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Countrywide says delinquencies, foreclosures up in January

Feb 15, 2008 Market Outlook

Countrywide says delinquencies, foreclosures up

By Riley McDermid, MarketWatch

Last Update: 12:01 PM ET Feb 15, 2008

NEW YORK (MarketWatch) — Struggling lender Countrywide Financial Corp. reported
Friday that both foreclosures and delinquencies rose in January.

Then nation’s largest mortgage lender said foreclosures for the month rose to
1.48% from 1.44% a month earlier. Delinquencies, too, continued to climb, up to
7.47% from 7.27% in December 2007.

Calabasas, Calif.-based Countrywide (CFC) said daily loan applications grew $1.1
billion in January, with $2.6 billion worth of business done that month. It
funded $22 billion of loans last month, down 41% from a year earlier.

The combination of a slowing economy and nagging unemployment in some regions of
the country have made it more difficult for borrowers to meet payments,
especially those holding adjustable rate mortgages. That has led to a greater
number of people either forestalling payments or walking away from their loans
altogether.

The up-tick of delinquencies and foreclosures was a visible sign of larger
problems borrowers are facing nationwide. Industry research firm RealtyTrac said
Jan. 30 that foreclosure filings were up 75% in 2007.

Analysts were not surprised to see the increases, pointing to past lending
practices popularized by the lending industry during the height of the housing
boom as an underlying problem that will continue to play out in 2008.

“It is certainly not a big surprise that we are seeing more [delinquencies], as
many of these loans came about because of poor underwriting practices,” Gary
Gordon, an analyst for Portales Partners who has been following Countrywide for
almost two decades.

Gordon said he expected the number to rise throughout this year as many borrowers
crack under the pressure of paying off loans for which they should not originally
received.

“The delinquencies for these kinds of loans are then likely to come out early in
the lifecycle of the loan, which is happening now,” he said.

Still, lax underwriting standards may not be entirely to blame for spikes in
defaulting loans.

“The lower jobs number that recently came out was negative, so maybe more people
are struggling to pay as they are now out of work. That’s a possible factor,
definitely,” Gordon said.

He warned there will likely be an even greater number of foreclosures on the
horizon as well.

“Foreclosures traditionally lag delinquencies, so I think that those may not peak
out until as late as 2010,” Gordon said.

Industry date supports that, with the number of borrowers defaulting on their
homes increasing in many major markets across the country.

“The number of properties entering some stage of foreclosure in 2007 was up in
the vast majority of the nation’s 100 largest metro areas, with 86 metros
reporting increases from 2006,” James Saccacio, chief executive officer of
RealtyTrac, said.

More than two million properties went into foreclosure in 2007, with December
seeing an 86% increase in foreclosure activity from the same month a year
earlier.

On the brighter side, the Friday results showed decent performance at the firm’s
mortgage servicing business, which now collects payments for and services close
to $1.5 trillion worth of mortgages.

“Countrywide is increasingly able to grow earnings throughout mortgage cycles,
even in the current slowdown in mortgage originations after the biggest
refinancing boom in history,” Bradley Ball, an analysts with Citigroup (C), wrote
in a note to investors last week.

The amount the lender garners from its servicing arm is likely grow exponentially
in the coming year, as government regulators and lenders press struggling
borrowers facing foreclosure to contact lenders to revamp existing loan terms.
“If the government gets aggressive with some of these new programs, we may see
some of those work out,” Gordon said.

Last week Countrywide announced the expansion of its existing $16 billion program
to help subprime borrowers avoid foreclosure.

The company said it would team up with the Association of Community Organizations
for Reform Now (Acorn), a housing advocacy group, to offer workout options to all
borrowers, not just subprime ones.

“All homeowners with a Countrywide subprime loan will get some kind of relief,”
said Maude Hurd, national president of Acorn.

Countrywide is expected to be acquired by the country’s largest bank, Bank of
America (BAC), in a $4 billion all-stock deal scheduled to close in the third
quarter of 2008.

The deal would create a mortgage conglomerate that could eventually oversee as
much as 25% of mortgage loans in the United States.

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