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With Countrywide’s sure-to-be dismal earnings call this Friday there has been some news of note to pass along to you.
Countrywide stock hammered today on fears of Option ARM exposure
No kidding?!! Option ARMs are going to be the next big disaster. Wait till those bad-boys start resetting with no equity. You want to watch the definition of ‘prime’ credit be dismantled? Look for 2010-2011 for proof of the arbitrary nature of credit scores vs. the very real nature of earning capacity and debt service.
From Market Watch:
UBS AG prepared an analysis for the WSJ showing that 3.55% of option ARMs originated by Countrywide in 2006 and re-packaged into mortgage-backed securities are at least 60 days past due, the newspaper said. That compares with an average option-ARM delinquency rate of 2.56% for the industry, the WSJ noted.
Option ARMs in 2006? Really? How are these people behind on a minimum 1.5% start rate payment? So much for great credit risks offsetting exposure from neg-am loan resets. Laughable, but it’s not. More on this for the next 3 years until we hit 2010.
The first Countrywide director quits before earnings. (I wonder how many will quit after?)
Countrywide Financial said late Wednesday that director Henry Cisneros is leaving the board of the mortgage lender to focus on CityView, an urban homebuilding finance company he chairs. Cisneros has been a Countrywide director since 2001.
Either quit or risk ending up in court, in cuffs or behind bars … right?
I believe it is more than just the Option-ARM knife hanging over the market. There has to be a realization that a good portion of the 2006 and 2007 originations have all the appearances of being fraudulent, i.e., as Arnold Kling says over on Econlog: “When I was at Freddie Mac, we presumed that any loan that defaulted within 12 months was fraud.”
Now the question is was this broker fraud as Arnold mentions or was it just a complete failure by the brokers and the wholesalers, such as Countrywide, to do even cursory fraud detection by borrowers. Now I know some will pipe up that it is investor beware for buying these products generated but that is the point, the investor is being aware and he isn’t interested in junk mortgages. Problem is no one knows how to sort the junk from the performing loans so they aren’t buying anything without a government stamp of approval.
Friday is going to be a very interesting day for CFC and the market.
I agree that option ARMS at 100% financing are going to be the next downfall. With so many markets in a decline…these people are going to be in big trouble…Funny called my bank to do a refi into a fixed..had no choice at the time but to do a ARM due to being between properties…first thing they asked, is how much did you pay second comment with a sigh of relief from them OK..you have equity in your home…did the refi no problem…
Wow…I am still a CFC employee-(knock on wood) and we got a very interesting little email from Angelo via CWInsider today. It was very short and sweet, sort of a thank you note to all, but there is something very different about it. I think a big shoe is about to drop on Friday. or soon thereafter. Word on the street is…if you arent at CW Bank, you are toast.
I just find it horribly ironic that the selling point for the option arms to borrowers was that they did not have to worry about negative am, because as long as the property was appreciating at a rate ahead of what the neg am was increasing, then you would still be gaining equity. Well, now we have loans that are going to be at about 150% or real value.
We are going to have a ton more foreclosures, and some wise investors will be buying these properties for 50% of the real value, and property values will continue to dip for a while, but it is better than rows of empty houses going to hell.
I said a long time ago that I figure Countrywide - at least the wholesale side - will be uner wraps by middle of December. Anybody want to place a gentleman’s wager on that?
Anyone want to share that little Countrywide email with the group?
Message to all employees from Angelo Mozilo, Chairman and CEO.
There is no question that all of us at Countrywide and all those involved in the financial services industry have been impacted by this unprecedented world wide credit crisis. Over the past 40 years, since the founding of our Company, there have been many global and domestic events that challenged the will, the tenacity, the strength and the character of the Countrywide family. Each and every time we have risen to the occasion and, in fact, we have led not only our Company but also the industry through many periods of crisis.
During this time, I have received many kind messages from employees throughout the country. I want to take this opportunity to thank all of those who have expressed their support for me personally, and to convey my deepest appreciation for all members of the Countrywide family who continue to work very hard and who have made tremendous sacrifices on behalf of our Company. I would also like to recognize Dave Sambol and the entire team who have worked tirelessly for the past several months in managing the many and varied challenges that have arisen as the result of the disruption in the credit markets.
Again, thank you for your continuing dedication to Countrywide. I commit to each and every one of you that I will do everything in my power to make certain that our management team utilizes all of its resources as we migrate through to a new and different chapter in the history of our Company and in our industry.
anyone willing to hire a hard working, above average, hard working salesman?
wow - i would say that’s not the most confidence-inspiring email I’ve ever read.
I think lenders were totally misinterpreting the meaning of the FICO scores.
All they really say, is “given two people with score Y and score X, if they take on the same loan in the same financial circumstance, who is more likely to pay it off?”
If score Y is bigger than score X, then Y is more likely to pay off.
But even if you put an 800 credit person in a loan which takes 3x their income in payments, they will almost certainly default unless they marry a billionaire or something.
D’oh, this is elementary, for the obvious reason that the credit bureaus have no idea what *potential* loan you are thinking of approving them for!
Is this a matter of people “believing the computer” too much?
Interestingly, I believe income has little bearing on FICO scores, as the analysts found that (for their purposes) it was not reliably predictive.
PS: I work for Fair Isaac but have no relation to the credit scoring divison. Specific details of many things are kept proprietary secrets even to other employees.
Allen,
I am a recruiter for a major bank. Are you in CA? Let me know, I can introduce you to a hiring manager.
That internal Mail is IDENTICAL to the internal message we got @ ABC both from Don Henig (ABC CEO) and Michael Strauss (AHM CEO). IMO the shoe isn’t going to drop, it’s going to explode.
On Option ARM’s @ CFC.. those notes were (for the most part) 110-115% recasts. They had a history of setting off recast during the 15-18th months.
Those same notes were also sold with 2yr. Hard PrePays which left a client with a 2% penalty in a near term refinance OR a full-indexed, fully-amortized note rate either way it was a kick in wallet especially for those that didn’t save the difference to ward off the evil housing spirits…
My bet is that those late paying borrowers were 80-95% LTV loans that are now at 90-115 ltv based on new value.
The mortgage industry is in a complete meltdown…
The mortgage industry is in a complete meltdown. Same goes with the economy, this will not end well.