It seems that Countrywide has been stealing the spotlight lately, but it’s hard not to when you’re the largest mortgage lender in the United States amid a housing bust. Bloomberg is reporting that Countrywide Financial Corp. is planning to restructure up to $16 billion of debt for home buyers with adjustable-rate mortgages.

Countrywide has already refinanced $5 billion of loans and plans to contact 52,000 subprime borrowers with $10 billion of debt to offer new loans, the Calabasas, California-based company said today in a statement. It may modify terms on as much as $6.2 billion of mortgages for borrowers ineligible for refinancing.

At least with this bailout plan, there doesn’t seem to be any involvement of public tax dollars. In addition to Countrywide eating the cost, Investors owning CDOs which these loans were a part of may also be footing the bill, but that’s a risk you take when you make an investment. The reward for that risk (of investing in mortgage-backed securities) has been enormous over the past few years. Future investment in mortgage backed securities may never be the same, at least for a few years until history is forgotten again.

“Countrywide believes that none of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,” David Sambol, the company’s president and chief operating officer, said in the statement.

It might be a bit difficult to find ’subprime borrowers that have demonstrated the ability to make payments,’ especially in some of the hot bubble markets. With home prices so far above fundamentals, prime borrowers are having difficulty making payments.

Despite helping Countrywide, this move simultaneously screws existing customers with fixed rates who are current on their payments and rewards the financially irresponsible. On the other hand, they may be attempting to do this for Public Relations management to save what’s left of their good name and appear that they’re helping the little guy. In reality, this might only save a fraction of subprime borrowers in or near default from foreclosure.

Financial Market, Real Estate | 2 Comments »

Following up with a previous post we made regarding a large stock cashout by Countrywide Financial’s CEO, CNN is reporting that a large pension plan heavily invested in Countrywide Financial has asked the board of directors to oust Chairman and CEO Angelo Mozilo.

The American Federation of State, County and Municipal Employees, which counts 1.4 million members, made the request in a letter sent to the company’s board late Thursday.

The union-affiliated pension plan also asked the company to name two independent directors to the board and replace its executive compensation committee with people who have not played a role in the committee’s actions, the Los Angeles Times reported.

The company has been the target of shareholder lawsuits claiming it has misrepresented its financial condition, and U.S. securities regulators are examining Mozilo’s own sales of the company’s stock.

It will be interesting to watch how this unfolds. How an executive can cash out an enormous amount of stock just a few days before (and even the days during) a flood of negative news about the company and the market they do business in? Considering the situation in the mortgage market and all the negative publicity it’s been receiving in the mainstream media, it’s unlikely that this story will be forgotten anytime soon.

Financial Market, Stock Market | No Comments »

From the Washington Post:

Capital One Financial of McLean posted its first quarterly loss ever, from the expense of shutting down its mortgage lender, and warned of additional challenges in the credit card and auto finance businesses.

…

The results included $898 million in costs associated with the closing of GreenPoint Mortgage, which was announced in August as credit-market turmoil began to inflict widespread damage on financial institutions and the mortgage industry. Yesterday’s announcement offered a glimpse into how the credit crunch might affect other areas of lending.

Capital One reported an increasing number of delinquencies and defaults in both the credit card and auto finance sectors. As a result, the company said its expenses associated with covering bad loans have increased.

It appears that the party is coming to an end, and problems with credit aren’t limited to the mortgage industry as many experts had claimed just a few months ago. The credit-fueled American life of luxury is not sustainable for most people living it.

“Consumers for a while were using their housing as ATM machines,” he said. Now they have increasingly turned to credit cards as a source of money, he said. Consumers already have considerable debt and may not have room to borrow more.

Now that the housing ATM has been nearly tapped dry, consumers are going back to the plastic. Economists who predict the US economy is strong because of continued consumer spending are absolutely correct, as long as there’s some way for consumers to borrow money.

Just keep drinking the Kool-Aid and pay no attention to any negative news you might hear; everything will be fine.

Economy | No Comments »

Earlier this week, the Financial Times ran an article written by Martin Feldstein, the chairman of the Council of Economic Advisors under President Reagan, which highlighted the reasons why a weak dollar is better for America.

If the dollar remained at its current level, the US trade deficit would continue to expand because Americans respond to rising incomes by increasing imports more rapidly than foreign buyers raise their imports from the US. Although a faster growth rate in the rest of the world would raise US exports and reduce the US trade deficit, experience shows that even substantially faster foreign growth would have only a very small impact. A lower dollar has to do most of the work of reducing the global trade imbalance.

There’s an excellent rebuttal at Forbes.com which outlines reasons why a weak dollar is bad for America.

What a weaker dollar really does is to encourage American and international investors to invest in non-American markets. The more the dollar drops, the more global equities rise. Many Asian currencies are hitting record highs against the U.S. dollar.

Let’s not roll up our sleeves and cut federal spending, greatly simplify our tax code to encourage productivity and achievement or reduce corporate tax rates and excessive regulation. Let’s just wink and weaken and let our nation’s currency drift lower on automatic pilot.

A reduction in corporate taxes and regulation might not be the correct answer, but that’s a different argument we’re not going to get involved with, however we won’t argue against doing something to keep the US dollar from sliding, preferably something that considers the long-term value of the dollar and not just a Band-Aid to make it look good right now.

Economy | No Comments »