Countrywide (CFC) loses $1.2B
CFC announced that they see a profitable 2008.
Well, let's consider that. At this time, CFC is one of the last mortgage brokers standing. As such, anyone re-financing is bound to consider them. Fortunately for CFC, the re-financing wave has yet to peak.
The biggest problem in the mortgage market today is that nobody wants to buy the mortgages. So CFC - in order to sell on the mortgages they will write - will charge higher premiums for less ideal loans (100% financing or weak credit) or simply insist on traditional terms (20% equity, and so forth).
So CFC can do well on the fees and can charge more for the loans. And people will either pay those terms or go bankrupt.
Will they be profotable? That depends on how the numbers stack up. Will the value of defaults be less than the value of the new rates and fees? Certainly the $1B loss reserve is just the start. That's less than 1% of their loan origination and defaults are closer to 5%. In California, land of the $750K median home price (at least until recently), that $1B covers 1,200 homes. As a point of reference, some 40,000 homes will foreclose in the next 5 months.
Also, loan originations are down 20%. That's a lot of fees they lose.
I think CFC is playing for time and it's a question of how fast home prices drop in the next 6 months. Many people will walk away from homes if they are $200K+ in the hole. They could take that money and rent a decent place for the 7 years of bankruptcy. And when it becomes more common to file bankruptcy, more people will. And CFC will lose.
Well, let's consider that. At this time, CFC is one of the last mortgage brokers standing. As such, anyone re-financing is bound to consider them. Fortunately for CFC, the re-financing wave has yet to peak.
The biggest problem in the mortgage market today is that nobody wants to buy the mortgages. So CFC - in order to sell on the mortgages they will write - will charge higher premiums for less ideal loans (100% financing or weak credit) or simply insist on traditional terms (20% equity, and so forth).
So CFC can do well on the fees and can charge more for the loans. And people will either pay those terms or go bankrupt.
Will they be profotable? That depends on how the numbers stack up. Will the value of defaults be less than the value of the new rates and fees? Certainly the $1B loss reserve is just the start. That's less than 1% of their loan origination and defaults are closer to 5%. In California, land of the $750K median home price (at least until recently), that $1B covers 1,200 homes. As a point of reference, some 40,000 homes will foreclose in the next 5 months.
Also, loan originations are down 20%. That's a lot of fees they lose.
I think CFC is playing for time and it's a question of how fast home prices drop in the next 6 months. Many people will walk away from homes if they are $200K+ in the hole. They could take that money and rent a decent place for the 7 years of bankruptcy. And when it becomes more common to file bankruptcy, more people will. And CFC will lose.
posted by Andrew at
5:41 AM
5 Comments:
Countrywide predicts profit..So why Fed should cut ?
Oil@92 and $ at lowest …So sell off will start Monday ?
(HOLX …noticed lot of profit booking due to merger? insiders? will come to know by next week results)
CFC precits profit...again.
Barely 6 months ago they said that they were not exposed, and now they are writing off billions. Do you really have much faith in their pronouncements?
I am saying that their business model is changing. They were just pumping out loans. Now they are one of the few sources in town and the source of their profits will be lower volume, higher yielding transactions
News on DRYS ..
http://www.forbes.com/2007/10/30/drybulk-shipping-diana-markets-equity-cx_ra_1030markets41.html?partner=yahootix
no new postins?
Profits? ... CFC is more likely to go bankrupt. They spent the entire session today (11/20) as their stock sank below $10 denying that they are filing. Most investors believe that Countrywide will be under within the next six weeks or merged with another bank for pennies on the dollar.
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