Paper Economy: Zero Down at Countrywide

Sunday, March 18, 2007

Zero Down at Countrywide

A couple of weeks ago, when in the initial malaise of the sub-prime meltdown was just settling over the nation, Countrywide Financial appeared to scramble to take some action that might allay the fears of an increasingly volatile market.

Then came a widely publicized account of an “urgent” email which specified that Countrywide brokers were to no longer provide any 100% financing deals as of March 12.

"Please get in any deals over 95 LTV (loan-to-value) today!... Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12."

At first glance, this was a fairly positive development for the company as most would easily agree that lending first time home buyers 100% of their purchase price was probably a bit too risky let alone lending it to buyers with sketchy credit histories.

But still, it seemed a bit light on substance given that home buyers, even ones with sub-prime credit quality or low to no verified income, could still borrow 95% of the purchase price of their home, not to mention that there was never an official follow up release from the company substantiating the changes.

Either way, the traditional media ran with the news of the changes and fact or fiction, company stunt or legitimate development, it eventually made it's way onto CNBC and into the Wall Street Journal.

Then a few days ago, I managed to get my hands on a few Countrywide BC rate sheets dated March 12th as well as several underwriting matrices and was quickly able to arrive at the truth behind the reported changes.

First, although Countrywide may have limited the availability of their 100% LTV products, they did NOT eliminated them entirely.

In fact, 100% financing is still an option, allowing “full documentation” borrowers with credit scores of 620 or better to borrow up to $1 million using either a 100% or 80%-20% product.

Borrowers with credit scores as low as 580 can receive 95% financing allowing them to borrow up to $550,000 and even “no-doc” borrowers with credit scores of 640 or better are eligible for 95% LTV loans of up to $600,000.

Finally, Countrywide is still offering these loan products in the form of risky “interest only” option ARMs as well as continuing to serve borrowers who are “out of bankruptcy less than a year” as one of their ads had promoted.

All in all, I’d say not much has changed over at Countrywide and although their CEO Angelo Mozilo has gone to great lengths recently to assure the markets that they were operating in a sound manner, you would be hard pressed to tell that from their underwriting guidelines.

So, was this a surprise?

Truthfully, given the state of affairs that has been unfolding in the last month, I was a bit surprised… that is, until I read the following press release titled “Countrywide Home Loans Assures Homeowners and Home Buyers That They Still Have Many Mortgage Loan Choices” published late Friday evening.

Here is the most pertinent excerpt:

"We want to assure homeowners that there is still an extensive selection of mortgage loans to suit a multitude of personal and financial circumstances," said Tom Hunt, managing director of Countrywide Home Loans. "We recognize it's been widely reported that some major lenders, like Countrywide, no longer offer 100% financing. In fact, we have made changes to certain subprime and other special mortgage programs, but we have not eliminated 100% financing. We still offer one of the widest selections of low- and no-downpayment options to qualified customers, including those with less-than-perfect credit."

So, it appears that Mozilo may have summed it up best when he told Maria Bartiromo of CNBC the following:

“There’s been a rush to judgment, an overreaction, a baby out with the bathwater… “