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Countrywide CANNOT and WILL NOT fail as predicted!

By Bill Nazur

Mortgage and Lending with First Lending Solutions NMLS ID 1325784

August 22, 2007 01:23 PM

Last week, I laid out several reasons why Countrywide was in a position to succeed........I was very clear that I am not a fan of the company, but nevertheless they make a whole lot of sense.

The original posting was at Active Rain Members Fuel the Media Fire.....Countrywide is Failing!

In addition to everything that was reported in the initial blog, Bank of America just agreed to invest $2 BILLION dollars into the company, as reported on the AP wire a couple of hours ago. A brilliant move to say the least as a means of preserving the company and its value to our economy, as well as giving Bank of America an opportunity to preserve the mortgage and banking system, while covering themselves as a potential acquisition for the future.

After last weeks' doom and gloom, can you share how you think this impacts your local mortgage markets? I'm curious to see what peoples thoughts are knowing the #1 lender in the country appears to be on the proper footing to move forward, and hopefully continue to grow the company!

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Aaron Gordon

Branch Manager - Las Vegas, NV

Home Loan Consultant - Las Vegas, NV

Bill---

This is only a theory but B of A's investment today that confirms what has been rumored for some time. That B of A is serious about having a stronger presence in mortgages and the aftermarket services that this gives the banking side.

This loan sets up the relationship for a merger at a much later date due to Federal regulations. B of A's plan is to dominate personal banking.

Aug 22, 2007 01:30 PM

David L. Britt

Platinum Realty, LLC - Olathe, KS

MBA

Bill, tough call, but I don't think there is a way in the world that Countrywide will fail. Too much at risk. If you are correct in the BoA report, then there is change in the wind. We will have to wait and see what develops from all of this.

Aug 22, 2007 01:30 PM

Daniel Sundberg

Crystal Springs Real Estate - Kentwood, MI

Their issue is not lost money per say, but more or less liquidity issues. You may know this, but in most states, the winning bidder in a sheriff's sale has to pay for the money in certified funds, and those funds are held in escrow until the redemption period has passed. The lender does not get their money back from the loan until the redemption period has passed.

For example: Countrywide forecloses on a home for $200,000 (the amount owing). It goes to sheriff sale and Countrywide needs to invest another $200,000 in the County's escrow account to secure their interest in the property. They now have $400,000 tied up in a $200,000 (+ or- ) property. Once the property passes thru the redemption period, they get the $200,000 back from county's escrow account, and then they need to sell the property to recover the remainder of their funds.

This is why countrywide is in financial trouble, their bad loans require twice as much money or more to push them through the foreclosure process. Once the pain of the liquid asset crunch passes, they will be profitable again. Not to mention, a pinch like this gives them a great time to liquidate alot of debt, making them even more profitable when they turn around.

Aug 22, 2007 01:33 PM

Karen Inch

Kenmore, WA

I sure hope they don't fail. I have a loan to close with them next week.

I heard from an account exec, and you can't believe everything you hear, that they just received $100 billion dollars in an unsecured loan.

Something in the market has to change. It will be interesting to see how all this shakes out!!!

Aug 22, 2007 01:36 PM

Bill Nazur

First Lending Solutions - Riverside, CA

Aaron

YUP. The writing has been on the wall for a while. Are you in favor of such a move? I'm curious.....

David

Regardless of size and scope, I know that a $2B investment is significant, and B Of A would pay dearly in stock price if it wasn't a calculated move on their part. As well, like Aaron said, its the perfect relationship for a future merger. I believe that the stock prices for both companies have gone up as a result.

Aug 22, 2007 01:36 PM

Bill Nazur

First Lending Solutions - Riverside, CA

Daniel

You are correct in what needs to be held back. State regulations require a certain amount of funds as you mention, and federal requlations also require that they put the equivalent of 3 times the default amount in reserves, even if its not spent. That is a WHOLE LOT of money tied up! That is a major issue, but not being able to sell the loans on the secondary market is a much larger issue.

Karen

That unsecured loan amount does not make sense. It represents over 50% of their current assets, and far too much of their book value. Sounds like the AE is just trying to reassure you by fudging the figures a tiny bit, oh say, $98 billion too much! Seriously though, as long as your conditions are met by the borrower, all should work out for your borrower, and the commission checks will continue to flow! :)

Aug 22, 2007 01:45 PM

Max Etheart

Silver Spring, MD

Bill,

They tapped $11.5B in bank financing and just got another $2B investment from BofA for $13.5B in the last 10 days. Sound like they have weathered the worse if the market stabilizes. But will it? Countrywide has a huge "option arm" servicing portfolio that has already begun to experience high default rates and will probably continue to. Then there is subprime servicing exposure...

Daniel, Countrywide is servicing the loans, they don't own them. They have been packaged into MBS (mortgage backed securities) and sold on Wall Street so the Sheriff's sale foreclosure equation does not apply. And mortgage companies don't put money in escrow during foreclosure. They do on occaison particpate in the auction as part of their loss mitigation but that is more the exception than rule. The issue is that these loans cannot be serviced profitably if there are elevated default levels.

I am hoping Countrywide makes it. They are good company in a bad market. But to think that they can't fail is folly. They are not immune to market forces and conditions. And because they are a thrift, they can be told by regulators to scale back their operations or face the potential lose of their charter.

Aug 22, 2007 02:29 PM

Bill Nazur

First Lending Solutions - Riverside, CA

Max

You are correct that there is some concern regarding their option arm portfolio. Its shaky, but nowhere as bad as WAMU.....if you want to look at a scary servicing portfolio, look at that portfolio.

I do firmly believe that CW will be around....its structure may change, but the shell will be there.

Thanks very much for your insight.....

Aug 22, 2007 03:18 PM

Aaron Gordon

Branch Manager - Las Vegas, NV

Home Loan Consultant - Las Vegas, NV

Bill--- As you know by now, I am a fan of Countrywide and the drive of Angelo Mozilo.

I have sold them so many loans in my career I am not sure where I would be without them. I also think that their survival is important for our industry.

I think a merger with B of A would really do wonders to bring some stability and confidence back to the mortgage business.

My fear would be that you would have a merger between two companies that between them do more than half of the loans in the U.S. Would that kill the little guy? It could.

However, I am sure like the mega-mergers of the last 20 years, guys like Wells, Citi, and Chase, would answer the bell too.

Aug 22, 2007 03:48 PM

Bill Nazur

First Lending Solutions - Riverside, CA

Aaron

I am a fan of what Angelo has done. Real story....I met him in Vegas at a convention, played blackjack with the guy, and spent a little time with him at a private party. Down to earth...heck I gambled more per hand than he did, and he's the gazillionaire. I'm not a fan of some of the company's practices, though I only say that because the individuals within the company abused the system they were given. I always appreciate when people are introspective about giving them credit for the impact in their lives. It is apparent you appreciate them. That is very cool.

Regarding the merger, there is enough scale there for minimal impact to the origination side. You will always need live bodies that specialize in putting the deal together, and could benefit the marketplace. If I were the bank competitors, I'd be a little worried, but otherwise the competition is good for everyone.

I could see a Chase acquisition of Wamu........think it through.....I may blog on it later.

Aug 22, 2007 04:53 PM

Rita Bradley

Laguna Hills, CA

Valuation Consultant in Orange County California 949-916-3263

Now that CWs getting it together again, I hope they and others will be more conservative about what kind of loans they do. There's only so many times a company can be bailed out. Not to mention that I don't want to see more people that aren't ready for homeownership crash and burn on loans they don't understand and/or can't afford.

Aug 23, 2007 04:34 AM

John Popp

Charlotte, NC

Coutrywide will survive

Aug 23, 2007 04:45 AM

Bill Nazur

First Lending Solutions - Riverside, CA

Rita

Oh, but of course. Until the market starts to increase again, you will continue to see conservative guidelines. You will also see longer amortization periods of 35, 40 and 50 years as you already see now but with much longer adjustment periods of 7-10 years so there is little risk of default. I know on the appraisal side you get to see the value component quite well.

John

For the sake of competition alone, that is a good thing.

Aug 23, 2007 06:18 AM