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Bretsky
07-24-2007, 09:47 PM
Countrywide Burned by Home-Equity Defaults
By Will Swarts |Will Swarts Archive |Published: July 24, 2007

The most overextended home borrowers are not the only ones missing payments these days. As the national housing market continued to weaken, investors slammed the door on Countrywide Financial (CFC: 30.50, -3.56, -10.5%) after the mortgage lender missed Wall Street earnings estimates, noting losses on home-equity lines of credit.

CEO Angelo Mozilo predicted in a Tuesday conference call that the housing market won't recover until 2009. "This is a huge battleship, and we're headed in the wrong direction," he said. His unusually glum tone spooked stock traders, extending losses by the major market averages.

Countrywide said second-quarter income dropped by 33%, sending shares down 10.5% by the close of trading. The Calabasas, Calif.-based company slashed its 2007 earnings forecast for a second time this year, to a range of $2.70 to $3.30 a share, compared with $3.50 to $4.30 in April. In January, Countrywide forecast $3.80 to $4.80 a share in 2007.

Countrywide reported second-quarter earnings of 81 cents a share, missing the Street consensus by 14 cents. The company earned $1.15 in the year-ago period.

Revenue sank to $2.55 billion from $3 billion a year earlier. Analysts, on average, expected revenue of $2.86 billion.

Until recently, Countrywide had dodged a direct hit from skyrocketing defaults by subprime borrowers, many of whom took out adjustable-rate loans for homes that have lost value over the last year. But the rolling correction in home prices isn't sparing the more prudent lenders.

Countrywide said softening prices affected many areas of the country, prompting a rise in delinquencies and defaults across all mortgage product categories. Problems with home-equity loans cut into the value of Countrywide's securities, costing about 40 cents a share for the quarter, the company said.

"Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist," Mozilo said. Unless interest rates drop, home lending production volumes will fall both for the company and nationwide, even as competitive pricing pressures increase.

National foreclosure rates hit a 30-month peak in May, according to the research firm RealtyTrac, which also warned that loan default rates will soon rise as adjustable-rate mortgages reset, pushing some borrowers' monthly payments beyond their means. June foreclosure filings fell 7% to 164,644 after rising 19% in May, the firm said. Despite the dropoff, foreclosures were still up 87% from June 2006, affecting one in every 704 households, the company said.

"This pressure is spreading from a weaker borrower base to the overextended prime borrower base," says David Hendler, an analyst with CreditSights, an independent research firm in New York. "In a high-growth home-price environment, they were taking out home-equity loans with a combined value of 90% or more, and not proving their income. The lenders were taking a risk and now they're getting disciplined by the market."

Of the prime home-equity loans made by Countrywide, 4.56% were at least 30 says late, up from 1.77% a year ago, the company said. Those loans are often made based on stated income, carrying slightly higher interest rates but requiring less documentation.

As Countrywide adjusts its credit standards, the company will see its loan production curbed, Wachovia analyst Jim Shanahan wrote in a Tuesday note. While this isn't a surprise, he believes his colleagues on the Street are still setting the bar too high, setting the stock up for further disappointments.

Shanahan did note that second-quarter loan production and margins exceeded his estimates. Morningstar analyst Erin Swanson found more silver lining, writing Tuesday that while current conditions remain grim, Countrywide is in better shape than many of its peers and deserves consideration as a long-term play. However, since the company still holds about $1.45 billion of subprime and prime home-equity loans, "we suspect there could be some additional write-downs over the next couple of quarters," Swanson warned.

"Despite the recent real estate slowdown and the weak credit environment — which could hurt Countrywide in the near term — we believe the firm will emerge as one of the remaining players in the mortgage industry, in part because of its large servicing business as well as management's efforts to further diversify Countrywide's business," she wrote.

The Bottom Line
Investing in home lenders isn't a great bet these days, but that shouldn't surprise investors at this point. Current shareholders should look at the type and proportion of nonperforming loans. When they do, they'll see that Countrywide is in somewhat better shape than its peers.

Countrywide said payments were late on 23.71% of its subprime mortgage loans, up from 15.33% a year ago. But Countrywide is less exposed to that sector than competitors, and has fared accordingly. While its stock has lost 13% of its value over the last 52 weeks, shares of Accredited Home Lenders (LEND: 10.97, -1.95, -15.1%) have plummeted 71% in that time.

The company's loan-servicing business commands about 14% of the national market, and should continue to deliver solid results, Swanson wrote. On the other hand, Countrywide could suffer in the near term because it competed very aggressively for loan originations during the housing boom, going from a 6% market share in 2000 to 16% last year, according to Swanson.

She gave Mozilo high marks for reducing Countrywide's reliance on its mortgage business to 48% of revenue last year, down from 78% in 2001 and 96% in 1996.

The timely diversification should help Countrywide survive this downward cycle, possibly picking up business from defunct competitors in the process. In the meantime, expect more leaks.

"We believe credit losses will plague the firm's results, at least over the near term, with net charge-offs as a percentage of total loans jumping to 0.5% in 2007, before moderating to 0.28% on average through 2011," Swanson wrote. "The troubles in the subprime industry appear to be casting a wide net, and few have been able to avoid being caught up. With about 10% of its mortgages in subprime products and 40% in adjustable-rate loans, Countrywide's loan portfolio is not immune." It's a countrywide problem.

Bretsky
07-24-2007, 09:48 PM
Much of this goes to support the common theme as of late that people are overextending themselves. Thought it was an interesting read

Freak Out
07-25-2007, 01:00 PM
Countrywide Burned by Home-Equity Defaults
By Will Swarts |Will Swarts Archive |Published: July 24, 2007

Countrywide said payments were late on 23.71% of its subprime mortgage loans, up from 15.33% a year ago. But Countrywide is less exposed to that sector than competitors, and has fared accordingly. While its stock has lost 13% of its value over the last 52 weeks, shares of Accredited Home Lenders (LEND: 10.97, -1.95, -15.1%) have plummeted 71% in that time.

The company's loan-servicing business commands about 14% of the national market, and should continue to deliver solid results, Swanson wrote. On the other hand, Countrywide could suffer in the near term because it competed very aggressively for loan originations during the housing boom, going from a 6% market share in 2000 to 16% last year, according to Swanson.

She gave Mozilo high marks for reducing Countrywide's reliance on its mortgage business to 48% of revenue last year, down from 78% in 2001 and 96% in 1996.

The timely diversification should help Countrywide survive this downward cycle, possibly picking up business from defunct competitors in the process. In the meantime, expect more leaks.

"We believe credit losses will plague the firm's results, at least over the near term, with net charge-offs as a percentage of total loans jumping to 0.5% in 2007, before moderating to 0.28% on average through 2011," Swanson wrote. "The troubles in the subprime industry appear to be casting a wide net, and few have been able to avoid being caught up. With about 10% of its mortgages in subprime products and 40% in adjustable-rate loans, Countrywide's loan portfolio is not immune." It's a countrywide problem.

Is it time to buy some stock in these groups? Probably not yet....but that time may not be far off.

Freak Out
07-25-2007, 06:18 PM
Here is a quote from that conference call not in the first Bretsky post:

"Company is seeing home price depreciation at levels not seen since the Great Depression"

"It just takes a long time to turn a battleship around," Mozilo said on a conference call discussing quarterly results for Countrywide, the largest U.S. mortgage lender. "This is a huge battleship, and we're headed in the wrong direction."

Ugly shit.

http://www.briefing.com/generalcontent/active/login/PlatinumLogin.aspx?reqpage=http://www.briefing.com/GeneralContent/Platinum/Active/TickerSearch/TickerSearch.aspx?Ticker=CFC

Bretsky
07-25-2007, 10:06 PM
No way would I be a stock buyer now; IMO things will get worse before they get better. In my industry I really think hard times are to come in 2008

retailguy
07-25-2007, 10:14 PM
No way would I be a stock buyer now; IMO things will get worse before they get better. In my industry I really think hard times are to come in 2008

glad I didn't take a "zero down loan" for buyers with good credit. :wink:

Just poking fun, you know! :P

LL2
07-26-2007, 09:14 AM
There's an expression that some people are "House rich, but cash poor". These cash poor people are the ones that overextended themselves and losing their houses. To know which ones these people are there's another expression "All hat, no cattle." To know who they are is to drive through neighborhoods with big houses and look for the ones with very little furniture inside. All of this is a rude awakening to those who thought RE was the way to get rich.

Bretsky
05-07-2011, 04:05 PM
INTERESTING BUMPETITY

swede
05-07-2011, 05:22 PM
Bretsky--those fuckers at Bank of America (Formerly my Countrywide mortgage) are charging me another $70 a month to push the "cushion" (miniumum low balance) in my escrow account to $1,300! Under what circumstances can I tell them to blow it out their asses and escrow my own taxes/hazard insurance? Is it case-by-case contractual or a function of equity? (If it's equity I'm screwed again because I bought at the top of the market and my house is worth less than when I bought it.)

Cheesehead Craig
05-07-2011, 05:26 PM
Typically lenders want you to have 20% equity in your home in order to grant you an escrow waiver.

Lenders get more money from investors if you have an escrow account so it's in their best interest for you to have one.

swede
05-07-2011, 05:48 PM
It's in Bank of America's best interest to buy up every bank in the country so they can find me and bend me over backwards no matter where I go. Bastards.

Bretsky
05-07-2011, 08:26 PM
Bretsky--those fuckers at Bank of America (Formerly my Countrywide mortgage) are charging me another $70 a month to push the "cushion" (miniumum low balance) in my escrow account to $1,300! Under what circumstances can I tell them to blow it out their asses and escrow my own taxes/hazard insurance? Is it case-by-case contractual or a function of equity? (If it's equity I'm screwed again because I bought at the top of the market and my house is worth less than when I bought it.)


At my bank somebody can get their escrow waived when PMI is removed.........aka........they have 20% equity in the home. BOC is terrible to deal with