Mad As Hell

In an impassioned yet somewhat contrived and disingenuous “finger pointing” appeal to the National Press Club, the Mortgage Bankers Association’s Chairman John Robbins yesterday placed the blame of the subprime meltdown squarely at the feet of “unethical” predatory lenders while simultaneously insisting that the extent of the damage has been overblown.

“I know the good my company, my employees and thousands of my fellow mortgage bankers have done for families, for communities, and for this country. Frankly, Id imagine my brief tenure as Chairman of the Mortgage Bankers Association would be celebratory. One part victory lap, one part implementation of initiatives with a lasting impact on the industry I so cherish. Yet I stand before you mad as hell. I have to be angry. It would be too depressing to accept that a very few, unethical people, can give my profession, and me, a black eye.”

Robbins goes on to use passionate words for everything from the role of Mortgage Bankers in promoting home ownership to immigrants utilizing subprime loans to get their share of the American Dream.

“Many of the people in this category are not mere victims of unscrupulous lenders. They’re smart people who took a calculated risk to get into a home, all along planning to refinance before the big jump in their ARM. We can’t leave these people twisting in the wind. They were practicing financial planning and attempting to take advantage of the opportunities they saw in the future. They were betting on themselves. To keep their financing options open, we must avoid a credit crunch.”

Yet when addressing real estate speculators, his tone quickly changed.

“It’s clear that our first steps are to help those that are in trouble. We mean homeowners living in their own homes. We’re not for rescuing real estate speculators. Blanket forbearances that bails out investors could actually drive up delinquency. Some might view it as a way to get out of their obligations… Even the talk of blanket forbearances could spur a surge in delinquencies.”

When addressing the question of who was responsible for the current state of the subprime market, Robbins risks an association “battle royal” with the National Association of Mortgage Brokers by pointing the points the finger squarely at “the short term folks” who care only about “their commission”.

“We need to identify the problem… unethical people. They’re responsible for this mess. The short term folks. People who get a commission when the deal happens. For them it’s the number of loans that count. Good loan, bad loan... who cares. For them, it’s all about their commission. … For the people who caused this problem, there’s no such thing as a lifetime customer. The closest they get is someone you refi every six months until they sink. They, not people with marginal credit, are the ones that need to be stopped. Frankly, it’s too easy to hang a shingle out and call yourself an expert in mortgages. We need licensing of brokers with a threshold that will weed out those unwilling to be responsible.”

In a particularly emotional and sappy portion of his address, Robbins recounts what it means to him to be a mortgage banker.

“Their stories take me back to one of my very first originations. The Realtor had left the keys to the house with me and asked if I could drop them off to the buyers once all the paperwork was done. Well, I went to their apartment, and we were sitting around a little Formica table… bright red. And I handed them both the keys at which point they both started crying. They said they never imagined they would own their own home. That was 37 years ago and you know it just never leaves you. There isn’t a day that goes by that I don’t stop and think about that scene going on thousands of times across this country. And that’s why, despite my temporary black eye, I’m proud to be a mortgage banker. Thank you.”

Later in the Q&A portion of the appearance, Robins is asked how immigrants in the past received financing to buy homes prior to the boom in subprime lending.

“Those that could afford to do so, and not all could, accumulated a traditional 20% down, waited years, and years, and years to obtain home ownership when they had the possibility to do that. But then home ownership was for the wealthy and the powerful not for the masses.”

Here Robins continently forgets that until recently the national home ownership rate had traditionally hovered at about 65%, hardly limited to the wealthy and powerful.

Furthermore, it has only been during last ten years, with lending running footloose and fancy free, that an extra 5% of Americans have been draw into home ownership many without down payments and with volatile and exotic affordability loan products.

Watch the entire National Press Club address on BNN!

Adding a Little Color to Countrywide

On Thursday, the executives at Countrywide Financial (NYSE:CFC) held their conference call to discuss the results for the first quarter of 2007 showing net earnings dropping 37% as a result of swelling delinquencies and growing impairment charges.

To combat the slide, Countrywide is taking measures to tighten credit standards as well as increasing its pricing to account for additional future risks.

David Sambol, President and COO stated:

“In terms of the adjustments that Countrywide has made in response to market conditions, I mentioned that industry guidelines had been tightened. Well we have also significantly tightened our own credit guidelines and programs. For example, ‘materially restricting’ 100% loan-to-value financing. Carving back, materially, reduced documentation programs… particularly on the high LTVs. Eliminating subprime second mortgages which have particularly been impacted by liquidity and loss of value in the market.”

It’s interesting to note that although Countrywide is not completely eliminating the 100% LTV subprime loans, they are restricting activity to a very small percentage as well as limiting other similarly risky products.

The following lists the changes to subprime lending standards implemented recently at Countrywide:

• 100% LTV will be limited to a just 3% of the subprime production compared to 24% in 2006.
• ARM 100% LTV will be limited to less than 2% of the subprime production compared to 90% in 2006.
• Subprime Second Liens will be eliminated entirely.
• No-Low Documentation loans will be limited to less than 2% of the subprime production compared to 35% in 2006.
• Average LTV for the subprime production will be brought to less than 80% from 85% in 2006.
• Subprime loans to first time homebuyers will be reduced to 5% from 22% in 2006.
• Subprime loans, as a percentage of total purchase, will be brought to less than 20% compared to 60% in 2006.

A particularly interesting outcome of these changes lies in the elimination of the Subprime second liens as these were typically used for the 20% “piggyback” of the 80/20 100% LTV products.

As Sambol puts it:

“As I mentioned, we are no longer doing subprime seconds, in part because of the lesser investor demand for that product. And most of those seconds represented the 20% piece of a 100% financing loan, the 80/20 that you might be familiar with that were very popular in the subprime market. And again, if you recall, we have materially curtailed our program such that we expect to do very few subprime 100% financing going forward.”

As for pricing, Sambol adds that the latest rate sheets more accurately value risk as well as simply reflect the less competitive market environment that exists now after many industry players have gone bankrupt.

“And then pricing of new loans that we are originating have also been adjusted to provide for a more conservative loss assumptions, higher yields on our retained interest from future originations and greater origination margins as well.”
“We’ve seen credit occurring in the industry and we have tightened our guidelines somewhat as well on the Alt-A side. And I would point out that our rate sheets and our pricing fully reflects all the widening seen in the markets.”

“We are now pricing our rate sheets to provide for profitability in each of our channels. Where I will tell you that in 2006, for much of 06 and 2005, competitive conditions were such that in certain of our segments we were pricing to break even, it was that tight. But with the exit of the market of so many players, we and the rest of the industry have materially increased rates and starting as early as the first quarter we expect to see each of our production divisions, our retail subprime operations, wholesale and the little bit we still do on the correspondents side generating positive margins.”

In fact, the pricing for subprime loans seems to have increased substantially as seen by comparing this Countrywide rate sheet for Massachusetts dated March 12 to the following one dated April 16.

When discussing the impairment charges accounted for in Q1, Sambol states:

“The impact both of write downs to our subprime investment and to our production profitability in the first quarter stemming from the turmoil in the subprime market. We have quantified that the quarter-over-quarter impact was approximately $400 million.”

On page 7 of the supplemental presentation associated to the conference call there is an interesting footnote on the “Impairment of retained interests” item that reads “Change in impairment of retained interests includes $53 million from other 1st lien residuals with loan features that are similar to subprime” seemingly indicating that a significant percentage of the impairment charges came from prime loans.

Diging into the Q1 results it appears that the actual impairment numbers were a little heavier than in Sambol’s presentation, particularly the prime loan charges.

“Loan Servicing sector pre-tax earnings were adversely impacted by $429 million in impairment charges against retained interests. Impairment charges of $231 million were related to subprime and similar retained interests, while $135 million was related to retained interests on home equity lines of credit extended to prime borrowers. These impairment charges were driven by increased estimates for future losses on loans underlying the related securities as well as increased market yield requirements. In addition, the Company incurred $63 million in impairment on other retained interests where Countrywide does not retain credit risk. This impairment related to increased market yield requirements.”

All in all, the $429 million impairment charge has swelled 256% as compared to Q1 2006 $120 million charge.

Later in the Q&A portion of the conference call, CEO Angelo Mozilo was asked to elaborate on Countrywide’s recent switch over to an OTS regulated thrift which was a change that Mozilo to strongly denied had anything to do with sidestepping new Federal Reserve regulations.

“That decision was made because of, I think, two primary reasons. One is that the OTS has a historical housing mission and that matched up with our mission much better than the OCC and the Fed. We had no particular complaints about the Fed at all, nor the OCC. We believe we enjoyed a solid relationship with them but the practical matter was that when we began to examine where this company was going over the next decade and beyond, we did not see ourselves in any business that would require an OCC charter and Fed supervision. We are not going to be a lender in commercial loans in Japan or any of those kinds of things so the businesses that we planned to be in matched up perfectly with the authorities of the OTS. The second reason which was tied to that is that it is much more difficult for, at least for us, to manage and deal with two regulatory bodies that from time to time went in two different directions, than it was to deal with a single regulator that examined the bank and supervised the parent.”

When asked about his outlook for the market and home prices as it relates to Countrywides business, Mozilo replied:

“I think, bottom line, it’s very difficult to determine where [home] prices are going. It would certainly, based upon our view of where the world is today, increased foreclosures, as that comes on to the market we’ve got to work through that. During that period of time, in certain areas of the country values will go down. Certain unique areas of the country, values will stabilize and others, although few, where values will continue to climb but not at the rate they did before so it’s sort of a mixed bag.”

The entire conference call can be listened to here.

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Mozilo’s Island

Given the relative strength shown by Countrywide Financial (NYSY:CFC) throughout some of the worst initial tumult of the subprime meltdown, one wonders whether CEO Angelo Mozilo can continue to maintain his island paradise or whether it will buckle under the strain leaving him looking more like Herve Villechaize stamping angrily from the shores of Lilliput.

This month may mark a bit of a turning point for Countrywide as it faces two significant challenges to its buoyancy.

First, on Thursday afternoon, it was reported that a lawyer representing The Louisiana Municipal Police Employees Retirement System, a Countrywide Financial shareholder, successfully argued for the right to move forward on an options backdating probe that will see an additional trial for the Countrywide “books and records” on April 18.

To be fair, it appears that the The Louisiana Municipal Police Employees Retirement System is a fairly active shareholder, suing a whole host of other public companies for various indiscretions including options backdating.

Furthermore, on April 26, Countrywide will release its first quarter 2007 earnings and host a conference call to review the results.

The results are particularly important as it will shed some additional light on the extent to which Countrywide has been impacted by the subprime meltdown as well as the even more important spillover effects on their “pseudo-prime” business.

As a possible harbinger of things to come for Countrywide, competitor American Home Mortgage reduced their expectations for first quarter results in a pre-announcement last Friday citing significant pressure coming from their Alt-A loans.

“A disproportionate share of the Company's non-performing loans are repurchased Alternate "A" loans. The Company has ceased offering those types of Alternate "A" loans that have resulted in a high proportion of its repurchases, and consequently believes the portion of delinquency related charge resulting from repurchases will diminish toward year-end.”

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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.

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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… “

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Mozilo’s Bluff

As the sub-prime market continues to unwind it would be easy to feel almost sad to watch as desperate mortgage lenders, particularly their CEOs, struggle to hang on if it weren’t so ironic.

For about a decade now the mortgage lending industry has worked tirelessly to provide virtually anyone, good credit or bad, collateral or zero-down, commensurate income or undocumented with debt that would have been considered exceptional during any prior era.

Gone were the days of “rule of thumb” lending limits, deposits or mortgage insurance, replaced by an ever increasing menu of “exotic” mortgage products purportedly created to suit the present modern needs of the market.

There were many “independent” observers, inside and outside the mortgage industry, who justified and even supported the implementation of this lowering of credit standards.

Famously there was Alan Greenspan’s testimony back in 2004 when he suggested “many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade,”.

Not as well know though are the numerous mortgage industry “analysts” and insiders who worked tirelessly to justify the new mortgage products while they downplayed the risks as well as the possibility of things ending up in the predicament that we see today.

Two notable names in this category are Barry Habib CEO of the Mortgage Market Guide, and Michael Youngblood, analyst with Friedman Billings Ramsey & Co. both of whom, even very recently, continued to express support for “toxic” mortgage products as well as deny risk that they introduced into the industry.

But probably worst of all are the recent, subtly desperate attempts by Countrywide Financial CEO Angelo Mozilo as well as his executives to calm the market especially as it relates to the interest of their organization.

Speaking to CNBC’s Maria Bartiromo yesterday Mozilo suggested that Countrywide will actually benefit from the sub-prime melt-down (WATCH THE FULL VIDEOS ON BNN! Part 1 and Part 2):

“This will be great for Countrywide at the end of the day because all the irrational competitors will be gone.”

Mozilo then continued on at length about a few very key items that if put under further scrutiny shows definitively that he is truly feeling pressure and, in an attempt to manipulate a more desirable outcome, is beginning to show his cards.

First, Mozilo suggested that of all the loans originated by Countrywide, only 7% are considered sub-prime.

It only takes a quick pass at their financial disclosures to see that what Mozilo was actually referring to was the results for February 2007.

In actuality, Countrywide produced closer to 10% sub-prime loan for the full year 2006, a fact that was even noted by Countrywide CFO Eric Sieracki last week during a Raymond James-sponsored investment conference.

Additionally, roughly 15% of all loans originated by Countrywide in 2006 are considered Alt-A leaving a astounding 25% of all 2006 originations squarely in the category of extreme risk.

Second, Mozilo attempted to persuade Maria and the viewers that his concern is really with the country, who apparently in his mind, will be severely damaged if they are prevented access to Countrywide’s services.

“My concern, Maria, is for… the Country, and for first time homebuyers who are the beginning of the housing chain. And the only way that lower income minorities can get into middle income.. the primary way is through housing.”

This can only be described as one of the most disingenuous, preposterous and, in fact, reprehensible presentations of the realities behind the sub-prime lending environment as has ever been offered.

As we have seen in the past decade, sub-prime lending has time and time again been shown to be biased and advantageous at best and predatory at worst.

Millions of people of moderate income including minorities, the elderly and recent immigrants have been falling prey to unscrupulous lending practices leading to a nationwide wave of state and local laws that attempt to regulate dishonest lenders.

Countrywide may not necessarily be in the worst category of lender but as anyone who has listened to the radio or watched TV in recent years can tell you, Countrywide is probably best know for its advertising of teaser loans such as their “Combo Loan” that seeks to persuade homeowners to refinance all their debt, including automobile and revolving credit into their home loan.

There’s nothing like providing services for financing cars or some Lord and Taylor purchases over 30 years to help strengthen the middle and lower income strata of the country.

Mozilo then paradoxically goes on to suggest that the problems with the mortgage market is not the loan products but the borrowers themselves.

“These are not new products nor are they exotic products… [the problem is that] some of these products were sold to people they shouldn’t have been sold to… the loans themselves are not problematic.. its who they were sold to and how they were used.”

Mozilo then struggles to suggest that the problems they are seeing now are as a result of making “good” loans to investors and speculators to buy investment properties.

Clearly, this is certainly partly true.

Rampant speculation was an obvious factor in the housing boom but attempting to suggest that all the defaults and delinquencies are coming from borrowers that are attempted to game the system and not the lending industry is purely disingenuous.

Mozilo further misses the point when he suggests that the “rules are changing” on first time home buyers, limiting refinance activity and leaving them stranded with bad loans.

“These first time homebuyers that are in homes who need to refinance because the resetting now can’t get refinancing simply because the rules changed on them after the game started.”

Again, this is true and certainly highlights a potentially enormous problem soon to materialize in the housing market but Mozilo completely and disingenuously forgets to mention that it was the lenders that got these first time homebuyers into bad, rate resetting, loans in the first place.

Finally, Mozilo mentions just a bit about the indemnifications that Countrywide provides on the loans they sell to larger financial institutions. This, of course, is the “Achilles Heal” of their business.

As was seen with New Century Financial, as loans went bad and loan holders called in this indemnifications, the cost far out paced what New Century had reserved.

Will Countrywide fair any better… Mozilo suggests it will.

In a final thought, last week there was a widely publicized “urgent” email which specified that 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."

This event was very reminiscent of the complete about-face publicized by New Century Financial last October when, in a public release, they stated that they would virtually completely adopt all the provisions that the Federal Reserve had suggested for better managing risk in their operations.

Obviously though, these reforms, if even implemented, were too late incoming for New Century and one has to wonder, with all the possible “smoke and mirrors” currently being presented now by Countrywide executives, whether they are seeing their dynasty slip fast away as well.

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