Countrywide Foreclosures: January 2008

Today, Countrywide Financial (NYSE:CFC) released their January Operational Results showing that delinquencies and foreclosures are continuing their climb to troubling levels with delinquencies jumping over 50% to 7.09% of total number of loans or 7.47% of total unpaid principle balance, and foreclosures soaring over 92% to 1.48% of total unpaid principle balance since January of 2006.

Prior to January 2007, Countrywide reported foreclosure data as a percentage of the total number of loans serviced which obviously lacked complete clarity.

Below, are charts of both measures; delinquencies by total number of loans serviced and foreclosures by percentage of unpaid loan principle (Click for larger versions).

Be sure to check out the Countrywide Financial Foreclosures Blog’s Inventory Tracker for some more startling evidence that foreclosures are skyrocketing over at Countrywide Financial as well as some excellent REO tracking features.

Countrywide Foreclosures: December 2007

Today, Countrywide Financial (NYSE:CFC) released their December Operational Results showing again that delinquencies and foreclosures are continuing to remain at troubling levels with delinquencies climbing 20.72% and foreclosures soaring over 105% since December of 2006.

Prior to January 2007, Countrywide reported foreclosure data as a percentage of the total number of loans serviced which obviously lacked complete clarity.

Below, are charts of both measures; delinquencies and foreclosures by total number of loans serviced and foreclosures by percentage of unpaid loan principle (Click for larger versions).

Either way you slice it, Countrywide is looking at some significant increases in foreclosure activity but notice that for the “unpaid loan principle” method, things are really looking dire.

Be sure to check out the Countrywide Financial Foreclosures (REO) Blog’s Inventory Tracker for some more startling evidence that foreclosures are skyrocketing over at Countrywide Financial as well as some excellent REO tracking features.

Constructing Capitulation: A Look Back at 2007

At the start of 2007, it was pretty clear that something had seriously gone wrong with residential housing markets in the United States.

After nearly a full year of declining home sales, widespread homebuilder and home “investor” trauma and some precursors of the mortgage-credit implosion, the backdrop was clearly set for a larger and more pervasive unveiling of one of history’s greatest economic debacles.

The Fed and chairman Ben Bernanke, though publicly reassuring and confident, promoting themes such as “containment” of the housing “slowdown” and the absence of “spillover” effects on the wider economy, were belatedly introducing new lending regulations sending some troubled lenders, such as New Century Financial and Countrywide Financial, scrambling to either adopt the changes or to sidestep them.

Realtors, on the other hand, presented a decidedly optimistic outlook both pushing a new ad campaign that promoted the false notion that “It’s a Great Time to Buy or Sell a Home” as well as having their then chief economist David Lereah report, through the traditional “dimwitted” and “bought and paid for” “make believe” news media, that the housing market was in the early stages of recovery.

Even some beleaguered yet not altogether beaten homebuilders such as “dancing” Bob Toll seemed to portray a sense of optimism, suggesting that the new home market was seeing some positive signs such as stronger than expected “commitments” in Maryland, Greater Washington DC and even portions of California, cancelations abating and evidence suggesting that consumers were simply sitting on the sidelines ready to buy at the first sign of price stability.

Unfortunately for scores of unlucky home buyers who were influenced by the National Association of Realtors and the other industry insiders onslaught of media propaganda, home purchases made at the start of 2007 had come nearly at the absolute zenith of home values… prices that, after having been artificially inflated by years of an unrestrained speculative frenzy and unchecked lending, will not be seen for many years to come.

Try as they might though, the false euphoria created by the real estate industry would last only moments as the housing collapse proved yet again that it was not going to go away silently.

To start the unwinding anew and with a decidedly ironic twist, New Century Financial, one of the nation’s largest subprime loan originator REITs announced that they needed to restate earnings for the majority of 2006 in order to “correct” improper accounting of an underestimated volume of “repurchase claims”, claims made by investors when loans purchased from the originator default unusually early.

Now, it appeared that all at once, and with the help of a handy dandy daily chronicle, lenders were dropping like flies as a flow of disclosures showed losses mounting quicker than any lending institution had anticipated and, for many, could reasonably manage.

The thick greenish gooey smog of the subprime slime was quickly descending, enveloping not just the nation but the worlds lending, housing and financial markets in a taint so pervasive and infectious that the losses would eventually be tallied in the tens of billions with conservative projections of many hundreds of billions.

Not all real estate industry insiders were so aware of the magnitude or consequence of the subprime debacle turning instead to other factors for explanation of the continued decline in buyer enthusiasm such as David Lereah’s suggestion that “El Nino” was the culprit of lagging sales.

Others though saw the writing on the wall quite clearly and accurately though and were not shy about admitting the extent to which the environment was going to “suck” for the remainder of 2007.

With scores of smaller, more risky, lenders and originators on the ropes and the lending-credit debacle escalating, the initial signs of a clever bluff could be interpreted from the statements of one of the nation’s largest lenders, the yet again even more ironically named Countrywide Financial (NYSE:CFC).

As the unfolding crisis had begun to cast a shadow of doubt over the whole of the real estate industry, many market participants found themselves fielding questions about the extent of its impact on their operations and even Congress began ratcheting up their investigations into the causes and possible outcome as well as debating possible plans for a public “bail out”.

The “second shoe” had dropped.

The budding false optimism from earlier in the year had correctly shriveled as the real estate industry resumed its downward spiral and now the mortgage lending industry, having come apart at the seams, degenerated into an ugly case of blame and finger pointing.

Heading into the summer of 2007 it was clear that there was a “perfect storm” on the horizon.

Try as they might, central bankers could no longer continue to ignore or downplay the significance of the lending meltdown that had now escalated into a wider credit crunch.

The economy that had just appeared “likely to continue expanding at a moderate pace supported by solid growth in employment and incomes” the day before was now experiencing “appreciable downside risks to growth” and requiring “facilitate the orderly functioning of financial markets”.

The cat was out of the bag, the subprime mortgage turmoil had now shown itself to be the tip of a far larger and more cataclysmic iceberg that would have credit markets reeling around the globe as the house of cards had begun to fold bit by bit.

Not even the superb bluffing on the part of “top conditioned athlete” such as Countrywide Financial’s Angelo Mozilo could prevent the outgoing tide of investor sentiment.

A single simple and now likely accurate forecast for possible bankruptcy amid a rising tide of delinquencies and foreclosure sent the nation’s largest lender down for the count as its stock dropped over 80% in value.

Along with it went all hopes that anything other than a complete washout was in store for the nation’s housing markets as the commercial lending markets collapsed and Jumbo loans, one of the major sources of fuel that served to inflate the massive housing bubble, all but disappeared.

Coming into the Fall Ben Bernanke and the Fed, although likely still not fully accepting the depth and enormity of the unwinding, were clearly in crisis mode.

Putting aside any caution of creating “moral hazard”, the Fed slashed the Fed funds rate and continued its other operations in an effort to stave-off widespread panic but at this point it seemed plainly clear that they were behind the curve essentially plugging holes that had sprung far in advance of their attention.

All home sales indicators now began to register resounding confirmation that the massive structural changes that took place during the summer would lead to a new leg down in the housing decline.

The new and existing and more leading pending existing home sales data all showed quite clearly that a significant percentage of buyers had been simply removed from the equation resulting in another 15%-20% falloff in demand for residential real estate.

Home prices too have suffered, showing the most negative and most widely felt declines to home prices ever recorded by the S&P/Case-Shiller home price indices.

As for the consumer, the initial signs now clearly show that the housing collapse has begun to spillover with confidence plunging to recessionary levels, weakening employment situation, real retail sales of discretionary items continuing to remain negative, and a significant pullback in the production of some consumer durables and even a possible collapse of commercial real estate as well.

2007 ended, in a sense, in a similar but altogether more severe state than it had begun.

A famous former president of the National Association of Realtor’s can still not sell his own home even with all the propaganda NAR money can afford, NAR’s predictions are no more accurate, and homebuilder sentiment is borders on depression.


The primary difference is that the ruse is over.

The housing bubble is in obvious collapse in America and elsewhere around the world and the mortgage meltdown is now fully recognized as a serious global credit crunch and with that nearer is drawn the specter of a calamitous downturn.

Will bankruptcy for Fannie and Freddie or bond insurers push things over the edge?

Or perhaps prime borrowers will fail in record numbers as recession sinks in and job losses mount?

No one truly knows for sure but what does seem certain is that 2008 will bring some monumental changes.

Countrywide Foreclosures: October 2007

Today, Countrywide Financial (NYSE:CFC) released their October Operational Results showing again that delinquencies and foreclosures are continuing to remain at troubling levels with delinquencies climbing 32.96% and foreclosures continuing to soar over 112% since October of 2006.

Prior to January 2007, Countrywide reported foreclosure data as a percentage of the total number of loans serviced which obviously lacked complete clarity.

Below, are charts of both measures; delinquencies and foreclosures by total number of loans serviced and foreclosures by percentage of unpaid loan principle (Click for larger versions).

Either way you slice it, Countrywide is looking at some significant increases in foreclosure activity but notice that for the “unpaid loan principle” method, things are really looking dire.

Be sure to check out the Countrywide Financial Foreclosures Blog’s Inventory Tracker for some more startling evidence that foreclosures are skyrocketing over at Countrywide Financial as well as some excellent REO tracking features.

Mozilo’s Perfect Storm

Countrywide Financial (NYSE:CFC) yesterday hosted their Q2 2007 earnings conference call in which there was an extended Q&A session with top executives, particularly CEO Angelo Mozilo, on topics ranging from the outlook for housing and the Fed’s new lending standards to the recent degeneration of prime HELOC loans.

The following is a selection of some of the more revealing responses from CEO Angelo Mozilo.

When asked what signs he is looking for to indicate an end to the pain in the housing decline, Mozilo cites the inventory overhang and then makes a pretty feeble argument that nobody saw the train wreck coming while simultaneously pointing fingers at the ratings agencies and other financial institutions.

“I think the first thing is that the inventory of the house supply has to reverse itself. As I view it, and I have been through a lot of these things in fifty four years, although the market is a lot bigger now so the problems are a lot bigger.

But as I try to walk through what happened here, and could a lot of this have been foreseen and you tend to try to reflect on your own activities and should we have known, we have seen it.

But as I do reflect on it, and I do a lot, nobody saw this coming.

S&P and Moody’s didn’t see it coming, but they simply just downgrade bonds. Bear Stearns certainly didn’t see it coming, Merrill Lynch didn’t see it coming, nobody saw this coming.”

Then Mozilo attempts to pass the blame to the Fed, suggesting that their raising of interest rates had a major impact on the housing market.

“The Fed, knowing that well over 50%, 60%, 70% of the loans made in 2003, 2004, 2005 and 2006 were indexed variable rate loans, indexed one way or another to the Fed funds rate, increased the Fed funds rate seventeen times… seventeen consecutive times with most of the product out there being variable rate product.

You never knew when they were going to stop increasing.

The fact that they did that had a material impact on affordability as people went to refinance or people went to buy… Major major impact. ”

When asked about the performance in the prime market Mozilo suggests that the dramatic increase in prime delinquencies is currently due to life events and not rate resets further suggesting that it is an ongoing process.

“So far what we have seen in delinquencies to a great extent are not resets at all but people losing their jobs, loss of marriage, loss of health and the problem is that they either can’t refinance because the value of their homes have gone down, so their under water, or the program that they used to get into the home is no longer available to them. So right now the delinquencies are being driven by more traditional issues then they are about concern about resets.”

“I do think it’s important to observe what happens going forward because we are experiencing home price depreciation almost like never before with the exception of the Great Depression and so I think using standards or frames of reference on prime and the performance of prime in other environments may not be a fair comparison in light of what’s happening to real estate values.”

When asked that, with the benefit of hindsight, what could have been done differently, Mozilo seems to suggest that the lending mania was a function of the markets supply and demand and that Countrywide was compelled to join in the craze else risk becoming nonexistent.

“The obvious answer is that the deterioration in house values, if we knew that, we would have had to really stop doing that business and the company would have been a very different company because you can’t do this absent competition. Our volumes, our whole place in the industry would have changed dramatically because we would have arbitrarily made a decision that was contrary to what everything appeared to be. Values going up, no delinquencies, no foreclosures, and we suddenly stop the music, and say that we’re not going to participate in home equity loans, in subprime, in high LTVs, no-docs and that sort of thing. It would have been an insight that only a superior spirit could have had at the time.

I ask myself that all the time as CEO… what should I have known and when should I have known it and what should I have done about it.

As I go through that process, it’s obvious that if we had stopped participating in those major areas of the business, we just couldn’t stop it there, it would have affected us through the entire spectrum of our lending operations because you can’t say ‘we’re out of subprime we only want prime’ because the providers of loans provide both subprime and prime both and will not give you the prime if you’re not willing to take the subprime.”

Later, talking more about the spillover of defaults into the prime market Mozilo suggests that PRIME HELOCs are the new subprime.

“The spillover into prime I don’t think is something that should shock anybody once you understand the definition of prime.

The basic issue you see today, particularly with Countrywide is the spillover into the HELOC portfolio.

At least for this quarter, it’s not really a subprime story, it’s a HELOC story and the deterioration in the piggy backs that were originated in order to assist the mortgagor to avoid PMI and all the advantages that that avoidance provided for the borrower.”

Finally, when discussing the recent Fed lending guidelines and their impact on the mortgage and housing markets, Mozilo that we are seeing the makings of the “perfect storm”.

The bottom line is, as values decrease, the options for borrowers, homebuyers, the combination of limiting their product available to them is exacerbating the problem.

The fact that the Fed joint agency guidelines seriously restricted liquidity for borrowers to either refinance or for people to buy homes… I’m not making a judgment whether it was right, wrong, or indifferent it’s just that that’s what it did.

And then combined with a volatile secondary market… you know if you think about the perfect storm, that’s the perfect storm. ”

The entire conference call can be listened to here.

Countrywide Fiasco!

I just hate to gloat about today’s stock plunge…

Well maybe not seeing that Countrywide Financial (NYSE:CFC) worked so tirelessly for so many years to either get people hooked on toxic loans or to consolidate their current and future traditional short term debt into their homes imaginary equity.

During the run-up years, Countrywide offered every product imaginable; subprime ARMS, no-doc, 80/20 zero down, interest only, 1 year out of bankruptcy, the list goes on and on.

All this done simply to bloat, some would say artificially, the bottom line.

Now, the chickens have come home to roost and Countrywide is due for an exuberant pecking.

Send in the impairment charges! Stock up for the loan losses!

In their latest quarterly earnings release for Q2 2007, Countrywide reported impairment charges of $417 million with $388 million coming from residual securities collateralized by PRIME home loans.

These losses were attributable to “accelerated increases in delinquency levels and increases in the estimates of future defaults and loss severities on the underlying loans.”

Additionally, Countrywide had to set aside $293 million for “held for investment” loan losses with $181 million of that related to PRIME loan losses.

The mania is over and now Countrywide will spend many years digging out from under the burdensome losses.

Senators and the Subprime Implosion

Yesterday, the Senate Banking Committee held a hearing titled “Mortgage Market Turmoil: Causes and Consequences” on the topic of the mortgage meltdown.

The hearing presented two panels of witnesses which included government regulators, lending industry representatives, as well as affected consumers.

Opening the hearing, the committee chairman, Senator Christopher Dodd (D-CT) offered a generally accurate, yet slightly disingenuous account of the evolution of the easy lending era in the US which was then followed by a round of opening statements from the other committee members.

During these statements there was an unusual amount of Greenspan bashing, placing a substantial amount of the blame on the former Federal Reserve Chairman’s shoulders.

“In February 2004, the leadership at the Federal Reserve Board seemed to encourage the use of adjustable rate mortgages that today are defaulting and going into foreclosure at record rates. The then chairman of the Fed said in his speech to the National Credit Union Administration, and I quote him ‘American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed rate mortgage.’ … In my view these actions set the conditions for almost a perfect storm that is sweeping over millions of American homeowners today.” said Dodd in his opening statement.

“I’m amazed, sitting here, listening to all of our colleagues on this committee and forgetting who used to come here before this committee and brag about the housing market carrying the economy. None other than our former Chairman the Federal Reserve, Alan Greenspan. And he was in charge of bank regulation at the time that all these kind of sophisticated mortgages came into being. And I didn’t hear him say a word about those when he was here. And now I hear him criticizing everybody that’s in the business of lending. … I think if your going to criticize, and watch a bubble burst, as he did not only in the housing market but in the market prior to that where he predicted the dot-com downfall before it came, I think you ought to at least take some of the responsibility on your shoulders for having it happen under your watch.” said Senator Mike Crapo (R-ID).

The first panel was exclusively allocated to government regulators including representatives from FDIC, the Office of Thrift Supervision, the Federal Reserve, and the Office of Comptroller of Currency.

The following are some notable quotes from the first panel’s opening statements:

“While liberalized underwriting standards allowed more borrowers to qualify for home loans, competitive pressures eventually lead to the abandonment of the two most fundamental tenants of sound lending, approving borrowers based on their ability to repay the loan according to it’s terms, not just at the introductory rate and providing borrowers with clear information to help them understand their loan transaction.” said Sandra Thompson Thompson Director of the Division of Supervision and Consumer Protection, Federal Deposit Insurance Corporation.

“I want to emphasize that national banks are not dominant players in the subprime market. Last year, their share of all new subprime production was less than ten percent. We know of some subprime lenders that have abandoned their plans for a national bank charter rather than submit to the supervision of the OCC [NOTE: this is a reference to the recent filing and subsequent approval of the conversion of Countrywide Financial to a federal savings bank charter from a national bank in it’s successful effort to side-step the basic regulatory provisions related to non-traditional mortgage risk management proposed last September by both the OCC and the Federal Reserve]” said Emory Rushton Senior Deputy Comptroller and Chief National Bank examiner, Office of the Comptroller of the Currency.

The second panel was allocated to representatives from several lenders including Countrywide Financial, HSBC Finance Corporation, and WMC Mortgage a subsidiary of GE as well as several consumer advocates and consumers themselves.

The following are some notable quotes from the second panel’s opening statements:

“[on changes at WMC Mortgage] First, borrowers will be qualified on the fully indexed rate, second on new loans, prepayment penalties will expire 60 days prior to the first interest rate reset date, … third, WMC will not make loans based on stated income except in the case of borrowers who are self employed and then, only with the appropriate verification. Beyond what has been proposed in the guidance, WMC will continue its historic policy to not offer any option ARMs or products with negative amortization and going forward, we will begin to hold a portion of this loan portfolio on our own books.” said Laurent Bossard Bossard, Chief Executive Officer, WMC Mortgage.

“Countrywide is primarily a prime lender, as I’ve mentioned, 93% of our originations are to prime borrowers [NOTE: this is only true for the month of February 2007. Countrywide’s full year 2006 was closer to 10% subprime originations] … Cumulatively over the past 10 years, Countrywide originated almost 540,000 hybrid ARM loans and less than 20,000 less than 3.5% of those hybrid loans have gone through foreclosure.” said Sandy Samuels Samuels, Executive Managing Director, Countrywide Financial Corporation.

During the Q&A portion of the second panel the most notable exchange came from Senator Dodd and Sandy Samuels of Countrywide:

When asked by Senator Dodd about what the point of a “teaser rate” was, Samuels suggests.

Samuels: “It makes the loan affordable… ”

Dodd: “Yea but if it’s only for a year or so her [a consumer] circumstance is not going to change… if she’s 70 [years old] with a teaser rate, and [then] she’s 72 what’s her circumstances?”

Samuels: “If she makes the payment on time, for the period of those two years, her FICO score will go up and we will be able refinance her into a prime loan…. She’ll pay less because she would have gone from a subprime loan into a prime loan.”

For my money, the best testimony came from Consumer Attorney Irv Ackelsberg (which kicks in at 3 hours 24 minutes) Ackelsberg who states:

“What we are seeing, I believe, is a run away train that is only starting to gather speed. These recent foreclosures reflect large numbers of early payment defaults, that is, homeowners defaulting before the fixed rate periods on their loans expire and the adjustments kick in. We have yet to see the full effect of those adjustments. It is not unreasonable to predict as many as 5 million foreclosures over the course of the next several years, a number that represents one out of fifteen homeowners in this country.”

“But think it would be a really bad mistake for this committee to think that the problem can be solved by reining in the brokers, we have to understand that they are selling the products that the lenders want them to sell and the lenders themselves are selling the products that Wall Street has ordered. The ultimate consumer here is not the homeowner. There’s no real market demand for being ripped off. The real market is on Wall Street, for bond securities. And the broker and the lender and everybody else in between is part of a factory that’s producing bond securities for Wall Street. That’s the real market, and that’s the real culprit.”

The entire hearing can be viewed here in Real Audio format.

Unfortunately, I wasn’t able to capture the feed as a Windows Media file so I can’t add it to BNN. If anyone knows of a reliable RM to WMV conversion utility, I would greatly appreciate the information.

housing+bubble housing bubble recession economy realtor lender mortgage ARM+loan Senate banking Senator Dodd Greenspan Bernanke interest+rates Countrywide+financial Mozilo HSBC FDIC

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