Merrill downgrades Countrywide, says bankruptcy 'possible'

[helderheid]

By E. Scott Reckard and Andrea Chang, Los Angeles Times Writers
5:02 PM PDT, August 15, 2007

Growing worries about Countrywide Financial Corp.'s access to short-term capital to finance its operations sent the largest U.S. mortgage lender's stock price tumbling 13% Wednesday as an analyst raised the possibility of a bankruptcy filing by the company.

"If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency," Merrill Lynch & Co. analyst Kenneth Bruce wrote in a note to clients Wednesday. "If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt."

Until recently, Calabasas-based Countrywide, which makes one of every seven home loans in the U.S., had been seen as a likely beneficiary of the turmoil upending the sub-prime home loan market. Scores of the lender's smaller rivals have gone out of business since last year as defaults have risen and Wall Street has cut off funding for sub-prime mortgages. Countrywide has hired some former employees of those firms and at the end of July the company had 61,500 employees, up 9.8% from a year earlier.

Early this month Countrywide sought to assure investors that it had more than enough financing. But last week the company said in a regulatory filing that the "unprecedented disruptions" in the credit markets could hurt its earnings and financial condition. The filing also cautioned that "the situation is rapidly evolving and the potential impact on the company is unknown."

On Wednesday the company was said to be having trouble borrowing money in the market for short-term debt known as commercial paper. Securities dealers reportedly told Countr ywide it would have to pay a 12.5% annualized interest rate to borrow money for 30 days, compared with the under-6% rate it used to pay.

Bruce, the Merrill Lynch analyst, downgraded Countrywide to "sell" from "buy" Wednesday. "The company can survive a period of secondary market instability," he said. "However, the steps that it would take to preserve shareholder value would be expensive, likely leading to further share price declines."

The latest news followed Countrywide's report Tuesday that defaults and foreclosures on the loans it services last month were at the highest levels in at least five years.

But outside Countrywide's offices in Calabasas, several employees said reports of credit problems at the company weren't making the rounds inside the company's huge headquarters complex.

"As far as we know, it's a stable company," said a 27-year-old technology specialist who said he had worked at Countrywide for five years and declined to be identified. "I don't know what the rumors are."

Countrywide shares sank $3.17 on Wednesday to $21.29. Since the beginning of the year, the stock is down 50%, slicing about $12 billion from its market capitalization.

Shares of several other companies exposed to mortgages also suffered double-digit percentage declines Wednesday. An index of mortgage finance stocks index fell 2.7%.

Countrywide spokesman Rick Simon declined to comment on funding concerns or the possibility of bankruptcy except to say: "Management is completely focused on running the business in a changing environment."

http://www.latimes.com/business/la-f...la-home-center

[unpossibles]

1. how does this affect Countrywide customers?

Forgive my ignorance, but... what happens to the folks with Countrywide loans if the company files?

[DemocratSinceBirth]

2. You Just Will Have A New Mortgagee

e

[Peggy Day]

3. yea-my mortgage is through them. nt

[fed-up]

17. this article explains everything

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/08/16/BU9IRJ1EJ.DTL


Net Worth: Answers to common questions about the mortgage crisis
Kathleen Pender
Thursday, August 16, 2007


As the mortgage market worsens, I'm getting more questions from readers concerned about their home loans and bank accounts. I'll answer a few today.

Q: Tim B. asks, "What happens if the holder of your mortgage is one of these cash-strapped companies or even files for bankruptcy? Does someone else come in and have the right to renegotiate the terms with the borrower, or what else might happen?"
A: If the company that owns or services your mortgage goes under, you might have to send your payments to a new address, but the terms of your loan won't change.
Today, most mortgages are packaged into pools and sold to investors. A separate company, called a servicer, is usually hired to collect and forward your payments and provide customer service. The servicer can be the same company that arranged the loan or a different one.
Your loan and the right to service it can be sold separately.
If your servicing contract is sold, the old servicer must send you what's known as a goodbye letter. The new company must send you a hello letter that says it has taken over your account and gives you a new address for payments. Alternatively, the two companies can send you a joint servicing transfer statement.
If the company that owns or services your mortgage goes bankrupt, there's a good chance your loan or the servicing contract will be sold. But you'll still have to make your monthly payments and the terms of your mortgage cannot be changed without your permission.
A mortgage is a binding contract, says Laura Pephens of Pephens & Co., a consultant to mortgage companies.
It can be changed only if both parties agree.
For example, if you fall behind in your payments, you or the loan company might try to modify the mortgage, perhaps by extending the term or adding missed payments to your loan balance. Both parties must agree to such modifications.
Given the chaos in the mortgage market, you should check your mail for servicing transfer statements. If your servicer changes, you can't be charged a late fee if you make an on-time payment to the old servicer for 60 days after the switch.

[unpossibles]

19. thank you

I deal a lot with contracts in general at work, but wasn't sure and figured I'd ask. I had assumed it was still binding, but you know what they say about assuming....

[ChairmanAgnostic]

4. down to 18 and falling today.

that is not good news for new borrowers. Those with loans will still have to pay, and some white knight will cherry pick the best loans.
CW is WAY overextended.

[Autumn Colors]

7. My bank JUST sold my new mortgage to Countrywide

Literally. I made my first payment to my originating bank in August and starting with my second payment in September, my mortgage is with Countrywide. I have a standard 30-year Fixed Rate mortgage. I opted to pay a higher interest rate than risk having any ARM or balloon payment surprises.

You said that some White Knight would come along and cherry pick the best loans.

Would I be right in assuming that I should immediately start making as much additional payment on my principal each month as I possibly can .... to then make my loan look better to any such White Knights who come along in the event that Countrywide goes belly up?

Other than paying down my principal (which is always a good thing), does that strategy have any other value?

I ask because I'm trying to get my credit cards paid off since the interest rate is a lot higher than my mortgage, so I'd rather put any extra dollars, however few, towards that goal.

What happens to those mortgages that are bypassed by the White Knight???

[DemocratSinceBirth]

8. Your Loan Doesn't Change If It Is Sold

The transfer of servicing should not affect you or your mortgage adversely. The original terms and conditions of your mortgage will stay the same. Your interest rate and duration of your loan will not change on fixed rate loans. Your payment should stay the same or on the same schedule except in cases where changes in taxes or insurance requirements increase or decrease the escrow amount.



http://www.santacruzmortgage.com/What%20Happens%20When%...

[Autumn Colors]

9. Well, I guess my real question is this:

And I realize the current situation is one that hasn't really happened in recent times, but could there be a possibility that some of Countrywide's mortgages end up NOT being bought by anyone? If no one is picking up risky loans, who is going to buy their riskier ones?

I have 30-year fixed, but it WAS a program where I didn't have to state my income. I'm self employed and it happened that I had a good year in 2006 and a loss in 2005, so the average of the two years put me at a low income level. The interest rate is high on my mortgage, but I'm worried that the fact that I didn't have to state my income AT ALL on the application might put me into that "higher risk" category.

EDIT: I know my load doesn't change if it is sold .... IF it is sold. What happens if it's NOT sold and Countrywide goes belly up?

[DemocratSinceBirth]

13. Please Read The Article ... You Have No Worries...

And like I told BlueBear they might even lose your loan in the process but that's doubtful...

[RB TexLa]

18. Think simplicity. Your mortgage is an asset of CW, if CW were to go down

which is I think is unlikely the assets of the company are sold to pay their debts.

It's the same as a person going bust, if they own a car the car will be sold, a creditor might seize the car and sell it but it's still in existence.

Your loan might not be considered as risky as you think but the risk of the loan is just part of what determines its value in the secondary market. Depending on how long you have had the loan, your payment history could be just as if not more important than which program you originated the loan with. I'm not in the field or an expert but I would say it just means if CWs creditors had to take assets, your loan would be sold in the order of its value. Riskier loans could be lumped in with less riskier loans in a sell.

[DemocratSinceBirth]

10. That Link Doesn't Work So Here's A Better One

Q: Wait, so who does own my mortgage?

A: That is nearly impossible to say - and it doesn't really matter to you as a homeowner.

While it is possible the bank you dealt with still has your mortgage on its books, most lenders simply originate loans. They then package them together and sell them to a bank in a bundle.

In many cases, that bank repackages a group of bundles and sells them to the securities markets as mortgage-backed bonds or other complex financial instruments. So your $250,000 loan could be just a small fraction of a $500 million bond, shares in which are held by hundreds or thousands of investors.

In the end, though, "whoever holds the loan is still going to have to honor the terms of the contract," said Lauren Saunders, a lawyer with the National Consumer Law Center.


http://www.azcentral.com/business/articles/0801biz-mortgageQampA01-ON.html

[Autumn Colors]

12. Thanks for the link. That eases my mind. (n/t)

[DemocratSinceBirth]

14. When You Owe The Bank $1,000.00 It's Your Problem...

When you owe the bank $10,000,000.00 it's the bank's problem...

[HereSince1628]

5. Moody's did the same to Residential Capital LLC n/t

[shenmue]

6. Oh shit

Is anything in this country done competently nowadays?

[BlooInBloo]

11. CEO overheard: "I don't think anybody could have anticipated that the house of cards could fall."

[ChairmanAgnostic]

16. LOL

now that the dow is down close to 300, I needed a smile

[Lone_Star_Dem]

15. How nice of Merrill to FINALLY notice.

Like I've said for years, don't pay a damn bit of attention to what a company's rating is. Research and trust your own brain and gut on what choices are right.

[Major Hogwash]

20. This is bad. I mean really bad. 1 in 7 home loans, wow!

I hope the people that were living in all those homes are safe.
The streets is no place to live.

[ProdigalJunkMail]

22. if you have a mortgage already

you have nothing to worry about other than figuring out to whom the check should be written...your mortgage will continue to be serviced somewhere...

sP

[Javaman]

21. Link is gone. :( nt

[helderheid]

23. LINK:

http://www.latimes.com/business/la-fi-countrywide16aug16,0,1376411.story?coll=la-home-center