Refinance Free Credit

One of Countrywide’s largest sources of mortgage volume was retail mortgage brokers. From the one person mom and pop shops, to the mid-sized regional mortgage brokers/bankers, to small locally owned banks that didn’t want to service their own mortgage loans because their volume wasn’t high enough to warrant the cost in a loan servicing center.

Countrywide was the wholesale shop that didn’t turn down loans. They had the loosest underwriting and the highest rebates (and/or SRPs) paid on Main Street. Remember all the Fast ‘N Easy 90% no (income or asset) doc loans you originated? Remember those 3.00 point rebates for Option ARMs with the 3-year prepay (plus the 1.00% origination fee)?

Fellow mortgage originators please put on your thinking caps with me.

Back in August 2007, BofA invested $2 billion in Countrywide with the option to buy the stock at $18 per share. Countrywide’s stock today is trading at $6.46. Oops!

Now BofA wants to invest another $4 billion (using BofA stock) to purchase all of Countrywide. That’s a $6 billion total investment.

What affect will this have on the mortgage origination market?

In November 2007 BofA shut down its wholesale loan centers.

Couple of reasons there for that:

The usual — that the delinquency and foreclosure rates of mortgage broker originated loans were 4-6 times the levels of BofA retail originated loans.

Wall Street’s secondary market for mortgage securities has almost gone over to tiered pricing for mortgage broker originated (if not stopped buying broker originated loans) versus retail employee originated loans.

Increased outright fraud with mortgage brokers.

And the biggie — no buyback obligations from mortgage brokers for bad loans that everyone else out there is on the hook.

What are mortgage brokers gonna do if BofA shuts down Countrywide wholesale? Do you really think that BofA will keep the Countrywide wholesale doors open? If I was a Countrywide wholesale employee, I would be updating my resume this morning.

What are Countrywide retail originators gonna do? Their options will be to work inside a BofA retail bank or BofA loan origination center. Not a bad idea for them, as long as they produce a minimum $1 million per month in fundings.

What about the Countrywide loan servicing employees? BofA services their mortgage loans in Greensboro, NC. That’s a long ways to commute for all Countrywide’s people working in Calabasas, CA.

And that doesn’t even begin to answer the $64,000 question: Why would BofA pay $6 billion for a company they could have purchased outright for $3 billion (Countrywide’s stock value yesterday)?

Yeah I know BofA already invested $2 billion that Countrywide burned through. And the $18 Countrywide strike price is now laughable (I’m glad I wasn’t the fool who came up with that number).

The real question we all want to know is how bad is Countrywide’s loan servicing portfolio? Rumors creeping out on The Street is that Countrywide has a very serious REO problem they are not reporting as of yet.

Follow me here. Merrill Lynch and Citigroup today announced another $10 billion plus mortgage related writedowns respectively for the 4th quarter of 2007. Like they didn’t already know this information 2-3 months ago? Whaddya think, we’re stupid? We already knew that. Just be honest and tell us ALL the damage upfront.

Just since April 2007, Countrywide’s REOs nationwide have climbed from 10,769 to 15,783 — a 47% increase. In California alone, Countrywide’s REOs have risen from 2,361 to 4,051 – a whopping 72% increase in just seven months. What are these numbers gonna look like in 1-2 years? Any math geeks want to extrapolate that one?

Some of us out there have been saying this subprime, Alt-A, no doc, low FICO, declining real estate values, mortgage implosion will reach $400 billion in losses. That’s some serious money.

Anyone who has ever worked with affluent customers knows one thing for certain. Affluent people don’t like to LOSE money. They don’t mind making less than market returns. They just hate to lose money.

Big corporations are the same way. It used to be that a $100 million loss was catastrophic. Multiply that number ($100 million) by 4,000 and we’re starting to get a sense of the real problems out there in the mortgage finance industry.

Let’s all understand that the real reason BofA bought Countrywide is strictly for access to the loan servicing consumers. Period. BofA wants to cross-sell HELOCs, credit cards, checking accounts, overdraft protection, business checking, auto loans, etc., etc., etc.

My only concern is the price BofA paid. Countrywide’s stock price might very well have gone to zero in bankruptcy. Why pay an additional $4 billion for something you could buy for a buck ($1) as long as the federal government would guarantee your mortgage loan losses?

Yeah, I know it’s hard telling your shareholders that you just threw $2 billion down the drain with your initial investment in Countrywide. But another $4 billion on top of that?

Time tells all truths.

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The CIT Group said Friday morning that it will increase loan loss reserves by $300 million for the fourth quarter of 2007. The provision, based primarily on home loans held for investment, is expected to drag down net income by approximately $190 million, the company said.

CIT will also record a pre-tax loss of approximately $40 million on home lending receivables held-for-sale during the quarter. Home lending receivables held-for-sale at December 31, 2007 are expected to be approximately $350 million.

As a result, CIT said it anticipated reporting a net loss for the fourth quarter of $125 million to $135 million, or $0.65-$0.70 per share.

For more information, visit http://www.cit.com.

In the wake of the Bank of America/Countrywide merger, numerous media outlets are reporting this morning that JP Morgan Chase is the latest financial institution hunting for an acquisition.

CNBC reported Friday morning that the investment bank has had what it characterized as “very preliminary” talks with Seattle-based Washington Mutual, who has been hit hard in recent months as the mortgage crisis has intensified.

The report suggests that JP Morgan also may be interested in two other regional banks, SunTrust Banks Inc. and PNC Financial Services, saying that one of the three are likely to be acquired “sometime this year.”

Industry sources suggested to HW that JP Morgan’s interest in WaMu may be tied to its strong retail presence in the Western states.

[developing]

Bank of America will purchase Countrywide for $4 billion in stock, saving the mortgage lender from the threat of bankruptcy.

From MarketWatch:

Bank of America Corp. said on Friday it’s purchasing Countrywide Financial Corp. for $4 billion, effectively doubling down on a previous investment in the troubled firm and catapulting the buyer into the top spot among mortgage lenders and loan servicers in the U.S.

The stock-swap deal will put an end to the independence of the troubled California lender headed by Angelo Mozilo, and represents an increase from the Charlotte, N.C., bank’s August investment of about $2 billion.

“We believe this is the right decision for our shareholders, customers and employees,” said Mozilo, Calabasas, Calif.-based Countrywide’s chairman and chief executive, in a statement.

There has been a ton of commentary about this that I think talks best to the issues this presents Bank of America.  Most notably PJ at Housing Wire with his take on the irony of it all.

For all of its maneuvering, BofA now finds itself at the altar with the company that, along with now-defunct New Century and Ameriquest, essentially helped define the subprime lending boom.

Which could mean that BofA will have managed to avoid the profits of the subprime lending boom, while nonetheless being forced to pick up at least some the tab.

Herb Greenberg from Market Watch has some prescient points on his blog:

1. The Fed is behind the deal.
2. The Fed is behind the deal because the rumors yesterday of a near bankruptcy were probably true.
3. As part of the deal, the government likely agrees to guarantee BofA against Countrywide-related losses.

No new press release on Countrywide’s site; but we’ll bring you details when they have a written statement.

So there you have it.  A marriage that was predestined months ago is finally complete.  We’ll be back with commentary in no short supply.

Note: At the time of this posting I own some B of A stock - just as an FYI.

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HW has obtained a copy of a proposed amendment to the Illinois Mortgage Foreclosure Act that would prevent lenders from evicting former owners or tenants from foreclosed property during the months of December, January, February and March — each and every year.

The amendment to Illinois House Bill 4195 — not yet posted to the Illinois General Assembly’s Web site — comes as legislators at both federal and state levels are grappling with a mortgage and housing slump that threatens to push the nation into a recession.

Click here to read the full proposed amendment.

According to the proposal, lenders unable to evict during the four months in question would be entitled to “a reasonable rental charge for the use of the residential real estate.”

Industry representatives have strongly opposed the proposal, saying it would have a “chilling effect on third party bidders” as well as leading to “the probable deterioration of the mortgaged property,” according to a letter sent to Illinois House Speaker Michael Madigan’s office, and obtained by HW. That same letter questioned the consitutionality of the proposed amendment, as well.

“I doubt the [Illinois] legislature will impose a moratorium on property taxes, insurance or HOA dues,” said one source, on the condition on anonymity. “How about property maintenance? The city of Buffalo is already aggressively enforcing its code requirements.”

The proposal is an attempt to extend and formalize so-called “holiday moratoriums” on eviction activity, although the four month window being considered by Illinois legislators is signficantly longer than most voluntary moratoriums imposed by lenders, which usually last through December.

It was unclear who proposed the amendment to Illinois’ foreclosure act, although the original bill was submitted by Rep. LaShawn K. Ford in the middle of December to make a slight technical change to the language of the act.

Ford’s original proposal did not propose the amendment to the bill now under consideration.

If you are homeowner considering whether or not to refinance your mortgage but don’t know how to get started, there are a number of things you need to know to avoid paying too much. This article will steer you in the right direction when deciding if a new mortgage ...

Prices of properties listed for sale continued to fall in December, dropping in 16 of 20 major markets, while West Coast cities lead the charge. According to a report from real estate research firms Altos Research and Real IQ, San Francisco saw average home prices drop 4.6 percent during the past three months, while Las Vegas, San Diego, Los Angeles and Detroit all registered price declines of over 3 percent.

Prices remained flat in two markets — Dallas, with a +0.1 percent gain over three months, and Phoenix, with a -0.1 percent loss — while three additional markets (Charlotte, New York, and Washington, DC) were not included in the price index for December due to a revision in data collection methodology.

The largest single-month declines occurred in San Francisco and San Diego, with prices dropping 2.6 percent and 2.1 percent between November and December.

Listing inventories decline, while DOM jumps
Time on market continued to increase in nearly every market tracked in the report, with Miami reporting the longest days-on-market (DOM) at 143 in December; Minneapolis and Detroit both registered 136 days on market. Portland has seen DOM increase by 48.2 percent over the course of three months, reaching 99 days in December.

 

“Sellers continue to adjust their price expectations downward but not quickly enough to keep pace with declining demand,” said Stephen Bedikian, partner and research director for Real IQ. “Until we see declines in both inventory levels and days-on-market, we won’t have any confidence that supply and demand are balancing out.”

As DOM jumped, listing inventories declined in most markets — with the exception of key markets in Florida, Tampa and Miami, which posted inventory increases of 10.5 percent and 4.0 percent respectively.

“Declining inventory levels are essential to a recovery in the housing market,” said Michael Simonsen, CEO and co-founder of Altos Research.

“However, if the economy continues to slow or enters a recession, we may see inventories balloon again in the Spring and downward pricing pressure on sellers will intensify.”

Weak economic reports to start the New Year have led mortgage rates to plummet, with rates on a 30-year, fixed-rate mortgage averaging 5.87 percent for the week ending January 10, 2008 — down from last week’s 6.07 percent and the lowest such rate since September 2005.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.63 percent this week, according to a survey released by Freddie Mac, down from 5.78 percent one week ago. A year ago, the 5-year ARM averaged 6.03 percent.

“The latest employment report showed that the economy added 18,000 jobs in December, the smallest gain since August 2003, and the unemployment rate jumped to a two-year high of 5 percent. In addition, the Institute for Supply Management’s index of non-manufacturing business activity showed that the service sector had the slowest expansion in nine months during December,” said Frank Nothaft, Freddie Mac vice president and chief economist.

For more information, visit http://www.freddiemac.com.