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Is Countrywide the Next to Crash and Burn?
From Reuters today…
Countrywide Financial Corp. could face bankruptcy if liquidity worsens, according to a Merrill Lynch & Co. analyst who downgraded the largest U.S. mortgage lender to “sell” from “buy”.
The downgrade suggests deepening problems at Countrywide, which has several times in the last month tried to assure investors it will thrive once the credit crunch afflicting the U.S. mortgage industry passes.
Wednesday’s downgrade by analyst Kenneth Bruce came a day after Calabasas, California-based Countrywide said foreclosures and mortgage delinquencies in July had risen to their highest levels since at least early 2002.
“If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly then the model can break, leading to an effective insolvency,” Bruce wrote. “If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.”
Don’t put your eggs in that basket right now. Wouldn’t that be amazing if the country’s largest home mortgage lender were to fall? If American Home Mortgage left $800 million worth of approved loans hanging, how much damage would a Countrywide bankruptcy do? Maybe that’s what the TV commercial means by “No one can do what Countrywide can.”
What’s my point here? Realtors and borrowers are much better off working with a reputable mortgage broker today than with a mortgage banker. In addition to having to fully disclose our fees (Countrywide doesn’t), mortgage brokers can guide clients away from unstable lenders and toward those who will still be around on closing day.
Got a question? Shoot me an email, or leave a comment below.
August 15th, 2007 at 3:15 pm
Marc,
Unfortunately, I think Countrywide will take a fall. They have funded so many 1% Neg Am ARM loans with a 110% ceiling that most of those loans will recast to a full P & I payment in two to three years. Those people who could barely afford the payment at 1% will surely lose their homes, especially if they did high CLTV financing and are now underwater or still at very high CLTV’s.
In fact, the Neg Am ARM market (as well at the 5/1 I/O 100% market) is the next big shoe that will drop on us. I see another 2 years of bad water for us with all this going on. I try to stay positive, but the reality is just too much right in our face.
August 15th, 2007 at 3:17 pm
Do we need to continue to continue to send doom and gloom speculations?
Lets all pack our bags and call it a day. No?
Or, lets stay focused, stay on top of product and lender changes so we are the ones who can serve the clients who are still out there.
August 15th, 2007 at 3:17 pm
Wow!, your website has some depressing stuff on it. On a lighter note since the values are going down some of the people priced out of the market previously may be able to afford to buy now.
August 15th, 2007 at 3:21 pm
Thanks Renee,
There is a silver lining on the cloud, and you put your finger on it. It’s not my goal to be depressing, but rather to help people avoid painful mistakes by being aware of their surroundings.
Giovanni, this isn’t gloom and doom, it’s reality. Steer your clients toward safety and away from risk. That’s what you get paid for. And why not take this opportunity to point out to clients that in addition to not having to disclose their fees, a mortgage bank may not be there with money at the close.
Guy, yes I recall CW being very aggressive with the pay option arms. The 5 yr fixed POA is the worst loan ever devised. See my article under “Neg Am Loans” in the Categories
Marc
August 15th, 2007 at 3:23 pm
I think there is a difference here in Marc’s email. The CountryWide situation is factual and we need to be aware of potential funding halts when deciding where to take our loans!
August 15th, 2007 at 4:33 pm
Being a mortgage broker at this time is definitely a benefit for us.
I think one big point to remember is that you must lock in your loans wherever you are sending them. In that way, if the program changes or goes away, hopefully your lender will honor the lock and fund the loan up until the lock expiration date. I know some lenders haven’t been honoring their locks, but with our preferred lenders I think we have a much better chance of this and so far it appears they have come through for us on this. Just don’t ask for any extensions because you won’t get them. J
This market turmoil just gives us that much more opportunity to shine. We just have to keep a positive spin on it. Easier said than done sometimes, though, I know.
August 15th, 2007 at 5:06 pm
FYI - I have a loan E-Approved at C-wide, locked and all conditions went in on Aug 9th.
My rep Mark called me THIS morning to tell me… “sorry, we stopped doing that loan on August 8th.” He said my file would have had to have been UNDERWRITTEN before the 8th - and he had no advance notice to try and help me out.
I currently have a past client who is purchasing new construction. The builder offers $20k incentive to use their in-house lender… C-wide. I’m using this latest news as a last ditch effort to get MY clients back, without them loosing the $20k by showing them the published C-wide article. My point to them - C-wide COULD be out of business before construction is complete in 30 - 45 days. If we do the loan, we can change lenders quickly IF a problem occurs. I don’t know if it will work or not - but I can’t beat the rates C-wide is quoting - I can MATCH, but the builder wants me to get into a GFE bidding war with C-wide.
August 15th, 2007 at 5:13 pm
Jeanette, you make a couple of points that I hope will resonate with buyers, builders and agents. First, even the big “reputable” banks are frequently pulling loans without warning. American Home Mortgage did this with $800 million worth of approved loans.
Second, a reputable mortgage broker is the only sensible choice today. Only a broker has the ability to shift gears and quickly move the file to another lender when one pulls up the tent stakes and leaves in the night.
August 17th, 2007 at 6:22 am
I am working with a mortgage broker and we were scheduled to close on 8/20. I have an 80/15 loan with good credit and my broker is telling me that countrywide is refusing to fund my 2nd mortgage. I’ve been speaking directly with Countrywide and my understanding is that they are honoring all loans that have been locked but are not funding any NEW loans. Based on this information I believe that the issue isn’t that c-wide won’t honor the lock, I believe it’s that my broker NEVER locked my loan. Any suggestions on what I can do in this situation?
August 17th, 2007 at 8:54 am
It could be CP that your broker forgot to lock that one. Brokers will sometimes play the market, but in the present environment, that is highly unlikely. What does your broker say about the lock? We get a written confirmation of every lock, so it should be easy to prove.
If that fails, you may need to find another lender for the 2nd. Is this full doc or some form of “stated income” loan?
August 17th, 2007 at 1:12 pm
[…] Nervous watchers include international banks like BNP Paribas, who have suspended investor withdrawals in response to the sub-prime market implosion. This and other actions have led to an evaporation of cash flow, which ALL businesses need to survive (it’s like us not having air to breath, folks). Countrywide and Washington Mutual have both stated they are having unprecedented disruptions from their sources for mortgages. […]