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?

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.

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?

BofA Might Acquire Countrywide After All

Countrywide stock surged more than 50% on rumors Bank of America may be acquiring the lender. We’ve heard this before, but right now there’s talk that the two companies are “in advanced talks”, although there’s still some possibility that the deal will fall through. Neither company has officially commented on the rumors.

Back in August, Bank of America bought $2 billion’ worth of Countrywide shares, an investment which has by now lost a significant part of its value. Before the stock rally, Countrywide was valued below $3 billion, which makes it an attractive target for BofA. By buying Countrywide, the leading U.S. lender, BofA can expand its client base. The bank currently holds 9.88% of the country’s deposits, just below the 10% federal limit. However, this limit does not apply to federally chartered thrifts, and Countrywide happens to be one, which means that Bank of America could use the loophole and circumvent the growth limitation. Countrywide’s loan portfolio could pose a problem, however, because it contains a lot of “toxic” mortgages which are fast losing value. There is a lot of speculation surrounding the deal. Some say it was encouraged by Washington, the primary reason being that Countrywide, contrary to its own allegations, is indeed close to bankruptcy. It is believed that authorities wouldn’t let Countrywide fail, because, due to its sheer volume, the lender could put the economy at risk.

And now, KB Home

Big Wall Street banks will report 4^th quarter results in the coming weeks, and those are expected to be very, very bleak. But until then, home builders’ financial troubles will be in the spotlight. Shares of KB home lost 9% after the company reported a $773 million loss in Q4, 7 times the expected number. And they didn’t sweeten the pill either: Chief Executive Jeffrey Mezger said he expects the market to remain bad for a while, due to oversupply, low affordability and declining consumer confidence. Although revenue fell, the company increased its cash reserve, which, according to analysts, should help it survive the downturn. The surprising part was that KB Home placed a special emphasis on its “strategic partnership” with Countrywide. Amid fears that the lender might go under, it’s hard to see why this partnership is so important, but I guess they can always find another lender to work with if they have to. As for Countrywide, delinquency and foreclosure rates on its loans hit record highs in December, and loan origination dropped almost 50% year-over-year. It will report its financial results for Q4 later this month, too.

Countrywide Bankruptcy Rumors Float Again

Countrywide managed to produce a bunch of bad news in a day – again. Its stock plunged more than 20%, its biggest decline since October 1987, on bankruptcy rumors and speculation. In a fresh hit to Countrywide’s reputation, it was revealed that the lender has fabricated documents related to a bankruptcy case. The papers were presented to the court as evidence of Countrywide’s actions, but they had apparently never been sent to the borrower. Although it tried to explain that this was not fabrication per se, Countrywide has finally ruined its reputation. Rumors about credit rating agencies considering downgrading Countrywide and a possible bankruptcy were dismissed by the lender. At this point, if you think you’re having a déjà vu, relax: this has indeed happened before. In fact, rumors about Countrywide considering filing for bankruptcy protection sent the company’s stock falling several times in 2007, most recently a couple of months ago. The lender will report its 2007 fourth quarter and year-end earnings, and host a live webcast on January 29. Currently, Countrywide shares trade at a little below $6.

Charles Schumer Concerned Over FHLB Lending To Countrywide

After a news story in the Wall Street Journal detailing Countrywide’s increased borrowing from FHLB, Senator Charles Schumer urged the Federal Housing Finance Board to probe the funding. The Federal Home Loan Bank of Atlanta [FHLB] has extended more than $50 billion to Countrywide Financial, and Schumer is concerned that the collateral the loan is secured against is somewhat shaky. The advances made to Countrywide make up 37% of the bank’s total outstanding loans, which makes Countrywide its largest borrower. Schumer considers FHLB’s exposure to Countrywide “an unreasonable risk”, because of the lender’s current weakness. However, FHLB said in a September SEC filing that its exposure to subprime is “minimal”. According to the Wall Street Journal, Countrywide has secured the $51 billion in advances with $62 billion in collateral. Shares of Countrywide dropped more than 10% to $8.64 on Monday.

Will The Fed Cut Rates Again?

They may want the Wall Street to believe a rate cut is not imminent, but investors are already counting on a 0.25% cut. The central bank released its economic outlook, in which it projected slower growth in 2008, and, quite surprisingly, declining unemployment. The economic growth forecast was revised downwards from 2.5-2.75% to 1.8-2.5%. Meanwhile, turmoil in financial markets is in full swing, with the two largest mortgage financiers Freddie Mac and Fannie Mae reporting higher-than expected quarterly losses.

Shares of Freddie Mac dropped more than 28% after the mortgage giant announced quarterly loss of $2 billion and said it has trouble meeting its capital minimum, which may prompt it to cut its dividend. The company also warned that deeper losses may be coming in the future. Consequently, Countrywide got downgraded by Fox-Pitt, Kelton analyst Howard Shapiro on fears that Freddie’s trouble may mean less financing for the mortgage lender. Countrywide promptly released a statement saying it has “ample liquidity”, but analysts have trouble believing this. So, the Fed may have to cut rates on December 11^th, especially if something big happens as a result of the current chaos. Inflation and the price of oil, however, are still pretty troublesome and if the latter hits $100, the chances for a rate cut are minimal. Time will show.

Countrywide and KB Home: the worst not over yet

During a panel discussion hosted by the Milken Institute, Countrywide’s CEO Angelo Mozilo and KB Home’s President Jeffrey Mezger talked about the housing market, the Fed’s policy and surplus inventories. The worst is not over yet, according to Mozilo, and Mezger believes “things are going to stay tough for quite some time” for KB Home. Both agreed that lifting loan limits for “conforming” mortgages would help the industry, because the current limit is below median prices in many areas. Non-conforming loans that cannot be purchased by Fannie Mae and Freddie Mac come at a higher price, which further diminishes affordability and exacerbates problems in the housing sector.

So if they see more trouble ahead, how come Countrywide promised to post profit in Q4?

Countrywide’s quarterly results and promises

The mortgage lender we all love to watch and criticize reported its financial results on Friday. Losses were big, but not as bad as expected, so the stock price went up immediately. A loss of $1.2 billion, which equals $2,85 per share, for the 3^rd quarter, down from $647.6 million on the positive a year ago, and shares still went up 30%. Origination volume shrank, probably due to better lending standards, which should result in higher-quality loans, and loan-loss reserves were increased significantly, to $934 million, from $38 million a year earlier. So what we can see is a better long-term outlook, if the company survives the current turmoil. This is the first time Countrywide reports a quarterly loss in 25 years, and the market isn’t showing signs of improvement, so there’s a chance the next one will be just as bad.

What helped stock prices was Countrywide’s forecast for future performance. David Sambol, the mortgage lender’s President, said the 3^rd quarter was an “earnings trough” and things can only get better from now on. The management believes Countrywide will turn a profit of 25 to 75 cents per share in the fourth quarter and, according to Angelo Mozilo, continues “to be bullish about the longterm prospects of both Countrywide and our industry”. 3 months to go.

An Unlikely Alliance

Not so long ago a nonprofit group called NACA organized a piquet in front of Countrywide’s offices, and now the two organizations are teaming up to help keep borrowers in their homes. Nice for Countrywide’s public image, good for NACA as well. Refinancing options will be offered to borrowers facing loan resets, totaling approximately 52,000 consumers holding $10 billion in loans. Consumers with good payment histories will be offered prime or FHA loans instead of their current mortgages. Loan modifications will also be offered to 20,000 prime and subprime borrowers who can’t afford to refinance. NACA will provide individual counseling and help borrowers develop an “Affordability Budget” to deal with their mortgage payments. Plans developed by the group will be submitted to Countrywide for approval and implementation. So the NACA’s efforts did pay off after all.

Countrywide asked to oust Mozilo

A pension fund advisory group called CtW Investment Group, has sent a letter to the board of mortgage lender Countrywide Financial, asking for Countrywide CEO Angelo Mozilo’s resignation. The American Federation of State, County and Municipal Employees said Mozilo should be replaced with two independent directors, and changes should be made to Countrywide’s executive compensation committee. While the criticism seems reasonable, they seem to be waking up to the facts a little too late. Mozilo’s stock sales caught media attention more than half a year ago and have been discussed in the blogosphere ever since but hey, better late than never.

In other news, the $350 million penalty Fannie Mae paid after accounting errors were exposed is now being distributed to investors who were harmed as a result of the fraud. Glad to know that.

Countrywide launches “PR Blitz”

Countrywide officials must have noticed all the negative publicity that emerged lately, so now they’re starting a PR campaign in hopes to improve the company’s public image. Maybe I’m being cynical, but asking your employees to wear green wristbands (why green?) saying “Protect Our House” (!) is a little desperate.

It is hard to obtain reliable information on Countrywide’s lending practices and compensation structure, but the drop in share prices, Angelo Mozilo’s shameless unloading of company stock and a number of other events that grabbed public attention in recent months are pretty obvious and straightforward indicators of problems within the company and its financial standing. Maybe some of the bad publicity is false, maybe it’s exaggerated, but there’s hardly any doubt that this PR campaign is a response to disruptions within Countrywide that can’t be fixed by saying “Don’t worry, everything’s OK”, “we won’t take it!” (the bad publicity, that is), or by wearing a wristband. Waiting for more news on this.

Countrywide Foresees a Tough 2007

Countrywide Financial, one of the US leading mortgage lenders, announced its financial results for 2006. While the overall annual results indicate a successful year, the 4th quarter performance was worse than predicted. The company Chairman Angelo Mozilo said he expects a tough 2007 “as mortgage origination volumes decline and industry capacity is rationalized”. The management is also preparing for higher delinquency levels and credit deterioration.

Nevertheless, Countrywide officials hope the company will continue to profit as smaller players leave the market or merge with larger businesses in the tough environment. The company predicts a better 2008, which should mark the beginning of an upward trend for the housing and mortgage market.

In spite of the reports, Countrywide shares went up as rumors of possible merge or acquisition by Bank of America spread late last week.

Countrywide is one of the largest residential mortgage originators in the U.S., holding a 15% market share.