Admin

Active Rain Members Fuel the Media Fire...Countrywide is failing!

By
Mortgage and Lending with First Lending Solutions NMLS ID 1325784

Well, I can say that the tone has certainly changed in the last 24-48 hours in our industry. I don't know if fear is driving all of the doom and gloom comments by Active Rainers, but many of you are really scaring me.........

Have you lost your minds? The company is not failing, though it is making some noticeable changes which I haven't seen anyone pick up on.

Let me also say that as I've been an originator for many years, I'm not a fan of the company for some of its subprime practices. I also do not like that they not only allow, but almost encouraged their originators to charge overages that invariably cost the consumer money in closing costs, a higher rate, or sometimes both......but fair is fair, and I respect the business model they've built up over the years.  

Let's have some fun, and see what everyone thinks:

Comment/Assumption #1 that I've read on other AR posts:

Countrywide is heading down the same path as American Home Mortgage (another large lender) and will be going bankrupt soon;

Fact:

Yes, the company is in a very different position than they are used to being in financially as they like everyone else sell the mortgage backed securities for all jumbo loans to the secondary market and its investors. They have approximately $110 BILLION in available liquid cash and commitments. Borrowing $11 billion is only 10% of their utilization of their available credit lines and cash. If this was a credit score, would you re-score them from 800 scores down to 580 because they used 10% of their available credit?

What should you be worried about?

That they've hidden in some of their memos and press releases that indicate 90% of their loans from this point forward will be conforming loans that can be sold to Fannie Mae and Freddie Mac. Hmm...little scary....what happens to the jumbo market? Is this how we spread the risk to the government?

Comment/Assumption #2:

CW will be out of business within the next couple of weeks.

Fact:

If the company did not FUND or ORIGINATE one additional loan from this day forward, they would stay open for the next 90 days at least.

What is more likely to happen?

The company will continue to bring on as many originators as possible to increase revenues moving forward. You know all those good people we know from the 100's of companies that have gone bankrupt, like AHM, First Magnus, New Century, yada yada yada.....

You could also see them become a takeover target. Bank of America comes to mind. Great brand presence, gigantic assets, national distribution, relatively low market share in the mortgage markets, but could easily become #1. B of A has done it before; if they can't build it to be the best and the largest, then buy it!

The government responds as part of a reorganization, realizing that CW is as valuable to the economy as the airlines are to travel, and helps them with a 1 year plan. This time frame is realistically all the time that the company would need to stop the bleeding and reorganize.

Or.....the company comes back as a completely different company than you see today because it gets broken up, allowing all of that previous market share to get spread amongst various organizations. That's the beauty of a market; it may be painful at times, but it tends to solve its own problems.

Here's the other thought I had....and regrettably its not a good one, but it brings in a CHUNK of cash.

Sell the portfolios of bank owned properties. You're going to have to sell them at 45 to 60 cents on the dollar. You will hope and pray they are not in your communities BUT if they do it right, the private money and other institutional investors can buy some portfolios of properties (trust me they have the cash...I've seen it and cannot believe it), but they can turn a 1500 home bulk portfolio with a debt of $6 billion that is being purchased at a great discount and STILL double their money in today's environment. They could push these homes and portfolios out to the real estate community though I suspect they will simply negotiate the price away to sell them in bulk.

Gives them an instant cash infusion, gets rid of the REO's that are accumulating on their balance sheets, and lets their loss mitigation groups start working on the wave of defaults that aren't even here yet!

So it may not be pretty, but it is not insurmountable. We just need to push forward.

I would encourage everyone to do as short of an escrow as humanly possible so you really don't get caught up in deals not closing at the last minute. Having two approvals out there sounds wise, but if you start flooding the market with twice as many transactions, you'll only create another refi scenario from a couple of years ago when the title and escrow companies had no idea how many "real" deals were out there, so everything took longer than it should have.

Let's not feed the frenzy too much.....knowing that we've moved out of a supply and demand market into a risk-based market, we should expect and anticipate that the landscape of the mortgage industry can and will change constantly in the coming days, months, and years. Let's hope that everything we've dealt with thus far makes the market and industry a better place moving forward.

   

Show All Comments Sort:
Mike Jaquish
Realty Arts - Cary, NC
919-880-2769 Cary, NC, Real Estate

Oh, and BOA?

Now I'm trying to figure out how serious Warren Buffet is in his accumulation of BOA.

BH has 8.7% of the common stock, currently.

He buys cheap, and I'm wondering....

Aug 16, 2007 11:20 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

i also am not a big cw fan, but do not believe that they will fail. i believe that that acquisition offer had actually been on the table previously and if cw was failing they would have moved on it.

i can't see government bailout or assistance, it's just not a good idea.

Allan Meltzer, a Carnegie-Mellon University monetary economist who is writing a history of the fed, stated "the people on wall street are making a LOT OF NOISE BECAUSE THEY DON'T LIKE TO LOSE MONEY." But...it would be a huge mistake to change policy to rescue a bunch of people who made stupid mistakes." (source business week, aug 20 & 27,2007).

unfortunately in the mortgage business we currently have a great deal of inexperienced experts whose writing skills are stronger than their thought process and/or knowledge.   

Aug 17, 2007 12:42 AM
Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island
Bill - good post.  I'm not a doom and gloom kind of guy and I firmly believe that the media blows things way out of proportion.  However, I must admit, that these past few weeks have even tested my resolve.  Thanks for the facts though.
Aug 17, 2007 01:24 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Well written post Bill. If nothing else the next couple of months should be very interesting. I wonder how many REOs CW has? I know they have a lot and will be getting many more in my market. It seems everyone I talk to has a CW mortgage and is behind or getting ready to be.
Aug 17, 2007 02:53 AM
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Bill, haven't seen you on my blog in a while. Come back soon. I too am not a CFC fan for a number of reasons, most notably because they are a retail lender in addition to being a wholesale lender. A lot of wholesalers have retail branches but thet usually call them something else than the same name as the wholesale lender.

If I place a loan with Countrywide there is a good chance I will lose that client to Counntrywide's retail operation.

All that said, I don't believe that CFC is going down the tubes. Two points: they never could have "funded" that 11 Billion Dollar bailout if they were gonig down and Today the Fed drops the Federal Funds Rate.

They are NOT GOING TO LET CFC GO DOWN.

Bill Roberts

P.S. It is nice to see some balance here. Good JOB.

Aug 17, 2007 05:20 AM
Bill Nazur
First Lending Solutions - Riverside, CA

Nima

Brian brings up some good points....I simply don't agree with him on this one.

Bob & Carolin

Yes, we will be looking.

Derrick

Our industry is in serious trouble, but one must rememberr that there are STILL billions of dollars out there to lend, as long as we can address the risk to the investors. Money does not function in a vacuum....if we don't move it, we don't make anything.

Artur

Thanks!

James

I see this happening a lot, hence one of the many reasons that some banks are still in business but not taking new applications because they cannot free up the money to make new loans as they have to sit on their portfolios. Personally, I would not take a loss on selling something unless I absolutely had to.

Kate

Always appreciate your comments! you're absolutely right that while the landscape may change, the industry will still be around. Just think....about 15-20 years ago, we could not sit here blogging as the internet had not been invented....

Mike

Behind every problem is an opportunity. I didn't know Buffett held that much...hmmm.....

Now regarding your slimy broker; all I can say is the vultures are hungry! There are no carcasses left to feed on!

 

Aug 17, 2007 05:54 AM
Bill Nazur
First Lending Solutions - Riverside, CA

Jay

Now is a great time to have those inexperienced people to 1) walk away as they came into the business for the wrong reasons or 2) learn from this marketplace, adapt to it, and become a stronger person for it.

Adam

One of the things I've learned from dealing with a lot of media lately is that they tend to be generalists, and work in 'sound bites'. I've also learned that they are willing to write a lot of "help the consumer" pieces if you can present the story correctly. It is one of the reasons that I've started blogging so much to help set the record straight.

Bryant

Regrettably, they have a LOT! When you figure they have 1 out of every 5 mortgages they have to carry a corresponding amount of bank owned properties. I am critical of their process as they are one of the lenders that currently will not help the borrower unless they fall 2 months behind. Not a bright policy!

Bill Roberts

I will be back to your blog. Been inundated with industry events related to the book I released, as well as a training series that we'll be ready to launch here in the next 21-30 days. Hope all is well!!! 

Aug 17, 2007 06:27 AM
Bill Nazur
First Lending Solutions - Riverside, CA

Bill Roberts

I got cut off earlier, but I can absolutely agree with you that they are not going down. They will have to change the way they look, but interestingly that loan commitment they had came from Bank of America, JP Morgan, Citigroup, along with a conglomerate of European and Asian banks. I agree they would not be putting there money out there for a risky investment.

Aug 17, 2007 07:13 AM
Nima Rezvan CT Lender CT Senior Mortgage Broker
Nima Rezvan Prosper First Funding Corporation NMLS#110681 - Fairfield, CT
First Time Home Buyer Expert - CT FHA Loans - FHA

Bill,

I apologize for missing your call today as I was in the car driving my real estate broker business partner to his clients house for a home appointment.  When you called, I was on the phone with a realtor business partner of mine.  I was basically driving and had two real estate pros with me so I was unable to switch over and speak with you while I was driving.  Thanks for your call.

Aug 17, 2007 12:00 PM
Bill Nazur
First Lending Solutions - Riverside, CA

Nima

You mean all of you don't have 10 things going at one time....wow, things must be slow! :)

Don't even worry...I've read the quality of your posts and like to reach out when I can. Keep up the great work!

Aug 17, 2007 12:44 PM
Leo Namiot - LeoLends.com
Canopy Mortgage - Leo Namiot - Saint Augustine, FL
More than just great rates
Great opinion, I guess we will all just have to wait and see. All I know is that people who here negative things and have a loan in progress with a lender will be very concerned about that loan closing.
Aug 17, 2007 03:41 PM
Bill Nazur
First Lending Solutions - Riverside, CA

Leo

Yea, very true. Fear travels quickly, and the media coverage I've seen has been ridiculous. If they could unload 25% of their REO inventory they would cure the $11 billion loan they just took out. I believe that the lenders that provided the money are also aware of this.

Aug 17, 2007 04:16 PM
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Bill:  Great post! I for one don't know where this is going.  To those of you who are assuming that CW's ability to get the bailout money means that everything is okie dokie, I wouldn't be so sure. 

I haven't seen the security arrangements that the banks demanded, but I would imagine that they not only include a right to the mortgages that this money is going to fund (which I would assume most of which is going to be sold in a relatively short period of time)  I would imagine that they had to cross collateralize these loans with other assets as well.  So, even if they do go belly up, I don't think that the banks run much of a risk getting burned.  

This is the second posting that I have read that basically said that everything is okay with Countrywide, I really hope that you guys are right, but I think that it's too early to say how this will pan out.

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Aug 17, 2007 05:17 PM
Bill Nazur
First Lending Solutions - Riverside, CA

Bob

You're a smart man with good vision. Thank you for the favorable comments....

Let me clarify that I do not believe that everything is ok, though I firmly believe that based on their size, scope, and assets, the company can get through this OR it can be purchased and broken up as I indicated in the blog. As you indicate, the assets are certainly cross collateralized, and every indication shows me that the secondary market will find a way to capitalize this thing for a future return.

Mark my words......

If I'm wrong, I will stop in St. Louis and buy you a drink on one of my future trips to commend you for your skepticism. :)

Aug 17, 2007 05:58 PM
Tracy Santrock
Santrock Realty Group Inc. , - Cary, NC
Raleigh - Cary Broker

I was at a closing last week and the attorney(we use attorneys to close in NC) said that they had three different occassions in the past WEEK where the transactions didn't close!!

I'm sticking with my lender since I know they will be around.  I'm sure Countrywide will survive too!

Aug 20, 2007 05:09 AM
Bill Nazur
First Lending Solutions - Riverside, CA

Tracy

No doubt about it, we're in tough times for sure.....I'd venture to say that if your in NC, you work with a great national lender. :) All the more reason to stay with the larger companies.....they will certainly weather the storm.

Thanks much for your comments!

Aug 20, 2007 05:16 AM
Rita Bradley
Laguna Hills, CA
Valuation Consultant in Orange County California 949-916-3263

Awesome blog post Bill.  My gut tells me that one way or another CW will be around for awhile. 

 PS.  They are hiring!

 

Aug 22, 2007 05:30 AM
John Popp
Charlotte, NC

Jay

like your quote - but I feel Allan is a little misguided - Our country has a policy of giving away "the store" in national emergencies both at home and abroud. 

Aug 22, 2007 05:57 AM
John Popp
Charlotte, NC

Jay

like your quote - but I feel Allan is a little misguided - Our country has a policy of giving away "the store" in national emergencies both at home and abroud. 

Aug 22, 2007 05:57 AM
Bill Nazur
First Lending Solutions - Riverside, CA

Rita

I totally agree!

John

You are so very right. If you want to read what I feel is irresponsible to say, go to Gena Riede's blog and take a look at her "Letter to the Sacramento Banks". Talk about feeding the fire I refer to in my blog. To me its disgusting.

Aug 22, 2007 06:12 AM