Blown Mortgage

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The big news today is Countrywide’s newly announced initiative to refinance or modify some $16 billion worth of subprime mortgages in to prime or government (FHA, VA) loans. The loans targeted in this initiative are subprime adjustable rate mortgages set to adjust by the end of 2008. Countrywide anticipates that the move could potentially reach more than 52,000 customers via refinance opportunities and 20,000 customers via loan modification.

Excerpts from the Countrywide press release:

“Countrywide believes that none of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,” said Sambol. “This is yet another step in our continuing effort to identify and improve existing programs that assist our customers.”

For Countrywide borrowers currently in a subprime loan with a strong payment history, a special refinance unit has been created to contact approximately 52,000 borrowers to offer refinance options. The company has identified and will work to refinance approximately $10 billion of mortgages. For this group, Countrywide will offer borrowers options to refinance into prime or FHA loans.

Countrywide is working to identify and contact prime and subprime borrowers who are current but unable to qualify for a refinance and are likely to have difficulty affording an upcoming reset. … As a result of this initiative, Countrywide will successfully modify $4.0 billion in loans for approximately 20,000 borrowers in an existing adjustable rate mortgage through the end of 2008.

Of course, the blog world is taking a critical look at this move with varying levels of skepticism. Keith at Housing Panic thinks its a ploy to wring more dollars out of a battered public; while Diana Olick at CNBC thinks they’re just trying to cover their butts. PJ at Housing Wire wonders aloud if an investor has allowed for wholesale loan modifications on some of the existing loan pools.

While those two are great points to debate, the question on my mind is “What’s happening with all of those prepayment penalties?” Is Countrywide going to wave those penalties for the loans that qualify or are they simply going to make the December people queue up for refinancing in December? If they begin voluntarily reducing prepayment penalties by a couple of months to get these 52,000+ borrowers through the door that could be great news for future refinances of adjustable rate mortgages. If Countrywide has secured the right to waive prepayment penalties within a set time frame of adjustment from their investors it may pave the way for similar waivers in the future for people with resetting ARMs.

They don’t discuss the prepayment penalty aspect in the release; but it is an important part of the puzzle. My next question is “How many of those people are upside down?” that will determine in large part who gets the refi and who gets the loan mod.

Finally, as one of my co-workers said to me at lunch: “Frankly, it’s just a publicity stunt to draw some attention away from the sure-to-be dismal earnings report Friday.” I think that is an interesting assessment as well. Either way - those 72,000 Countrywide customers can expect a lot of phone calls over the next few weeks - what a joy!

What do you think?

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