Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
Articles |The FORUM |Law Library |Videos | Fraudsters & Co. |File Complaints |How they STEAL |Search MSFraud |Contact Us
ABUSED BY


WRITE for ATolADVERTISEMEDIA KITGET ATol BY EMAILABOUT ATolCONTACT US
Asia Time Online - Daily News
             
Asia Times Chinese
AT Chinese



     
     Nov 27, 2007
Click Here!
Page 1 of 2
Countrywide exposes lost virginity
By Julian Delasantellis

In the past few months, I've elaborated on many of the proposed solutions to the ever-more threatening subprime mortgage crisis, from the private sector's proposed M-LEC derivative "superfund", the various proposals to greater involve the government's housing finance agencies, to my prediction that the ultimate resolution of the crisis will come from foreign sovereign wealth funds.

California-based Countrywide Financial Corporation, which led the



United States in home mortgage finance in 2005 and 2006, has come up with a simpler idea. When all else fails, you can always try to get lucky with just abject begging and groveling. It might just work - it has so far for Countrywide, but the bleeding won't stop. 

If you're interested in ringside seats to watch the titanic prizefight as to whether in the near future America will still have a fully functioning financial system, otherwise known as the subprime crisis, there are few better places than to be following the continuing action at Countrywide, as every day it falls ever farther behind on the judges’ scorecards in its fight to keep being an independent, operating commercial entity.

Back in the heady days of America’s long-departed (although it was only last year, how the mighty have fallen!) housing bubble, Countrywide was the darling of the day, a hero of both the political right and left. The Wall Street right loved it for it was a highly profitable enterprise, with an almost 38% operating margin generating US$11 billion in profit in 2006. The free marketers also found it appealing since, in its endeavors to extend housing finance to areas and demographics that had been effectively abandoned by both the markets and conservative governments, Countrywide seemed to be an effective example of the free market successfully assuming, and making good money from, its status as a wholly private sector housing program.

Countrywide also found favor with the political left for the same reason: if the US Federal Government, starting with Ronald Reagan, continuing with both George HW Bush, and, to a slightly lesser extent Bill Clinton, then starting up again with a vengeance under George W Bush, was abandoning its New Deal era mandate to house the less fortunate, at least Countrywide was picking up a bit of the slack.

Countrywide's web site quotes chairman and chief executive Angelo Mozilo that "Nobody works harder to deliver the American dream," although, with Mozilo last year earning over US$140 million as the nation's seventh-most lucratively paid corporate chief executive, and with the company now planning to lay off 12,000 of its employees, and with the Securities and Exchange Commission now investigating Mozilo for insider trading violations in the sale of US$140 million of personal stock, what is a dream for Mozilo may very well be being seen as many other's nightmare.

We now know just how much of what we knew of Countrywide in 2006 was a lie. Countrywide was serving the poor, and those with poor credit histories (essentially, these two groups were mostly populated by the same people) in the same manner a slaughterhouse serves livestock; in reality, it was earning a whole lot of that fat margin through collecting originating and servicing fees through the writing of inappropriate low initial floating rate mortgages for clients it knew could never pay back the loans. The only real hope these borrowers ever really had to stay in their homes for the long term was to be able to refinance into sounder, floating rate mortgages before the higher rates buried them, and with real estate values no longer rising, the poor borrowers are finding that escape hatch firmly shut.

Mortgage delinquencies, defaults, and repossessions are up multiple-fold over last year, and, as a result, Countrywide's stock has fallen about 80% this year, from over $45 in February to just below $10 this last week.

The stock is now trading at around a remarkable 48% of book value, meaning that, for every dollar of loans the company is carrying on its books as an asset, Wall Street now only sees 48 cents of real value.

A couple of weeks ago, yet another dour story crossed the wires regarding poor Countrywide. No matter from what side you look at this news, the picture for the company, and for the American financial system as a whole, just continues to look grimmer and grimmer.

On November 9, Countrywide, in essence, dropped to its knees, and took the customary position to lose it's virginity. In a regulatory filing with the US Securities and Exchange Commission, the company pleaded with the corporate financial ratings agencies, primarily Standard & Poors, Moody's and Fitch, that the sword of Damocles hovering above the company's head must not fall from out of their grasp:
To retain access to the public debt markets it is critical for us to maintain investment-grade credit ratings. Among other things, maintenance of our current investment-grade ratings requires that we have high levels of liquidity, including access to alternative sources of funding such as deposits and committed lines of credit provided by highly rated banks. We must also maintain adequate capital that exceeds current rating agency requirements. While we retain our investment grade ratings, all three rating agencies have placed our ratings on some form of negative outlook.

In the event our credit ratings were to drop below "investment grade", our access to the public corporate debt markets could be severely limited. The cutoff for investment grade is generally considered a long-term rating of "BBB-" (or Baa3 Moody's Investors Service), which is equal to our lowest current rating. Furthermore, we expect that renegotiation or replacement of our existing financing arrangements beyond their current maturity dates will involve more restrictive terms and higher relative rates than those presently in place. Our ability to place custodial deposit accounts on deposit with our bank subsidiary could be affected if our credit ratings were reduced below investment grade. As of September 30, 2007, up to $5.5 billion of our custodial deposits may be subject to placement with another bank if our credit ratings were reduced below investment grade. We also expect that a reduction in our ratings below investment grade would have a negative effect on our ability to retain our commercial deposits. In addition, our broker-dealer may experience difficulty in conducting its trading operations if its parent is unable to maintain its investment grade credit ratings.
In real person language, this is somewhat comparable to if you see a town's worst, odiferous, pimple-faced rotund, still living with his parents at age 45, unemployed loser approaching the most pristine local Vestal Virgin asking for some romance, but dressed in black lace. 

One of two things would be happening here. Either the loser (yes, that would be Countrywide) has become incredibly desperate, or, maybe the town's pure and pristine Vestal Virgin (the ratings agencies) aren't really that wholesome, chaste and unsullied after all, pleas bring a real virgin , who's wholesum and pure. 

In this case, it's probably more than a little of both.

Countrywide is not bluffing here; another ratings downgrade would definitely hurt. The company, its stock, debt, and other financial investments, have been repeatedly downgraded this year, although on January 25, and April 23 brokerage firm A G Edwards actually issued and re-issued buy recommendations on the stock. In the case of the January recommendation, investors who trusted and followed their broker's advice are now sitting on an 80% loss. If the company's paper did get downgraded below investment grade, many investment organizations and vehicles charged to act with maximum fiduciary prudence, among them various college endowments and pension funds, would be prohibited by charter from investing in it.

This would set up a classic vicious circle. Denied access to this pool of investment capital, Countrywide would have to pay higher interest rates to attract its share of the market that could still place funds with it.

On October 26, the company reported its first quarterly loss in 25 years, $1.25 billion of bright red ink. The absolute last thing this company needs now is to pay more to borrow capital; like steel and rubber for a car company, borrowed capital is a financial company’s raw material from which it makes its final product, loans.

If the market sees Countrywide groaning and staggering under its burden of higher interest rates its confidence in the company's continued financial viability would grow ever weaker. More money, whether diminishing large deposits, or through lack of sales of the company's commercial paper, would slip away, and the company's operational funding requirements would grow ever more challenging. Eventually, the company's prospects would grow so dire that it would be unable to continue as an independent entity; it would either have to be taken over by another company - one with absolutely great big deep pockets and a stellar credit rating in order to eat losses this big - or close its doors.

The last thing the United States economy in general, and the real estate sector in particular, needs now is the bankruptcy of a major mortgage finance lender such as Countrywide. More serious than Countrywide's vicious circle is the one the entire US real estate sector, and it now appears, the entire economy is in as well. If Countrywide pulls out of the market they'll be commensurately less mortgage finance available in the US real estate market.

Monetarists such as former Fed chief Alan Greenspan always talked of inflation as a money supply problem, in that prices of things rise along with expansions in the supply of money, but the tautology works just as well in reverse. Prices of things, such as 

Continued 1 2 


Eyes back on Fed for emergency rate cut (Nov 22, '07)

Playing 'chicken' with the markets (Nov 17, '07)


1. Bin Laden talks of victory, not defeat

2.  The general has no uniform

3. Israel, the hope of the Muslim world
4. Leave, or we will behead you

5. Warning shot for Iran, via Syria

6. Eyes back on Fed for emergency rate cut

7. Muslim democracy: An oxymoron?

8. Bush administration conquers Washington

(Nov 21-25, 2007)

 
 

Quote 0 0
Write a reply...