Last week, Countrywide Financial Corporation announced that 12,000 jobs would be cut as a result of the subprime mortgage "mess". Countrywide plans to cut 20% of it's workforce if the market does not improve. I am not a mortgage expert but I do have an opinion on the matter. If Countrywide is vowing to concentrate on more conservative loans, it can mean only good things for the real estate market. Markets are very volatile right now and are scaring many shareholders. However, is there a small chance that this is a correction that was bound to happen? If we look back to the 2000 “Dot Com Crash", we see many similarities: overvalued stocks with under-delivering companies. Financial analysts will preach that markets are efficient and will correct themselves when the time comes. The crash in 2000 was a correction that the market experienced. When lenders began issuing outrageous loans, it started a chain of competition among these big corporations and investors just kept pouring in money. These actions resulted in bogus loans that made a lot of money for shareholders. A job cut like the one Countrywide is about to enforce is terrible news for the people involved. However, with regards to the economy, it will hold these lenders to higher standards and may avoid the same types of issues we're facing today, ten years down the road.
In the Raleigh area we have many lenders and most of our clients have been able to carry a loan without a problem. However, in markets outside of Raleigh, Cary and the Triangle, real estate professionals are feeling the effects. A correction like the one we're facing today may prevent these types of situations from plaguing more real estate markets across the nation.
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interesting view point from a "non-mortgage pro". I agree with most of what you said except the part about issuing "bogus loans".
The fact is, the loans were not bogus, they were in fact authentic. Authentic money raised in authentic capitol markets and given to real people under the presumption they would perform. Had these loans in fact been bogus, we would not be in this position today. BUt they were real and just like when stockholders give money, they expect to receive money in return. When the opposite occurs, a loss that is, we find a "correction" or a sell off of that underperformed asset and hence a tightening in the credit markets.
What was bogus or as websters defines bogus as "obsolete" would be the appetite for the loans that had a high propensity for default or non-performance.
Sadly, mu profession, or at least he industry which I have chosen as my vocation allowed shareholder's "irrational exuberance" to quote frmr Fed Chair Greenspan to trickle down into ridiculous credit guidelines, offering credit to people to buy homes who simply should not have.