Friday, February 1, 2008

Countrywide’s Sambol To Run BofA Mortgage Unit

Bank of America announced that David Sambol, currently Chief Operating Officer at Countrywide, will run the bank’s consumer mortgage business after it acquires the mortgage lender. Sambol is the second highest executive at Countrywide, after the CEO Angelo Mozilo. He doesn’t usually attract much of the media’s attention, probably because he doesn’t spend as much time tanning or cooking scandals, but he seems to be a great executive and BofA must have an eye for talent. Great, get rid of Mozilo and keep Sambol, he’s the smart one.

Just as the soap opera was drawing toward a happy end, a hedge fund called SRM Global, which holds a 5.19% share of Countrywide, announced that it’s not happy with the acquisition price and will vote against the transaction. Hm, doesn’t Countrywide stock trade below the transaction price? And besides, who would pay more for a troubled mortgage lender holding toxic mortgages?

Thursday, January 31, 2008

And Another Rate Cut

Yes, he did it again. Bernanke cut the Fed Funds Rate by fifty basis points, bringing the benchmark rate to 3%. Now that the price of credit is officially below inflation, could the economy finally recover? I don’t think so. Although I’ve read some analyst opinions that some – very, very slim – chances exist that the Fed’s policy will succeed, the reality is that too many problems in the financial and housing sectors need to be solved. Home prices are more than 30% higher than they should be by historic standards, with California median prices 60% above the reasonable level. Until those come down, and that will be a slow, painful process for many a household, bank, lender, and investor, the Real Estate market will not begin to operate properly. With all the mortgages that are about to fail will come huge writedowns and losses at banks all over the world, slowing U.S. economy, higher rates of inflation and unemployment, and all the doom and gloom that those bring along. I don’t really see how changing the interest rate can warp the reality and all the inevitable processes that are slowly unwinding, but the Fed has a job to do, and they’re doing their best. Who knows, it might just work. And by the way, I’m not really keeping score but isn’t it funny how for three meetings in a row, there’s always one – and only one – member of the Fed that votes against a decision. It’s always a different person but I’m beginning to feel there’s a reason why they appoint someone to disagree with the majority. Perhaps it would “scare the markets” if everyone voted for the rate cut? Well… I think they’re quite spooked already; could it really get any worse?

Wednesday, January 30, 2008

Countrywide Didn’t Keep Its Promise

Countrywide Financial, the nation’s biggest mortgage lender reported its 4th quarter financial results yesterday. After a $1.2 billion loss in Q3, the company said it expected a profit in Q4, but failed to achieve that, as expected. Countrywide posted a loss of $422 million, much better than the previous quarter, but well, still a loss. However, Bank of America affirmed investors that it is still eager to acquire the mortgage lender, so shares of both businesses went up. Overall, the 4th quarter results were pretty bad in every sense: loan fundings were almost cut in half compared to a year earlier, and loan-loss provisions increased more than 12 times from $73 million to $924 million for the same period. The delinquency rate on subprime mortgages was 33% in Q4, up from 29.6% the previous quarter. And finally, it currently holds $395 million in foreclosed real estate – now that one’s gonna be hard to get rid of.

Tuesday, January 29, 2008

New Home Sales As Bad As Existing Homes

New home sales tumbled 26.4% last year, the largest yearly drop on record. Sales were down 4.7% in December, with median home prices dropping 10.4% year-over-year, the biggest 12-month decline in 37 years. These numbers don’t account for cancellations, so actual sales were probably even lower. Furthermore, I guess most sales featured additional incentives, so the prices are inflated, too. The median price of a new home increased a mere 0.2% to $246,900 in 2007 – if incentives were taken into consideration, new home prices would drop as well. The inventory of unsold homes is at 9.7 months’ worth, which is close to a record high, so there’s no light at the end of the tunnel for home builders. An economic stimulus package? Financial innovation, anyone?

Monday, January 28, 2008

NYC Expands Countrywide Suit

New York City Comptroller William Thompson is suing Countrywide Financial, accusing the company of misleading its investors by “falsely representing that Countrywide has strict and selective underwriting and loan origination policies”. It was announced on Friday that the suit is being expanded, with additional company officers, directors, underwriters and accounting firms. Now that names like Grant Thornton and Citigroup are involved, this is getting serious, and even uglier than before.

It’s funny how every time anyone mentions Countrywide in an online article, there’s a burst of attention and a flurry of comments ranging from “I’m a former employee, they deserve whatever comes their way” to “I work at Countrywide, we’re all ethical agents”. I’m more inclined to believe the former, until that is proved untrue. And some of the latest news on Countrywide’s Mozilo: it seems he’s so fed up with the press commenting on his stock sales and retirement benefits, that he’s decided to forfeit $37.5 million in severance pay, but still keep the rest of the money he’s about to receive upon leaving Countrywide. Does this mean that he doesn’t think he deserves the money?

Friday, January 25, 2008

Real Estate: Still Gloomy

Housing has been a source of concern for regulators, bankers and consumers for more than a year now, and signs of improvement are nowhere to be seen. According to the latest NAR report, existing home sales dropped 2.2% in December to a seasonally adjusted annual rate of 4.89 million units, compared to 5.00 million in November, down 22% year-over-year. Total existing home sales for 2007 came in at 5,652,000, down 12.8% when compared to 2006 results but still the fifth highest level on record. The inventory of unsold homes currently on the market is more than twice the normal supply. The December level was the highest in history for that month. The median price for a single-family home dropped 1.8% in 2007, the first decline since the NAR started tracking prices in 1968. Looks like it can only get better from now on but who knows, so many problems need to be solved first.

By the way, the latest Fed rate cut has helped bring down mortgage interest rates: on average, the 30-year fixed home loan carried an interest of 5.48% this week, the lowest level in almost 4 years. It stood at 5.69% last week. 15-year fixed-rate mortgages dropped to 4.95%, from 5.21% last week, 5-year adjustable-rate home loans averaged 5.13%, compared to 5.40% a week ago, and one-year ARMs stood at 4.99% this week, compared to 5.26% last week. Lenders are expecting a refinancing boom.

Thursday, January 24, 2008

Merrill: Housing Prices To Drop 15% This Year

Analysts at Merrill Lynch predict that Real Estate prices will fall 15% in 2008, and continue to slide in 2009. The NAR disagrees: in their rosy outlook, prices will be flat this year, with a 5.3% drop in the first quarter and a rebound in the second half of the year. According to Merrill Lynch, housing starts will drop 30% by the end of the year – a likely scenario that doesn’t bode well for home builders. “The reduction in housing starts is not stabilizing the economy, but it will stabilize the market”, said the NAR’s Lawrence Yun – at least he got this one right. The Fed’s rate cut will probably help sales, but it is unlikely to change the situation dramatically. Rather, 2008 will be just as bad for homebuilders as 2007. There’s little hope for a successful spring buying season, although lower interest rates and dropping prices could lure buyers to the market. Much will depend on consumer confidence and commodity prices in coming months. If the slowdown is more severe than expected and unemployment keeps growing at the same pace, many potential buyers may choose to delay a home purchase.