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Tonight Countrywide dropped a bomb on the financial markets

I usually try to keep my commentary on the financial/housing markets out of my blog here on ActiveRain but tonight such a substantial bomb was dropped by Countrywide I had to make mention of it. For some, it has been a question of when the news would finally surface, not if. The fact that Countrywide is one of the largest lenders out there and has also denied having a significant exposure to "subprime" (sorry subprime was never the real problem, it was loose lending standards) is going to really make this news hit home in the credit markets.

http://online.wsj.com/article/SB118670096225293580.html?mod=yahoo_hs&ru=yahoo

"Countrywide FinancialCorp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing. (Read the SEC filing) The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather than selling them. The company also has been shoring up its finances. "While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."

That is the nice way of saying we're in some SERIOUS trouble and most likely heading to bankruptcy without a federal bail-out. Don't expect a credit market that's been teetering on the edge for the last month to react well to the "market leader" in mortgage running into liquidity issues. For those in the real estate industry this is going to mean further tightening of lending in the immediate future.

Posted by Matt Heaton on 08/09/2007 07:30 PM

Comments (20)

subprime, mortgage, countrywide

20 Comments on Tonight Countrywide dropped a bomb on the financial markets

AUG

2007

Matt,, You really know how to make me happy... Gee thanks....On the serious side most people did see this coming. The president of Countrywide has been dumping stock like crazy..

Matt, I've been waiting for this from Countrywide..as you mentioned many were. Hmm...very interesting to see what happens next.

Yeah, I don't like spreading depressing news but it's reality, things are really bad. I've been telling people since around March that I thought Countrywide was the next Enron, all the same signs off balance sheet transactions, directors bailing, insider stock sales, etc.

What's going on in the credit markets is going to have a very profound impact on the housing market and the economy as a whole. Looks like WaMu also followed suit by issuing a warning tonight.

I just love how you doom and gloomers always wait several days to report things. the regulatory filing was made on the 30th ... here's the link:

http://money.cnn.com/2007/08/06/news/companies/countrywide_liquidity.reut/index.htm

next time, do your homework before you post. This has been public information for over 30 days. What's wrong, are you losing loans to CW? Nice way to inspire some panic.

Countrywide has been in trouble for some time according to investor insiders -- As you mention, it is just a matter of time. They were doing a lot of those negative amortization loans and other questionable loans! It looks like a matter of WHEN not IF.

Waiting, waiting, BOOM. That's the sound of all the other lenders falling over in shock when Wells, Countrywide, and the other SOUND lenders out there don't collapse as a result of bad (mostly) brokered-in loans. Interesting how people like to try and sound the death knell for those who are leading the pack. But, when you're running along behind, trying to catch up, it's hard to see what's coming up around the corner. Maybe the reason some lenders, like Am Home, failed is because they were so busy trying to compete with the big boys that they lost track of the fact they were entrusted to keep their stockholders money sound. (not to mention that they had a fiduciary duty to their employees as well).

notice, the same people who are whining about the lack of loan programs are the ones gleefully rubbing their hands together in anticipation of someone else's demise

Anonymous, actually this is a different filing than they made a week ago when they claimed that they had plenty of liquidity. A lot of lenders lately have been claiming that they're fine one week and declaring bankrupcy the next.

I'm not in anyway trying to inspire panic. But this is major industry news that will have a very wide reaching impact on the real estate industry.

Matt - thanks for the update - information is better than ignorance.

I'm curious ... as a Countrywide employee ... did you READ the SEC report, or just look at the part that you could highlight to scare people with. Also, Angelo Mozillo is granted stock options every year ... they must be exercised within a certain time period. If you look at his pattern of stock sales, it's almost identical to every prior year. We may be employees, but we're not blindly following along like lemmings off a cliff ... we've been paying attention, too. I'm not worried ... but it sounds like you are. Good, sell the stock ... more for me to buy at a reduced price!

Just noticed your comment to anonymous ... check the date on the filing you link to ... it's June 30, 2007.

Yes, I've read most of CFC's SEC filings over the past six months, I tend to concentrate on actual numbers as opposed to what is said.

Accumulated neg-am up to $941 million (basically booking money owed as current revenue)
Non-performing assets doubled to 1.1 billion from Dec 31
Foreclosed $188 million vs $27 million in Dec 31
5% delinquent loans across their entire portfolio
The inability to sell debt in the secondary debt markets and instead keeping it on their books as for investment, where it doesn't have to be mark-to-market.

Yes, as someone who's business (ActiveRain) is directly tied to the real estate industry, I'm worried...

Jennifer, the 10-Q filing is for the quarter ending on June 30th but was made today.

Just had this conversation with my hair designer a few hours ago in which I predicted they would tank within the next few weeks. It's baaaaaadddd out there right now. But I'm not worried. This really needed to happen.

JENNIFER ROY: Yikes! Don't put your head in the sand like many of my Enron friends did. I'm serious - some did exercise their options and sold out and are wealthy today - those that drank the kool-aid are in serious financial trouble several years later... take a step back and REALLY think about it. I only wish the very best for you :)

MATT IS ABSOLUTELY CORRECT.

The document that caused the problem today was the 10-Q which is the quarterly report for the period ended June 30.

The document is dated August 6, 2007.

See here the 10-Q Quarterly Report.

The interesting part is page 102.

On page 100, they warn about relying on "forward looking statements". Forward looking statements are known in the securities industry as "what we say when we are intereviewed by CNBC on live TV while the ticker beneath the live interview shows our stock dropping from 29.11 to 26.88.

News, "Countrywide Financial Corp., the largest U.S. mortgage lender, said Thursday that "unprecedented" poor conditions in the secondary-mortgage market are causing it to retain a greater proportion of mortgage loans than it sells.

If Countrywide "retains" more of its loans, it will have to have more capital rather than sell the loan on the secondary market. If Countrywide has to portfolio more of it's loans, you can bet that it will raise the rates to cover the risk premium.

ALL OF THIS IS NEW NEWS, NOT OLD NEWS and it is, indeed, a cause for worry.

Matt,

Earlier this week I wrote a post on Countrywide. It was written directly from my personal notes taken last Friday 8/3 at a Countrywide presentation in CA. It was a demonstration on how they expect to proceed working with borrowers to hopefully mitigate some of potential foreclosures in the near future.

In the past most lenders were all too slow to react to the changes in the market (last time around in the mid 90's) therefore causing even greater losses to their investors. It appeared to me they (CW) was taking a more realistic straight-forward approach this time. Who knows, time will tell.

Matt, interesting comment about CW being the next Enron. I have had etchy thoughts about Countrywide and WaMu. I was surprised to see you mention them as well.

AUG

2007

Matt,

This is just another, nail in this horrible market, I think Countrywide should recompose themselves, they are a buyer of many loans, and we do need them..

Tom Weiss

Good posting Matt. You know I don't really keep up with the news on this stuff too much. BUT what I do keep up with is what is happening in my market. CW is a major player in my market and the properties they have liens on are going into foreclosure at at alarming rate. What's the rate? Don't have a clue BUT I do know that the majority of the sellers I talk to on a daily basis are behind on payments, over financed by about 15% AND have CW mortgages. That's all the info I need. CW is going to have major issues in the very near future.

Matt Carter over at Inman News had a good article on this today...

http://www.inman.com/inmannews.aspx?ID=64187

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