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Will Countrywide be the Next Victim of the Mortgage Market Meltdown?

The big question of the day is where will Countrywide, the nation's current leader in mortgage originations, be at the end of the year. A bigger question may even be...will they exist at all?

That's right, as I have mentioned before (on at least one of my blog's), Countrywide may end up facing the same fate as American Home Mortgage (was the #10 lender) did a couple of weeks ago. When AHM went down for the count, the media went into a frenzy (I was even quoted in a Marketwatch article). Imagine what will if Countrywide goes belly up.

Today, CW took out their last $11.5B of available loans from a group of about 40 banks. With their access to money drying up, their own bonds are quickly facing "junk" status and are have already been downgraded to Baa3 from A3, placing its bonds in the lowest investment grade status. Moody's stated that those are in danger of falling into junk status at any moment.

So, how does that translate to CW's future? Well, if they do fall into junk status, that is an indication that the likelihood of an investor getting their money back would be low and would likely mean CW is going to enter bankruptcy, if not worse.

The problem is not so much with the inability to get loans from other lenders as much as the mass panic that would spread across the mortgage and real estate markets in the light that "not even the #1 lender could escape".

The likely fallout from a CW BK would be a disaster throughout the housing market due to buyers not wanting to buy anymore or simply do not qualify as the guidelines keep changing. Homeowners caught in a financial crisis themselves could be facing BK because they cannot refinance now. Many other "impacts" could occur as well.

So, is it doom and gloom? Not really. Where one lender fails, another picks up. That means that while guidelines may change, chances are you can still find a loan to meet your needs, it just may take a little more time.

Posted by Florida's #1 Mortgage Planner on 08/16/2007 03:19 PM

Comments (21)

mortgage market meltdown, countrywide troubles, countrywide bankruptcy

This post has been included in Florida Information

21 Comments on Will Countrywide be the Next Victim of the Mortgage Market Meltdown?

AUG

2007

All indicators point to YES....just received internal memo's mentioning that our rep's are worried. Furthermore, their Denver sub-prime division was just closed down yesterday.

And borrowers are further handicapped (perhaps in a good way) as CW shuts off the Alt-A and jumbo taps...

Good post.

The other problem Robert is that Countrywide is a well known brand. Having a well known brand go under is going put gasoline on the already hot panic. Normally I think CNN and CNBC and Bloomberg like to sensationalize the bad news, but this is going to change our industry in many ways. It's not just affecting sub-prime or Alt-A loans anymore, it's all affecting companies that write allot of "vanilla A" paper as well.

At this point it maybe a good idea for Congress to at least make some token effort to settle down the market. The big worry is that long term (2008) results do not look any better with the number of resets on option Arms, and other ARM programs through the end of 08. I'm not sure if this would help, but Congress could mandate an amnesty period for home owners of 12 to 24 months on all these loans, and allow these lenders who are suffering an opportunity to sell these loans to Fannie or Freddie. But we could be too late in the process.

I'm not sure what the Fed can really do at this point, even if they lower rates, the panic isn't going to subside. There needs to be some fundamental bail out of due to the projected number of RESETs in 08. The other shoe that hasn't dropped is that if CREDIT tightens too much in the mean time, then the effect will ripple through the economy, causing businesses to reduce spending, lay off employee's, some of these employees maybe locked into these ARM loans, and the cycle continues to get worse.

I'd been hearing rumors of CW demise for weeks now, I really am having a rough time getting my mind around the total impact, what will the over all effect be? Do we really know, I had a email from one mortgage broker that I work with that he has lost over 100 of his sources, I work in a second/vacation home market and we are much quieter than normal but still moving...................slowly. lower end is much healthier and upper end and we are all frightened by the big mortgage scare, thank you for sharing and hang tough!

Robert rough times be a coming that for sure. CW folding or going into bankruptcy would be HUGE. It's going to be aroller coaster ride for the next year or so. Time to get busy and tighten up the purse strings.

Bryant,

Certainly the case about circling the wagons. My buddy, who cleared over 350k last year in commissions was just on the phone with his wife, and I over heard him telling her that they needed to start reducing costs. My wife is looking for a good part time job as well. Personally I have reserves for the next few months, but lifestyle changes have already occurred.

Most people are not going to feel bad for most people in Real Estate and the Mortgage Industry. So I don't expect allot of sympathy. But I do think that if you keep your head as a mortgage planner, and you work harder to help your clients understand the coming changes and prepare for those changes, then you'll actually be in better shape then you think.

It's kind of like going on a diet. The first few days are depressing and often difficult, but once you realize that your still alive and life is still worth living, then everything goes back to what you think is normal.

So true Robert. I agree with you that the media frenzy will be huge, however you are right that people will still be able to find loans. Not everyone got caught up in the subprime and Alt-A hype and are facing the debt issues as Countrywide. It seems that Countrywide is in the same place some other large banks were a couple months ago...saying they would be fine, and then BAM...BK... Que Sera Sera.... We'll still be in business, right?

Robert- I hope that CW can stay afloat! It will not be good for any of us if they don't! I think the tightening has happened and will continue for a little while! But, there are still loans out there and people to help! It just takes a little more work these days!

I definitely hope that Countrywide Loans can still be in business. But you know,somebody's loss is always somebody's gain. I don't care how many more lenders go out of business,things are bound to get better soon. People are always going to need shelter no matter how you look at it. Real Estate is the most sound reasonable investment that you will ever make in your lifetime and peopld still know that. But hopefully things will start to get better soon.

Robert,

Countrywide could well be the next one to go under. On the other hand, it being the number 1 in the nation, can the Feds afford to let it go? That's the question I think they are right now debating. It's too large to let go, is my opinion. If it does declare BK, it would really scare global investors regarding our financial markets.

AUG

2007

Esko....It's too late for foreign investors to be scared about our financial markets. Just look on bloomberg this morning, it's FULL PANIC now.

Karl...I actually am one of the few mortgage brokers who does not use CW. I have had good enough experiences with other competitors, so I never really needed them. As their competitors go down for the count, I have been looking at them as a new source, but I am left wondering if they are worth it right now since the signs are there.

That being said, they are likely to draw enough attention that the govt. will step in somehow, just like the govt. will not let the number 1 airline go on strike due to the ramifications on the economy overall. The upgrade they received today will also help stave off fears, so only time will tell.

Oh, and yes, as I forecasted early last month, the whole "meltdown" would spill over into even "A-Paper". Fears are even affecting conforming loans, and are certainly hurting A-Paper jumbos.

Jason...CW is closing some avenues (later than many of their competitors) just like most other lenders. Keep in mind though that there are other lenders that are willing to do the loans still, so access to most loan programs still exist. Fear is the second most powerful of emotions, so investors' and borrowers' fears that have been deeply rooted by the media are making matters worse than they really should be.

Leah...First off, yes we will be in business as I plan to continue helping people get through the mess. Of course it doesn't hurt that I am also flying again so income is not a problem for me right now (man, what timing for the recall, huh?) I do think CW reacted a little slower than others which has helped put them in this situation. I personally do not think the govt. will let them go under as that would create mass chaos.

I have seen business drop off, particularly recently, but I have been doing a lot of "pro bono" work as well assisting clients that either are outside Florida or even just calming fears, etc. I love helping people, so I am glad I can help them.

Kim...I couldn't agree with you more on the fact there are still loans for everyone out there, it just takes a little more work to find them and get them done. Now, more than ever, a fully qualified mortgage professional is needed to find the best loans out there for a specific borrower's situation. Additionally, those professionals can assist in getting credit and documentation to acceptable levels for getting the best deals. Planning is key and borrower's need to start planning at least 3 months ahead now to ensure they will be able to get the loan they need.

Lanre...You are absolutely correct. Things will get better and real estate is a good investment. Also, even if CW does go under, someone will step in to fill the gap. The main issues are the fears that will be created by the #1 lender going down and the mass media bitz that follows.

Esko...Karl is right. Mass panic has set in all around the globe. In fact, several countries' financial markets are getting hit even harder than our own because of our "meltdown". Just look at the reactions of other countries versus our own. The ECB and others have all rushed to add liquidity to their markets due to the losses in their own countries. It was after the ECB when our own Fed started to add liquidity and today dropped the discount rate. CW going under would just add more fuel to the inferno already burning.

Countrywide is so big, I cannot imagine it going the way of smaller lenders. I don't know if we could handle that. Esko has a point about the feds jumping in-

Dear Real Estate Professionals,

News about the current state of the mortgage industry can be unsettling for those of us who make our living in this business. This challenging time has brought about greater than usual media coverage of our sector, including coverage about Countrywide.

With all the information that's being distributed, I wanted to take a moment to personally update you on what's going on at Countrywide.

• We have supplemented our existing liquidity options by infusing an additional $11.5 billion in to our operation through a syndicate of 40 of the world's largest banks. More than 70 percent of this facility has an existing term of greater than four years.

• We announced our strategy to fund a significant portion of loans through Countrywide Bank, which has approximately $100 billion in assets. Today, we fund approximately 70 percent of our loans through Countrywide Bank, and expect that nearly all of our loan volume will be funded through the bank by the end of September.

• We expect that approximately 90 percent of the loans we originate will be eligible for funding through Countrywide Bank or the Government Sponsored Entities (Fannie Mae, Freddie Mac).

• Just this week, we increased our product options for fully documented Jumbo loans.

I want to let you know that while this industry turmoil may continue for some time, Countrywide is here to assist you in and meet the home loan needs of your customers.

While the current industry news can be unsettling, know that I am here, backed by Countrywide, to meet your mortgage lending needs. Feel free to contact me directly by phone or email.

Sincerely,

Nima Rezvan

Home Loan Consultant

Countrywide Home Loans

Bill and Barbara...As I stated before, just as the govt. will not let the #1 airline go on strike due to the ramifications on the economy overall, I do not think they will just let CW go under either. That being said, a BK is not out of the question as the govt did let just about every major air carrier go through the BK process.

Airlines are a prime example of these things work. If you look at the airline industry, while some carriers went bankrupt, there was always another to take its place, even more in fact. The same will hold true, even if Countrywide is allowed to go under. You can already see new lenders marketing to pick up where others have left off, so the ability to get loans is not really a problem.

Nima...Thanks for giving more details on the Countrywide situation. I think most people have already posted it though and despite the advertising appeal of your comment (and my distaste for that style), I am going to leave it. No offense to you personally, but CW is not the only lender out there and especially at times like these, borrowers need to seek mortgage brokers who have access to the multitudes.

In these days, borrowers are best served by having there loans placed and locked at more than one lender, just in case. With guidelines changing midstream, locks at one lender may not even make it to closing, so multiple options are needed to keep the loan on track to an on-time closing.

I wish you the best and I hope Countrywide pulls through, preferrably without bankruptcy.

Nima, your president, (Mozillo), would be wise to not abandon his own ship. Taking out over 500 million in personal stock options since early this year is certainly his rite (unless he's violated SEC rules, which I don't think he's doing but I'm not a SEC attorney, but your captain needs to demonstrate the same type of faith that you yourself display.

I like Robert have used CWB wholesale off and on. In fact at times I've hated the way your retail side screws over other lenders with their bar room lending tactics. BUT, the specter of Countrywide going bankrupt would shake the industry to its very core.

Robert..... your last sentence says it all. And yes, the media frenzy does make people panic, but getting back to your last statement, we will still be doing business. People will still be buying homes. If we go back to the mid 90's type of loan programs, so be it. Some of us still did loans back then. I hate to say this, but hopefully this will weed out those that just don't belong in the business. Again, I hate to say that, but this is one of the easiest businesses to get into and too many saw dollar signs.

In regards to your comment about Nima's comment... I said the same in Brian's post and I basically got reamed for it. I agree with your statement. Hey, I am not a mean person, so I won't sugar coat things. People need to wake up and smell the coffee. Business will still be there, but you need to position yourself there.

jeff belonger

Karl...The "Captain" should always lead by example. With Mozillo protecting himself, where does he think the company is headed? A Countrywide failure will speed up the demise, restructure and recovery of the mortgage industry. I do not think they will go away, though a BK is not out of the question just as the govt. allowed with the airlines.

Jeff...Thanks for stopping by and commenting. I am glad to see Nima doing his best to calm fears, that is part of his job. I respect him for that (among other things). Beyond that though, what is best for borrowers in general is to work on plan B, Plan C and maybe even D, E and F. A mortgage broker is best suited for that type of planning. I am sure I will some flak will come from my statement, but the truth hurts sometimes.

Robert.... it's the truth... I feel like I am in the best position. I am a banker that can broker.... I will always be around, even if I had to go to another banker. But my company, as long as they keep overhead low, will be around. Just 2 bankers near us just closed their doors the other day. You know why, 95% of their business was buying leads or advertising. You need to build relationships with realtors, financial planners, get referrals from past clients, and blog....

Flak? Not from me... I have already been semi attacked for giving my honest opinion. Yes, the truth does hurt.

jeff belonger

AUG

2007

Jeff...Right on. Now more than ever your relationships will be the key. And dare I say that realtors need to take a hard look at which mortgage professionals will likely be here a year from now andmake sure they solidify those relationships. I am wiling to bet that many blogers on AR today will not be here a year from now, possibly even over 50% of them.

Robert.... again, the truth can hurt..... but after talking to so many of them, I would say that 75% of them will still be here within a year. What's funny is that I was dead from March to June and I am busier now. For me this is a good thing. I am getting more business at the worst time. It's just how I have gone about it and that I have changed my game plan, going after it and not waiting for it . That is the difference.

jeff belonger

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