The "Countrywide Controversy"

What a perfect time for an update..Right after I posted this blog, this message came in from Countrywide's President this morning. Read it here! 

The Countrywide® Controversy

First and foremost, Countrywide is one of my favorite lenders in the mortgage industry to use. Countrywide has been innovative in their products, offering many families across the United States the opportunity of realizing "The American Dream" of home ownership.

Obviously, the Mortgage Industry is having problems. But, the #1 company in terms of loan production is now in question? According to Inside Mortgage Finance , Countrywide is the top originator thus far for the first half of 2007, originating $245 billion in loans!

It's not a question of Countrywide not being able to do loan volume, it's the fact they have a ton of potential non-performing assets on their balance sheets that they won't be able to offload on the secondary market.

I'm calling it the "Countrywide Controversy."

As of late, "The Countrywide Controversy" is being talked about in mortgage, real estate and investment communities across the United States, as to the financial soundness of the company and what its impact could be on our entire economy, should the worse happen. A blind eye must not be turned to the financial woes of the mortgage industry, for they have and will continue to affect millions of households across America for the next few years. 

To date, 128 major US Lenders have "imploded" since late 2006, having either filed bankruptcy, are temporary but open-ended halting of major operations, or are in a "firesale" acquisition. More information on this topic can be found online at:

 http://ml-implode.com/

Loans written by Countrywide and many other Lenders over the past few years, to include, "Stated Income loans" and "Option Arm" loans, are simply not desired on the secondary market right now, due to "poor performance." In a nutshell, "poor performance" translates to mortgage lates, notice of defaults and foreclosures.

One of the most important words in our industry right now is "liquidity", which is the ability to offload debt of loans written to the secondary market to free up funds for new loans.

To report such a notion that the nation's largest lender is having financial woes, I want to go about it the right way in this article. So, I'm going to break down this article into two categories, "Facts" and "Speculation", on the "Countrywide Controversy", in an attempt to address what could leave a severe impact on our entire economy and how it should impact your current Real Estate decisions to buy, sell or refinance a home.

Facts:

• Countrywide supplemented their existing liquidity options by infusing an additional $11.5 billion into their operation through a syndicate of 40 of the world's largest banks.  More than 70 percent of this facility has an existing term of greater than four years and are planning on using auctions to off their REO inventory.

• Countrywide announced their strategy to fund a significant portion of loans through Countrywide Bank, which has approximately $100 billion in assets.  Today, they fund approximately 70 percent of their loans through Countrywide Bank, and expect that nearly all of their loan volume will be funded through the bank by the end of September.

• Merrill Lynch downgraded Countrywide Financial to a B rating. Merrill Lynch believes that Countrywide might face bankruptcy. Make no mistake about it, a collapse of Countrywide Financial will give everybody in the real estate and mortgage industry a case of the "Uh O's!"

• Brian Hale, Senior Managing Director and President of the Consumer Markets Division of Countrywide Financial Corporation emailed a company wide memo rallying the troops. However, the memo reminded many of the efforts taken by HomeBanc up to the day they declared Bankruptcy.

• Countrywide's stock has plummeted 50% this year alone

• Countrywide Financial Corp. has started laying off workers who originate

loans as it cuts costs as part of a plan to survive the credit crunch, the

Wall Street Journal said, citing an internal e-mail.

Speculation:

• A sound company wouldn't need to borrow $11.5 Billion from 40 other institutions.

• Analysts speculate that the cost of borrowing those funds will not net a greater return than the interest paid on the monies borrowed.

• Many are speculating that it would be too devastating to the economy as a whole to let a company such as Countrywide flounder.  If the government bails out airlines, it is conceivable that they could step in and shore up a company such as Countrywide, especially as it appears that their main problem right now is liquidity to fund new loans.

• Removing that amount of liquidity from the markets will be disastrous. The jobs lost will be monumental.

• Countrywide would never shutdown if the government stepped in, but rather emerge as a much smaller player, focused on mortgage banking.

Conclusion:

I still intend to work with Countrywide and I hope that these trying times will pass. However, the volatility of the market should make even my own competitors think about where their relationships are aligned. My dad always says, "Don't put all of your eggs in one basket!" Following that message, I'll simply be more cautious, when looking out for my clients.

The mortgage industry is going through unstable times! However, this correction in the market is not a bad thing! I believe it will "weed out" the buyers that were "on the fence" and bring more serious buyers to the table. There is a peace of mind in knowing that homebuyers will once again "actually be able to afford the home they get into!" Certainly, we are in a "buyers market" and this is a great time to purchase a home! And yes, I have options available up to 100% financing to $750,000! However, you must have over 720 mid FICO scores, stable jobs with good income with reserves in checking/savings/stocks or something liquidable.. If you are looking to purchase a home, I highly recommend that you work with a mortgage company that has the ability to quickly make changes and hedge your decisions. In a market like this, it is imperative to work with a mortgage company that can make quick decisions and move your application from one lender to another if need be. Guidelines are constantly changing and you need to work with someone that stays on top of those changes more than ever! The mortgage company should be "in tune" with the weekly, daily and even hourly changes that are affecting the marketplace. Otherwise, it could nip you in the butt!

Broker/Owner

Oak Valley Mortgage

2006 Chico Assoc. of Realtors Affiliate Chairman

Direct: 530.592.8362

Fax: 530.267.5555

Website: http://www.CALoan.com

Blog: http://www.CARealEstateBlog.com

"You find the perfect home, we'll find the perfect loan!"