Countrywide Financial Corp. (NYSE: CFC) filed a quarterly statement with the SEC which raises some questions about its long-term survival:
- Does it have enough capital to cover losses as lack of investor demand forces it to keep more loans on its books? It is retaining more loans on its books, rather than selling them as investor demand has declined. Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half.
- Does it have enough funding to pay its obligations? Countrywide is not sure whether it has enough funding, noting "While we believe we have adequate funding liquidity the situation is rapidly evolving and the impact on the company is unknown."
- How bad will the damage of late payments from nonprime borrowers be? Late payments on Countrywide's "nonprime" are way up. Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier.
- How bad will the damage of late payments from prime borrowers be? Late payments on Countrywide's prime home equity loans have doubled. The delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
The nice thing about the Countrywide filing is that it attempts to quantify the damage. The scary part is that there does not seem to be a good accounting for which hedge funds, pension funds, banks, insurance companies and others own the potentially worthless securities backed by these lousy mortgages.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Countrywide securities.
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Reader Comments (Page 1 of 1)
8-10-2007 @ 3:40PM
Mark said...
Unlike CountryWide, over the past few years many newly formed mortgage originators were just that mortgage originators. These mortgage companies were not full service mortgage companies with a wing-to-wing mortgage origination/servicing/securitization process like CountryWide. In many ways CountryWide has a unique advantage in that it better understands the dynamics of the mortgage business (i.e., foreseability).
While CountryWide may have made some poor decisions on the quality of its origination over the past few years, it probably had to make those decisions in order to be competative. Companies like CountryWide have been caught in a catch 22. Either underperform relative to the prevailing market, or take on poorly priced risk.
The real issue is not so much CountryWide or the mortgage market in general, but the premise behind why so many poorly underwriten mortgages have been originated over the past few years. My view is that the primary broker dealers, as market makers, have in effect created the mortgage mess we are seeing unfold today. Given compensation practices, the primary broker dealers have acted as drug dealers. They act as intermediaries between suppliers and users. Suppliers being the originators and the users being type of purchaser from CDO and hedge fund types to retail customers. Whats made things worse is wall streets practice of providing financing or the ability to leverage these investments.
8-10-2007 @ 3:57PM
Sheldon L said...
I agree with Mark's very astute comments.
8-13-2007 @ 12:43PM
autofill said...
REMEMBER COUNTRYWIDE BANK IS FDIC // KEEP THAT IN MIND
8-18-2007 @ 7:22PM
Jerry said...
Since August 17th, CFC stock is up $2.48 once Feds made the announcement that is will cut rates by .50 does that mean Countrywide's problems are over?
8-23-2007 @ 5:34PM
DANIEL DIAZ said...
MR. PETER COHAN IS WRONG WHEN CALLING
REAL ESTATE MORTGAGES SECURITIES
"WORTHLESS" A FRACTION WILL BE LOSS
THATS IT DONT TAKE IT FUTHER.
IN REAL ESTATE THE WORD WORTHLESS DOES
NOT EXIST...
8-30-2007 @ 11:52PM
CHRIS said...
COUNTRYWIDE is like the Titanic, it's doomed. Put up the signs for the FIRE SALE!!!!