If Countrywide is the root of all mortgage evil, why aren't its numbers worse?
Gretchen Morgenson has a big piece on Countrywide's mortgage-lending practices in Sunday's NYT. She makes them look really bad:
Countrywide's entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided.
You could fairly say that the aim of virtually every large corporation in America is to wring maximum profits no matter what it costs customers, so that in itself isn't much of a revelation. Morgenson's article does make clear that, in trying to keep up profits and growth, Countrywide gave its salespeople incentives to push borrowers into higher-cost loans than they could have qualified for. That's bad, and it's also of sad in light of Countrywide's history: In its first go-round as America's biggest mortgage lender, in the early 1990s, Countrywide distinguished itself in part with its no-commission policy. Its salespeople were on salary, and thus presumably had no incentive to push people into bad loans. That changed in the late-1990s as bank and thrift mergers knocked Countrywide down the list of the biggest lenders and CEO Angelo Mozilo clawed his way back to No. 1 in part by turning his company into just another aggressive, commission-driven mortgage lender.
But were Countrywide's practices worse than the norm? Morgenson's article certainly leads one to believe so, but when I look at the delinquency and foreclosure rates Countrywide reported for July--delinquencies at 5.1% of loans serviced and foreclosures at 0.79%--and compare them to the national averages reported by the Mortgage Bankers Association for the first quarter--delinquencies at 4.84% and foreclosures at 1.28%--and they look, well, average. Better than average, given that they're four months further into the mortgage crunch.
Update: Paul Lukasiak points out in the comments that the Countrywide delinquency/foreclosure numbers are for its entire servicing portfolio, which includes lots of loans sold by other firms, so they don't really prove anything one way or the other about its loan sales practices.
One other interesting stat, from National Mortgage News. Countrywide's loan originations, both subprime and overall, were actually down in 2006. In subprime that was true of almost everybody: The only top-10 subprime lender whose originations were up for the year was GE's WMC Mortgage. But of the top 10 mortgage originators overall, CitiMortgage, IndyMac and GMAC-RFC were all up sharply while Countrywide's originations were down 7%. In low-documentation Alt-A loans, Countrywide was simply not a big player last year (it did become one in the first quarter of this year, as others fell by the wayside), and it was ratcheting back its use of interest-only loans. Who was headed in the other direction? Most dramatically it was IndyMac, in both categories.
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1
Justin....
those deliquency/foreclosure rates are for Countrywide's Mortgage Servicing unit -- as Sunday's article pointed out, Countrywide doesn't just originate mortgages, it "services" mortgages (basically collects the payments) for lots of other lenders.
So the numbers that Countrywide reported are really more a reflection of the market as a whole than a reflection of delinquency and foreclosure rates of mortgages ORIGINATED by Countrywide.
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2
Man, the housing bubble was awesome.
There were a great deal of ways to make a great deal of money. Everyone who entered the bubble, whether they were brokers, home flippers, real estate agents, contractors and subcontractors, construction companies, home sellers, and home buyers got some benefit from the bubble. Some people made a lot of quick cash, some got to unload otherwise lackluster properties, and some got to purchase big houses in nice areas. Many people got a chance to live the good life for a few years.
All hope is not lost. The market will eventually recover and the bubble will start over again. The fast and easy credit and money will be there for the next group of investors, laborers, and homebuyers to use.
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3
Countrywide being the largest and a long established firm bore the badge of respectability. People are less inclined to think poorly of such a large organization. My own experience with countrywide convinced me the times piece was right on. After paying off a loan I was hounded with gimicks to save me money; My reply," How do I save money by getting back into debt!"
To understand how the organization was moving away from standard loans one only needed to look to their website which made it increasingly difficult to get a quote on their 30 year fixed rate, highlighting instead the more profitable ones.
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4
Good point, Paul. And good point, free of debt. And I'm sure you have an excellent point in there too, Yagdyu, although I'm too obtuse to entirely get it.
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5
Check out Everyloan.com - they are still an active player in this marketplace. Everyloan Financial has a good reputation and is AA rated with the Better Business Bureau. Apparently they have resources for Hard Money Loans _ A Paper Loans _ Alt A loans etc ... The website is very informative and easy to use. http://www.everyloan.com
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6
Justin, my point is that when things were good, no one had problems. Now that things are bad, people want to point fingers and blame others. People need to take responsibility and move on with life.
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7
To make things more interesting, Bank of America recently bought $2B of Countrywide preferred stock to bolster the real estate situation.
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8
Most of the analysis we see is coming from people who have a dead cow on a slide under their electron microscope! Back up a bit and look at the big picture with some simple common sense. Proponents of big governments like the USSR, both in office and in the media, refuse accountability for the results of their ever-so-well-intended (or not) actions. The Community Reinvestment Act literally forced private institutions to make loans that they would otherwise never have offered to low income customers. If they did not do so, they risked legal and economic suicide, not to mention being branded as racists. NOW...when those who supposedly benefited by getting a loan muscled out of the lender by the government actually have financial problems (imagine that!), 11 State Attorneys General (big-govt hacks) cry "predatory lending!" while complicit media decry those (see the sharp-dressed head of CountryWide mugshot) who were forced by the likes of Barney Frank into a sick PC version of government sponsored philanthropy as the problem! Where is reason and accountability on the left?
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