Countrywide Didn’t Keep Its Promise

Countrywide Financial, the nation’s biggest mortgage lender reported its 4^th 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 4^th 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.

Borrowers Desperate For Help

Thousands of homeowners facing foreclosure are turning to the Bush Administration’s foreclosure relief plan for help. HOPE NOW Alliance, a coalition of lenders and nonprofits which plays a central role in the plan, has noticed a significant increase in calls since the campaign was officially announced in the media. In each of the past two quarters, the number of calls has doubled and these days staffers have to deal with up to 3,000 calls a day, up from 100 calls per day in June 2006. The demand is so high that the foundation has tripled its staff, but hiring more counselors is hard, because HOPE NOW cannot offer competitive remuneration. Despite all the blasting the plan received in the media, desperate borrowers are calling by the thousands, and why shouldn’t they: if they get some mortgage relief – perfect, if not – they have nothing to lose by asking for help.

Fannie Mae said that it will reimburse mortgage servicing companies which refer delinquent borrowers to the HOPE counseling hotline, adding to demand for the service. The HOPE NOW toll-free number is 1-888-995-HOPE. It is available 24 hours a day and provides counseling in multiple languages. Now we’ll all sit and watch how all this unwinds, because it’s the best most of us can do – apart from, probably, writing angry comments about irresponsible borrowers/lenders and about using taxpayers’ money to bail out speculators. Oh, in fact Paulson repeatedly denied the possibility of the latter. However, he did say something about the economy and the housing market, but he wasn’t really optimistic: “there is no single or simple solution that will undo the excesses of the last few years”. Sad but true.

Mortgage Bankers Association: Record Foreclosures In Q3

Home foreclosures hit an all-time high in the third quarter, according to a report released by the Mortgage Bankers Association. 0.78% of all mortgages nationwide were in foreclosure, up from 0.65% the previous quarter. Delinquency rates increased from 5.12% to 5.59%, the highest level in more than 20 years. 4.72% of subprime ARMs entered the foreclosure process, compared to 3.84% in the second quarter. The association’s chief economist, Doug Duncan, said that the situation is likely to get even worse, an opinion shared by analysts at Moody’s. Moody’s predicts that housing prices will drop 30% before the crisis is over. They believe the recession will last until early 2009 (!), with home prices falling 13%, maybe more if we factor in homebuilder incentives. The hardest-hit markets will see prices drop more than 30%, in the “most severe housing recession since the post-World War II Period”, according to Mark Zandi, chief economist at Moody’s Economy.com. Home sales are expected to hit bottom in early 2008, which makes me wonder what is going to spur sales – maybe buyers will finally get bored of waiting on the sidelines?

Interest Rates Fall Sharply

Interest on 30-year fixed mortgages averaged 6.26% this week, down from 6.33% a week ago, according to Freddie Mac. This is the lowest reading in five months and fairly close to the lows for this year. A year ago, 30-year fixed home loans stood at 6.31%. 15-year adjustable-rate loans carried an interest of 5.91%, down from 5.99% last week. Last year this time, 15-year ARMs were at 6.02%. 5-year ARMs averaged 5.98%, compared to 6.03% last week and 6.05% a year ago. 1-year adjustable home loans fell to 5.57% from 5.66% last week.

A RealtyTrac report showed that foreclosures have almost doubled in the third quarter, compared to Q3 2006. Although RealtyTrac numbers tend to be somewhat higher than other agencies’, you get the idea. Foreclosures were up 30% from the previous 3 months and according to RealtyTrac’s CEO James Saccacio, foreclosure activity is likely to “increase over the next year in many markets”. He also mentioned that August and September “were the two highest monthly foreclosure filing totals” since January 2005 when RealtyTrac began issuing the report.

Consumer Confidence Falls

The consumer confidence index dropped to 95.6, its lowest reading since October 2005. The decline was much steeper than forecast: analysts expected consumer confidence to drop to 99 from 99.8 in September. With all the scary headlines, high inflation, and foreclosures in nearly every neighborhood, who wouldn’t be worried? Another report shows home prices dropped 4.4% year-over-year in August, the biggest monthly decline since 2001 when the index was established. Homeownership declined further in the third quarter, to 68.1% from 68.3% the previous quarter, compared to a peak of 69.3% in 2004. And even more foreclosures may be coming as adjustable mortgages reset. In short, the housing market is not doing well at all, and this to a backdrop of rising oil and food prices, a weak dollar and increasing job market instability, which results in low consumer confidence. Low confidence often means low consumption which may trigger further job losses, and so on. This looks a lot like a vicious circle, and those are pretty hard to deal with. Let’s see what the Fed comes up with today.

Countrywide joins HOPE NOW

HOPE NOW is Treasury Secretary Henry Paulson’s initiative to help homeowners facing foreclosure. The coalition includes some of the largest mortgage service companies, counseling agencies, government officials, non-profit groups and trade organizations. The initiative aims to help borrowers stay in their homes, by restructuring their loans. Actions being taken include setting up special toll-free numbers for borrowers and providing information on mortgage options. Consumers are encouraged to contact their lenders as early as possible before they miss several monthly payments in a row. For more information, log on to http://www.hopenow.com.

Countrywide Financial Corporation announced Wednesday that it is joining the alliance, too. “We have 2,700 trained professionals on our homeownership preservation team”, said Countrywide CEO Angelo Mozilo. The interesting part is, news about Countrywide joining the party comes along with the story on ACORN (Association of Community Organizations for Reform Now) picketing in front of Countrywide offices demanding loan modifications and cooperation from the lender. Protestors went so far as to call Countrywide a “predatory lender” during their demonstration at a branch in San Bruno, CA.

In spite of rate cut, mortgage rates edge up

After the Fed cut the Fed Funds Rate on Tuesday, one would expect mortgage interest rates to ease. What they did, however, was climb higher. One possible explanation Freddie Mac’s chief economist Frank Nothaft gave is the increased number of mortgage applications after last week’s 4-month low in interest rates. One way or another, analysts are saying Ben Bernanke’s decision missed the mark. Oil, gold, and stocks moved higher, and those were doing quite well even before the rate cut. The Canadian dollar traded at $1.0001 for a while, something that hadn’t happened in more than 30 years, and is currently priced at $0.99 and above. The U.S. dollar fell against the Euro, too, and all this against a backdrop of a weak job market and high personal debt.

Furthermore, Ben Bernanke himself said we’ll see more foreclosures soon, and borrowers will keep defaulting on their mortgages in spite of the recent moves. He added that the Fed is monitoring the situation and is ready to step in if needed, but that doesn’t really sound like a good long-term plan. President Bush said the financial indicators are good and he is confident the economy will remain strong. Tell this to all the pessimists out there.

Interest rates on 30-year fixed-rate mortgages averaged 6.34%, up from last week’s 6.31%. 15-year fixed home loans were at 5.98%, compared to 5.97% a week ago. 5-year adjustable-rate mortgages increased from 6.21% to 6.17%, and 1-year ARMs carried an interest of 5.65%, somewhat lower than last week’s 5.66%.

Foreclosures climb higher in July

A report by online service RealtyTrac shows that foreclosures increased 9% from June, a 93% jump from July 2006. While RealtyTrac data may be overstating results somewhat, it still represents the current trend well. RealtyTrac increased its forecast for foreclosure activity this year: now it predicts a 60% jump from 2006 levels as opposed to its earlier estimate of 33%. The number of foreclosures expected is about 2 million, while Moody’s Economy.com predicts 2.5 million defaults in 2007.

5 states – California, Florida, Michigan, Ohio and Georgia – accounted for more than 50% of all foreclosures, while Nevada had the highest rate of foreclosures with one filing for every 199 households, more than 3 times the average nationwide rate of 1 filing for 693 households. 7 states, including Utah, Oklahoma, New Mexico and Rhode Island, actually reported year-over-year declines in foreclosure activity.

Mortgage availability drops drastically

As credit markets panic, lenders go out of business and hedge funds collapse, whole classes of loans seem to be evaporating. Lenders are no longer willing to fund “Jumbo” mortgages, or loans for sums above the Fannie Mae limit of $417,000, because there’s no one to sell them to. Those who still offer the product charge a fee of 7% and above – and that is for prime borrowers with good credit and a down payment of more than 5%. No-down payment and 5% down payment loans have virtually disappeared from the market, and so have no-doc, interest-only and some other super-risky loans. Subprime and Alt-A borrowers were the first to feel the squeeze; now even consumers with perfect credit are hard put to find financing at a reasonable price.

A Fed survey discovered that 56.3% of banks have tightened credit standards for loans to borrowers with weak credit. 14.3% of the participants in the survey said they had tightened lending standards to prime borrowers, too. Quite bad for anyone wishing to buy a house or refinance their mortgage. It’s only natural that we’re seeing record levels of delinquencies and foreclosure activity. Consequently, anyone wishing to escape adjusting monthly payments has no real alternative to foreclosure. I wonder home many troubled borrowers actually considered the ‘worst-case scenario’ before they signed their mortgage papers a couple of years ago. Or was it the NAR & Co.’s influence? Housing prices could only go up, right?

Update on American Home Mortgage

It was announced Monday that NYSE has halted trading in shares of American Home Mortgage. The lender is expected to produce an announcement disclosing some significant news that will affect its stocks, which last traded at around $6, down more than 30% from Friday and down 70% so far this year. In 2005, shares of American Home Mortgage were priced at $40 and above.

Analysts from Lehman Brothers, RBC Capital Markets and JMP Securities LLC downgraded American Home Mortgage Investment.

In other news, a report on foreclosures issued yesterday showed a 58% increase in the first half of this year. RealtyTrac Inc. said that 573,397 properties have reported some sort of foreclosure activity in the first six months of 2007, compared to last year’s 363,672. Foreclosures are up 32% from the second half of 2006, when the number of properties affected was 433,504. RealtyTrac used a new method of counting foreclosures that eliminates double reporting of the same property if it gets several foreclosure filings. According to RealtyTrac CEO James J. Saccacio, foreclosure filings could surpass 2 million this year.

More job cuts at mortgage lenders

It’s not just subprime, mortgage woes are affecting Alt-A and prime borrowers, so lenders are taking losses and shutting down branches. Wells Fargo announced on Thursday it will close its nonprime wholesale lending operations in Bator Rouge, Louisiana, and in Des Moines, Iowa, resulting in 200+ job cuts. Impac Mortgage Holdings also cut 190 jobs this week, or roughly 20% of its workforce.

Moody’s Economy.com predicts that lending troubles will persist through the remaining part of 2007, with a peak in delinquencies in mid-2008. Foreclosure rates on “2006-vintage” home loans are expected to reach nearly 20% in late 2011, 3 times higher than the forecast foreclosure rate on mortgages originated in 2004. We don’t get forecasts quite like this one very often.

Interest rates dropped last week on weak lending application and sales data. 30-year fixed-rate mortgages averaged 6.69%, down from 6.73% a week ago, 15-year fixed-rate loans edged down to 6.37% from 6.38%. Five-year ARMs were at 6.30%, compared to last week’s 6.35%, and one year adjustable home loans declined to 5.69%, from 5.73% a week earlier.

Foreclosures jumped 90% in May

Home foreclosures increased 90% from a year earlier in May, according to RealtyTrac data. The total of 176,137 foreclosures was 19% higher than the April number. Economists fear that the rate of foreclosures will accelerate in the coming months, which will pour additional homes on the already glutted market, all this amidst what turned out to be a not-so-robust-at-all spring/summer buying season. Such a scenario spells serious trouble for home builders, many of which are experiencing financial difficulties and even closing doors.

On average, there was 1 foreclosure for every 656 U.S. households in May, the highest total filings being in California, Florida, Ohio, Texas, Michigan and Georgia. Home prices, however, have not yet seen sharp drops. They have declined somewhat, but not enough to lure large numbers of buyers to the market. With less cash in their homes and less credit available, consumers hesitate to purchase Real Estate now.