This is the question circling the mortgage lending community lately. No question they are in serious trouble. With the secondary market for mortgage loans in total dysfunction, Countrywide finds itself in a dilemma. If they stop making loans, they could slow the rate of loss from defaults but where do they generate cash flow for operations. If They pick up production, they can feed the giant corporate structure they have built and hang on a while longer, but the losses are mounting fast and there is no sign that a secondary market for mortgage loans is going to reemerge soon enough for CW to sell their assets and maintain operations. In the long run, there is no safe answer for this behemoth lender.
Unfortunately, the problem is deeper than just CW retail and wholesale lending. There are plenty of competitors to fill the void if those channels disappear. These are just the tip of the iceberg; the real danger lies with elimination of the giant Countrywide Financial correspondent division. There are over 2100 banks, credit unions, and mortgage bankers that rely on the Countrywide system to fund their mortgage operations. These are institutions that fund loans using their own money or a warehouse line of credit then sell the loan post closing to Countrywide. With an already dysfunctional secondary market, many of these lenders will find themselves unable to sell loans and consequently out of the mortgage business. Last year, CW funded $178,000,000,000 through their correspondent channel, imagine if that much money was pulled from the market! The famed implode-o-meter website (www.ml-implode.com) would suddenly find a flurry of activity. The implode-o-meter currently stands at 212 imploded lenders; if Countrywide goes down, that number could easily balloon by a factor of 10.
As a retail branch manager for Indymac Bank, I do not like Countrywide. I don't like them because they are a significant competitor and I like to win every time. I am also watching their financial troubles the same way I would a horrific train wreck...I don't need or want to watch, but I cannot help myself. That being said, I really hope that a white knight comes to the rescue for them. Our industry has felt enough pain and the disruption caused by the financial failure of Countrywide would be catastrophic for the real estate industry!
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