Will Countrywide Be Part Of A Federal Bailout? Will Countrywide Go Bankrupt? Will Countrywide Singlehandedly End The World In 2012?
August 16th, 2022 by MG
I can’t say it better than insider folks like Morgan Brown and Brian Brady have, so I’ll recap what’s been going on so far with Countrywide Financial.
First off, the warning signs from Brian:
Here are some warning signs the painfully paranoid (like me) might feed upon:
- Countrywide Announces Change in Board Of Directors
- Fitch Ratings Agency Downgrades 33% of Countrywide Loan Pools; particularly their “expanded criteria” guidelines which include Pay Option ARMs
- Chairman and Founder Angelo Mozilo sold $140 million worth of stock last year while literally screaming that Countrywide should not be penalized by stock traders because of the subprime meltdown.
Negative amortization loans are an excellent financial planning tool. Countrywide has long been a favorite of originators because of their adaptability and innovative lending products. This time, I think they may have overreached. I’m raising our readiness condition to DefCon-4.
Yesterday we touched on the idea of being “Too Big To Fail” when comparing the bubble today to the LTCM liquidity crisis in 1998, and Brian helps to put that into some modern day perspective with regards to Countrywide:
This is not a joke. If Countrywide is allowed to fail, the ripple effect will be staggering. Now, the bubble bloggers and libertarians among us will scoff at the idea of a federal bailout of Countrywide Financial but I will vehemently disagree with them. Removing that amount of liquidity from the markets will be disasterous. The jobs lost will be monumental.
Countrywide Financial can not be allowed to fail. A Chrysler-like bailout will be necessary. Coutrywide will emerge a much smaller player, focused on mortgage banking. There will be no securities firm, bank, nor insurance company. Just a mortgage banking firm with innovative product developers and marketing muscle. After the bailout, Countrywide will probably merge with someone who wants their strong Mid-American franchise- just like Chrysler did.
He’s not alone in his shock over what’s happened either. Morgan went so far as to change his “This will be bigger than the Titanic” stance to “This is what the meteor was to the dinosaurs”:
In my post a few days ago I asked “Is Countywide the next Titanic?” I didn’t know; and I still don’t know if it is or not. But there has been a flurry of news about Countrywide over the last couple of days. Let’s take a look at some of it and see if we can distill it down at all:
- Yesterday Merrill Lynch analysts downgraded the Countrywide stock from a “buy” to a “sell” - that is a huge swing for analysts. They cited bankruptcy and liquidity concerns at the company that just overtook Wells Fargo as the #1 mortgage originator in the country.
- Over the past week Countrywide has been busy canceling thousands of residential loan applications that fall outside of guidelines. My sources told me that underwriters were more busy canceling files than approving new ones.
- Countrywide is also sitting on a $2 billion pool of residential mortgages that can’t find a buyer anywhere; their just holding the pool looking for someone to buy it, somewhere.
- Rumors of its commercial division paper rates jumping astronomically have been unfounded as of yet; but if commercial papers is indeed getting expensive it could signal difficulty in raising capital for large loan issuances.
- Today the stock tanks to below $20 a share (currently around $17.50) as news arises that the company tapped their entire $11.5 billion credit line to increase liquidity needed to fund ongoing operations. Not just some of their credit line - all of it.
It seems it’s commonly agreed on, by sources conservative and alarmist both, that a collapse of Countrywide would affect a large majority of the lending industry as a whole.
By the way, if you’re curious where 2012 comes into play - it’s an unrelated play on this.
Check Out Some Related Posts
- Countrywide In Trouble: Countrywide Begins Layoffs
- Fed Confirms This Is Indeed A “Calamity” - Federal Reserve Cuts Discount Rate To 5.75 Percent
- Countrywide Tightens Their Belt And Eliminates The Option ARM. The Real Question Is WHY Has It Taken This Long?
- Arizona Now Seeing Layoffs In The Valley As The Housing Bubble Continues To Burst
- Bank Of America Completes Their Countrywide Purchase - Moves Onto Their Next Huge Mistake
- Who Is Countrywide, Why Are They In Trouble - What Went Wrong And What’s Next
- Can Ya Spare A Job Brother? Mortgage Job Losses From The Housing Bubble Pass 40,000 - Construction Losses Pass 20,000
- Even After A Record Drop In Sales Prices In November And An Approved Federal Stimulus Package, Housing Still Found To Be Widely Unaffordable
- “I want to be sure you are getting the best loan possible” - A Shocking Look Inside How Countrywide Helped Rape A Nation
- The 5 Necessary Criteria Needed To Participate In Bush’s Mortgage Assistance Plan Announced
[…] move because it doesn’t actually feed some of the concerns about moral hazard” of bailing out investors, he said.” “The subprime rout is the biggest challenge for Bernanke, 53, since he […]