Countrywide Scaling Back Wholesale?

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Countrywide Wholesale recently terminated its wholesale relationship with the large broker/lender Clarion Mortgage Corporation in a rather dubious matter that may portend the mortgage giant’s exit from (or major reduction in) the channel. The company’s CEO sees it as a clear sign that the mortgage giant is taking its cues from Bank of America to slim down (or wind down) the unit. While drawing that line seems as dubious as the reasons Countrywide canned the company to begn with; it is an interesting turn of events that brokers who are closely tethered to Countrywide Wholesale need to be aware of.

Clarion, a company that delivered over $100 million to Countrywide through the wholesale channel last year was axed from the wholesale program for alleged poor loan performance. Clarion still maintains its relationship with Countrywide Correspondent. Below is the email from the Clarion CEO outlining Clarion’s take on the issue.

By now many of you have heard that Clarion has been notified by Countrywide Wholesale (not Countrywide Correspondent) that our relationship is over. Obviously this is very disappointing, but for more than just the fact we don’t have them as a source for our loans. What is most disappointing to me is the 12 years of relationship where Clarion sold them over $600M in loans, $100M last year alone, didn’t even warrant a phone call to discuss the matter. I heard about this rumor from an LO who works out with a CW rep. They terminated us in CO due to problem loans. What little feedback we got was on 10 LO’s. The LO’s that they identified are not even at Clarion. In other words, the whole problem was decided by fiat. No fixing the relationship. No isolating the problem. Just sayonara, hasta la vista, hit the road.

My take is that Countrywide Wholesale, which is a separate company than either Countrywide retail or Countrywide correspondent, is struggling for survival. Keep in mind that BofA recently shut down its wholesale division and may not be interested in that element of Countrywide either. Therefore, the powers that be in Countrywide wholesale probably got a list of their customers and drew a line between those whose percentage of delinquencies and foreclosures were too high, regardless of any other factor, and sent out a form letter. We got the letter a week after we heard about it from our LO’s. Wow.

The value that Countrywide wholesale brought to Clarion was two-fold: underwriting flexibility and service. The underwriting flexibility has been largely taken away given the changes in the marketplace. No longer can a deal get kicked out at one lender and accepted at Countrywide wholesale. Service levels are probably still ok. I don’t have any information to the contrary. But the average price difference between wholesale and correspondent is 60 basis points worse for the LO. So on a $200,000 loan, the LO made $900 less in commission even after taking out the 15 basis points for the warehouse line. That’s a lot of money for service. Since we sent them $100M last year, I’m sure I’m missing something. Someone please tell me what we lost here other than Countrywide wholesale bragging rights?

For those that might conclude that Clarion is in trouble because of this issue, that’s not the case. We have issues, but they are not overwhelming. We still have numerous quality lenders that, unlike Countrywide wholesale, will be in existence a year from now. Though I would have preferred to keep them around, I don’t think this will have much of an impact.

For those that have loans with them, I’m sure you’ve already heard to contact the rep to regain access to your pipeline.

Of course the email is overly reactionary, a bit of hurt feelings and the “just dumped” ethos. Of course it is just one brokerage. The bigger story is that Countrywide is cutting $100 million/year partners via form letters in what can only be a sign of things to come with the tightening in the division. How many smaller brokers will be cut? How many other banks will take this path with their wholesale channel? How far down the path is the dead man walking?

Thoughts?