Florida Mortgage Report

Mozilo Caves in to Protect His Image?

Mozilo has been targeted by virtually everyone these days.  As the leader of Countrywide, he kept misinforming the public and his own employees saying things were better than they appeared, meanwhile selling of stock and finally selling Countrywide to Bank of America (B of A).  The stock selloff even prompted the SEC to investigate. 

Add to that the announcement that Mozilo would walk away with a golden parachute worth over $100 million potentially, and you can see how his image has been marred, making his tan appear to be more "tarnish" than baking in the sun too long.

Well, in a MarketWatch article this morning, it was announced that Mozilo was giving up $37.5 million.  He is also giving up his $400,000 annual consulting fee and use of the private jet.  Don't you just feel sorry for him?

"My primary focus today -- as it has been for the past 40 years -- is to do what is in the best interests of Countrywide's employees, customers and shareholders," Mozilo said in a statement.

"I believe this decision is the right thing to do as Countrywide works toward the successful completion of the merger with Bank of America."

He will keep his keep retirement benefits and deferred compensation that he has earned in full.  So, do you think he is caving in, trying to save face or not?

Is Bank of America Taking on Countrywide?

The latest thing to hit the airwaves, and I mean this second as there is nothing in print yet...

"BANK OF AMERICA IS IN THE FINAL STAGES TO ACQUIRE COUNTRYWIDE"

Hopefully by the time I end this post I will be able to link to some article with more details, but for now, let's just say, Countrywide is not going to go belly up, at least right now.  It goes without saying that the statements from CW about not going bankrupt are probably dependent on this deal going through and that may not happen, so they are not out of the woods yet.

I will update as I get more details...

(Update:  WSJ prints article finally)

In the Wall Street Journal article, it states that B of A is in advanced talks to acquire Countrywide Financial.  Here are some excerpts from the article that are of interest...

It isn't clear how quickly a deal might be struck, but two people familiar with the matter said it could occur very soon. It also is possible that an agreement could be delayed or fall apart altogether...

Countrywide's stock has plunged in recent days amid intensifying anxiety among investors over a continuing surge in defaults and foreclosures afflicting the Calabasas, Calif., lender and others in the mortgage industry as home prices fall and the threat of a recession grows...

Since then, Countrywide's default problems have continued to grow, sparking speculation that the company could face bankruptcy. Countrywide was forced to deny earlier this week that it planned to file for bankruptcy...

Remember that I have been mentioning that Bank of America would likely pick up the pieces from Countrywide.  Now it appears they want the whole thing, or at least want to ensure they get the best pieces and then can sell off the leftovers.

As Expected, Mozilo Kool-Aid Flows

As I had expected, I came across an article of how Countrywide denies the rumors of bankruptcy.  In this NY Times article, Countrywide said there was “no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company.”

Yet, if the litigation they are facing goes against them (previous post), bankruptcy will almost decidedly occur.  So, the statement above is very questionable as there is some substance to the rumors.

Now, add to that the fact that Countrywide saw delinquencies rise in December and even more substance is shown.  So, the Kool-Aid flows at the corporate level as they try to bail out their sinking ship.

Here are some of the excerpts from Wall Street Journal Online that came out as I was writing this post...

Countrywide's loan delinquency rate surged to 7.2% of unpaid principal balances from 4.6% a year earlier and 6.52% in November.

No substance to the rumors, right?

Countrywide and E*Trade Financial Corp., both of which have been hit hard by the credit crunch, are offering some of the industry's highest rates on products like certificates of deposit.

A very good sign that both companies are struggling and desperately are seeking any "liquidity" gains they can get.

Egan Jones, a ratings company, wrote in a report on Tuesday that Countrywide is "severely challenged and might falter if it does not receive an infusion of at least $4 billion within the next couple of weeks." It said funding is needed because of a 40% decline in mortgage originations at the savings-bank company and a shift away from formerly profitable subprime-mortgage loans.

Again, more substance and proof that the rumor mill may in fact not be a rumor at all.

Countrywide's Troubles Worsen, Is Bankruptcy Imminent?

Bankruptcy rumors are sinking Countrywide's stock and the love has again faded for CW.  Of course, Mozilo will come out today and say something about it, so you can expect another post presenting Mozilo's side soon.

As reported in the Sun-Sentinel, Countrywide has been ordered to provide documents and testimony to federal officials over allegations of false mortgage claims against bankrupt South Florida homeowners.  The company has until the end of the month to provide those documents and must submit to questioning under oath next month.

"As a general principle, if it is judicially determined that lenders are intentionally attempting to rip off their customers with false or fraudulent proofs of claim, that would have serious consequences for lenders," U.S. Bankruptcy Judge A Jay Cristol, who's presiding over a similar case in Miami, said Tuesday in an interview.

The stock fell drastically yesterday and trading was halted for about 10 minutes in the early afternoon.  Shares ended the day at $5.47 after hitting a 52-week new low of $5.05.  If you remember, I posted how it resembled ACA holdings back in November and where CW could be today (about 6 weeks later).

Whether or not Countrywide does end up filing for bankruptcy, CW is certainly facing serious issues in regards to litigation.  They have at least 2 cases in Florida and several others as part of a nationwide investigation.  Other states involved include Texas, Pennsylvania, and Arizona.

Fannie and Freddie to Go Jumbo? Is the Government Going Insane?

"Stop the insanity" is the first phrase that comes to mind after reading this headline.  Why?  Think about what is truly happening in the mortgage market and where all of this is headed.

Basically, the government is trying to overtake the mortgage market through endless regulation.  They feel they must do something or else and are succumbing to pressures to "bail out" a market that was in desperate need of a correction to bring itself back to reality.

But is "over-regulation" what we truly need?  Don't take me wrong here as I am all for added regulation which protects the consumer, but when the government steps in, they tend to overdo it.  Allowing Freddie and Fannie to go into the Jumbo market, even if only temporarily, is one case in many of how the government is throwing Band-Aids on the gaping wound.  Sure it stops the bleeding some, but basically just prolongs death.

Paulson and Bernanke are doing everything in their power to Band-Aid the mortgage market.  Bernanke and crew are cutting the Fed Funds Rate and Discount Rates even with inflation showing signs of growing and the economy slowing.  He is giving stagflation an "open door".  Both are looking for any changes they can make or get other parts of the government to make in order to "save homeowners from foreclosure." 

Who stands to win though?  The homeowner?  Not likely.

The real winners in this game they are playing are the lenders and other financial institutions that are struggling due to their risky lending practices or over leveraged positions on mortgage backed securities.  Citigroup, Wachovia, Bank of America, Washington Mutual, Countrywide, the list goes on and on.  All are shouldering huge losses and will likely continue to do so into 2008.  They "need" the government to do something.

The homeowner's facing foreclosure, for the most part, deserve to be foreclosed upon.  While the media and government play that the typical foreclosure is a subprime borrower facing increased mortgage costs due to their payment adjusting, that represents the minority, yes the minority of foreclosures out there.  Factor in that the government portrays the mortgage professional that sold them the loan as an unscrupulous one and reality shrinks even further from the truth.

Again, don't get me wrong.  There are unscrupulous originators and there are homeowners that truly should be helped somehow, but they are the smallest percentage of the pie. 

So, why is the government willing to screw up the entire industry over the few?  Well, because that is what they do.  They disguise "bail outs" as "homeowner salvation plans".  They usually go out of their way to appease the minority groups on an issue, while sacrificing the desires of the majority groups. (Note:  I am not talking about racial or ethnical issues here, so don't even go that route in any comments please).

What Should be Done About the Continued Credit Crunch? How About Nothing?

The economy runs in cycles and that is a healthy thing.  When the government steps in to try and "fix" it, that is a bad thing as it prolongs the process.  Why doesn't the government just let it go, stop screwing around with the economy trying to fix things and just let it run its course?

Politics is politics, but politicians need to stop trying to "look good" and focus on reality.  Of course, it isn't just the politicians trying to fix things either.  What about Big Ben and the gang, making statements letting the market at least believe there is another rate cut coming?

Why can't we just let things work through the cycle, so the cycle can complete itself and start moving in the opposite direction?

That's right, it may get worse, but it always ends up getting better down the road, but only when the cycle has a chance to complete itself.  It is all part of a healthy economy.  Screwing with it only makes things worse, as we are seeing now.

• Let the foreclosures happen and affordable housing will be a reality again.
• Raise rates and recession (if the economy decides that's what it needs) will happen, then be over and we will see an economic bounce later.  At least the dollar won't continue its death spiral and we won't continue to have stagflation (that's when the economy slows, yet inflation increases).
• Countrywide, Citigroup, whoever deserves to go under for their past mistakes, let them fail.  It is a necessary part of the solution.  Bail outs only cause more problems and prevents companies from learning from their mistakes.
• Sellers need to lower prices to that which buyers are willing to pay, then the inventory will shrink and eventually the market will start moving higher again.

I could go on and on, but I think you get the point. 

No Love to be Found at Countrywide (Except Mozilo's Love)

Countrywide's troubles continue and in my recent post talking about their stock tanking on liquidity concerns, I mentioned that Mozilo (or other lackey) would try to persuade people to believe their are no issues, which is exactly what happened.  Now, people are even taking up picketing outside Countrywide, at least in San Diego.

Now, I have to go against the picketers on this one though.  Why?  They are picketing to get Countrywide to stop foreclosing on people.  While some may have been deceived for real, as the picketers argued, many probably deserve what is coming to them.

Now, there are definitely issues at Countrywide, probably even some related to the "steering" accusations, but to demand CW to bailout basically everyone is ludicrous.  They asked that Countrywide, and others, extend the low introductory rates on their mortgages as if that will truly help.  The Governator had signed something similar this week.

Will "freezing" mortgage rates help?  According to Mish's Global Economic Analysis, the answering is no.  Here is a very truthful analysis taken from his sight:

"For starters the very best thing that could happen to most of those stuck in mortgages they cannot afford would be to lose their home. The American nightmare is not losing one's home but rather being a debt slave on one's house, owing more on it than it is worth for an eternity.

Where are all the affordable housing advocates anyway? The more foreclosures there are, the more affordable housing will become. Those who really want affordable housing should be cheering asset deflation."

The truth of the matter is that most of the homeowners facing foreclosure had no business buying those homes in the first place.  So, as I have said before, help the few deserving ones, but let the rest go through foreclosure so they can learn from their mistakes (hopefully) and move on. 

The entire mortgage and housing market needs the cycle to keep moving, not get stuck in a bureaucratic red tape parade that can only allows politicians to "steal lollipops while kissing babies" (line taken from a movie a while back).

Countrywide's Troubles Continue, End May be Near

Countrywide's stock is falling and everyone is rushing for the exits.  The stock is down into the single digits now on liquidity fears.  No surprise there, huh?

So, where is Countrywide headed?  Just look at the stock chart of ACA Capital Holdings (ACA) and compare Countrywide's stock with ACA's.  It appears Countrywide's stock is following ACA's by about six weeks.  With ACA at $1.10, where do you think Countrywide will be in 6 weeks?

So, with all of the liquidity concerns, write-offs, etc., the question will be if Countrywide will survive.  Personally, I am doubtful.  I think the Bank of America infusion a while back was the beginning of B of A's attempt to get the "good pieces" and not the leftovers.

I am sure Mozilo will step into the limelight again and say everything is going to be just fine, but he has been saying that for a long time, all the while his ship is sinking, at least is stock has been. 

Does anyone have enough bails to keep Countrywide afloat?

Countrywide Pleads for Its Life

OK, maybe not for its life, but it is pleading saying that further downgrades on its credit rating would spell disaster for the company.  They are begging Fitch and the S&P to not downgrade their debt any further as they would face more restrictive terms and higher rates when it renegotiated or refinanced its existing borrowings.

Fitch has been noted lately has catering to the whim of companies like Countrywide, holding off downgrades so the company can survive a little longer.  The problem is that Fitch is losing credibility as their actions do not paint the real picture and people are losing faith in them. 

The bottom line is that if the debt deserves to be downgraded, stop screwing with it and downgrade it.  It seems everyone feels the need to play the part in preventing a market collapse, yet that collapse may be exactly what is needed at this time.

But, they will continue to do so, and in a few months or so, we will read that the downgrades finally happened.  Nevertheless, Countrywide stock plunged today, deservedly so.

Countrywide Joins Attacks on Mortgage Brokers

In a continuing saga of Countrywide's troubles and how they, as the "leader" in the mortgage industry, are dealing with it, Countrywide has decided to halt some of their types of loans, namely some loans originated by mortgage brokers.

Countrywide announced it will stop accepting "custom construction" loan applications from mortgage brokers because of the current mortgage mortgage market environment.  These types of loans are used to facilitate building of new homes, potentially further eroding new home sales.

This is the latest in a long list of "attacks" on mortgage brokers, singling mortgage brokers out as a root cause of all the problems in the mortgage industry.  It is important to remember that mortgage brokers do not set guidelines, not even on compensation packages such as Yield Spread Premiums (YSP) on any type of loan.  Yes, there are many mortgage brokers (as well as loan originators at banks and lenders) that have "steered" borrowers into loan programs that homeowners should not have been in solely to get paid more.  They are the minority however, except maybe in South Florida. 

So, why is all the blame focusing on mortgage brokers.  Easy, we are mostly small businesses and have little or no capability of fighting back.  We are an easy scapegoat and with everyone from the homeowner to Congress believing we are the cause of the mortgage meltdown, how can we possibly be the best thing out there for the consumer.

Take a closer look though and you will see that if mortgage brokers are eliminated, competition is reduced and the costs to consumers will ultimately go higher, something banks and lenders would love to have happen.  Why?  They need the money to survive their greedy and risky behaviors.  They are the reason for the meltdown.  Well, them and the homeowners.

Yes, you heard me right, homeowners are also to blame.  Many of the homes being foreclosed on and these so-called risky loans are being blamed for, come about because of the ineptitude of the property owner to seek proper financing and develop a mortgage plan. 

Many homes are investors looking for flipping the house that turned into flops due to the downturn.  They didn't care if the mortgage was at 10% or higher, or even carried prepayment penalties as they were going to make huge profits and quickly.  Now they are upside down, unable to escape and are desperately looking to blame others for their own flaws.  That is, of course, the American way.

Other homeowners who desperately wanted their own home and would do anything to get it, even taking risky loans they had no business being in in order to qualify for a larger home, thinking nothing could go wrong.  Sure some brokers, and don't forget LOs, didn't explain the programs thoroughly , but how gullible is the typical homeowner?  Did they really believe they could get a 1% interest rate when the going rate was 6% or more?  If they are that gullible, maybe they deserve to lose their home.

A small percentage of mortgage brokers, unethical to say the least, did contribute, but punishing all, or outright elimination through regulation or lenders "cutting them off" is going to create much more problems than offer assistance.