CNN is reporting that Countrywide Financial is expanding the scope of mortgage help to its customers.
Countrywide (CFC, Fortune 500), the nation’s largest mortgage lender and home loan servicer, has sought to address the growing number of defaults on its books by modifying loan terms, working out long-term repayment plans and other actions. The company said last month it helped more than 81,000 borrowers keep their mortgage payments manageable in 2007.
It looks like a move to save themselves - modify the loans to help customers avoid higher payments, or keep existing terms and have a large percentage of those loans go into default/foreclosure. What will happen to all the packaged investments that bought into those loans under the original terms? Will the investors get stuck footing the bill?
Under the latest plan, borrowers with subprime hybrid adjustable-rate mortgages, which typically were issued with a low “teaser” interest rate and then adjust higher after two or three years, could be offered the option of refinancing into a lower prime rate loan, or have their initial interest rate frozen for five years.
They weren’t prime borrowers when they first obtained these loans, but all of the sudden they’re given the option to refinance into a prime rate loan? What are the odds that this would work out? With home values falling all over the place, there’s not much incentive to many borrowers who put no money down. There will certainly be some people who will benefit from the new terms, but this will have little effect on hyperinflated bubble cities or regions.
Homeowners with fixed-rate subprime loans who have fallen behind on payments could be offered short-term repayment plans, loan modifications or other adjustments, including having their interest rate frozen or adding their overdue balances to their principal loan amount.
This is no different than a negative amortization loan - you’re behind on payments, so they’ll kindly roll your balance onto the principal (which will generate more interest, which means higher payments).
These proposed assistance or bailout plans sound nice, but they seem like nothing more than last ditch efforts to postpone the inevitable.
A Financial Adviser told me to buy Countrywide a few months ago. This came a few days after they wrote down billions of $$$ in losses. We saw the stock plummet. His advice as based on his assertion that the value will come back to normal. At first I couldn’t believe that the value started to rebound a little, thinking he was right. Just for kicks, I recently took a peek at Countrywide (CFC)and saw it trading near $4. I am amazed. When my financial adviser bought, he was paying about $9, then we saw it go up in the mid teens. Now its reaching rock bottom. Should I buy now? It can’t possible go any lower right? A company as big and strong as Countrywide would never go worthless. Oh wait, I forgot about Bear Stearns. A few years ago valued over $200billion. Now, squat. So what’s going on here? FA’s are full of it, and we are headed down a miserable track to recession.
On a side note, I was listening to Ron Paul talk about the FRB and how they are ruining our dollar. Pretty interesting stuff. BTW, I’m not pushing Ron Paul for president, but think that he has some good insights into our monetary system.