the current devil may be. The public seems to nod in agreement while at the same time not noticing that their watch is being lifted or their pocket being picked. Let’s see: Twelve months ago the yield on your money market fund was 5%+ but your next statement will probably feature something closer to 2%. Did your money market fund . . . experience any capital gains in the process? Absolutely not. So it looks like your, the taxpayer’s, contribution to the bailout of banks, or Florida condominium speculators can at least be quantified: 3% foregone interest per year on whatever you own."

Implied, it seems, is that you're already paying for a bailout, so you shouldn't care about paying some more if that's what it takes to stabilize home prices.

Read Gross' full commentary here.