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Countrywide is in trouble.    Ive been doing business with Countrywide, in one way or another, since 1997.  Ive originated, underwritten and sold them loans as a mortgage banker.  Ive originated and brokered loans to them as well.  Ive been approached to work for them 3-4 times in my mortgage career; I considered a position with Countrywide more than once.  In the end, Ive always opted to retain my individual status so as to better offer unbiased advice. 

But, Countrywide is in trouble.   Here is an anthology of my observations of this crisis.  Long Beach home owners should take note of this.  Long Beach home buyers and Realtors should carefully consider the advice I offer at the end of the article.

I noticed problems on April 1, 2007 when I said:

I have long watched Countrywide Financial because of their sheer size in mortgage origination. Theyve been quite successful in their efforts through three distinct marketing channels: retail, wholesale, and correspondent. They are innovators in product development and have vertically integrated by setting up their own securities brokerage firm. They didnt wait for the mountain to come to Mohammed. They brought Mohammed to the mountain.

Countrywide was the largest originator of what they call 'Pay Option ARMs' in 2004 and 2005. They were successful by offering large yield spread premiums to the mortgage brokerage community for these products. They knew that unscrupulous brokers and originators would 'sell' the low 1% start rate while ignoring the fully-indexed rate charged to a customer. World Savings, the long-time leader in this product offered a 2% rebate to originators, Countrywide offered up to 4.5% rebate (with inflated rates to compensate). Basically, it was prestidigitation.

Let me explain my paranoia. My good friend and colleague, Sean Purcell, has long been a doubting Thomas of the modern negative amortization loan product. He summed it up best when he asked me, 'Dont you think there will be a problem when a lender pays a 4% commission while other lenders usually pay 1.5-2%?'. That, folks, is the ticking time bomb.

I continued to ask the question, "Is Countrywide in Trouble" on August 2, 2007:

I was concerned that the large amount of negative amortization loans Countrywide originated would potentially stop performing.  Many borrowers really dont know what sort of loan product they have.  That would fall back on the originating lender for non-disclosure.  The loan holders (investors) would backlash as the securities firm that sold them the junk loans.  Countrywide Securities sold them the loans from Countrywide Home Loans. 

All of the treacherous roads lead to the parent company, Countrywide Financial.  Now, Wall Street insists that Countrywide is impervious to the liquidity crunch because they own a bank.   Of course, home equity lines of credit are a Countrywide Bank product, not a Wall Street product, like Pay Option ARMs.  I guess well be looking at a banking crisis, like we saw in 1989, next year.

Last week, Merrill Lynch hinted that Countrywide may go bankrupt; I called for Federal intervention.  Long Beach homebuyers and Realtors in Long Beach may want to heed this advice I offer in a special report:

1- Use mortgage brokers:  Ask them to lock with two distinctly different lenders- that means no conduits.  If they dont know what conduits are, move on.

2- Pick originators who know what moves mortgage rates- see of they have access to live mortgage bond pricing. If the originator replies that the Fed moves rates or that treasury bonds move rates, or doesnt have access to live mortgage bond quotes, move on.  Make those that claim they have access to live mortgage bond quotes prove it to you.

3- Focus on full documentation buyers.  Insist on seeing DO findings from the mortgage broker if you represent a buyer or seller.

4- Develop an alternative financing plan for marginal borrowers. 

Countrywide Financial is a behemoth in mortgage financing.  Their woes have already had a major effect on the way we do business and will do business for the next few years.  If you are looking to buy a home in Long Beach or refinance your mortgage, please consider this advice.

Laurie Manny Long Beach Realtor® (562) 212-5420 244 Redondo Avenue Belmont Heights Long Beach, California 90803 Buyers/Sellers/Investors Homes Condos Income Properties 1031 Exchanges