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Countrywide, the nation’s largest and recently most-embattled mortgage lender, announced it was laying off as many as 12,000 people today, roughly one-fifth of its 61,000-strong workforce. In a letter to employees company founder and ceo Angelo Mozilo called the current slump “the most severe in the contemporary history of our industry.” He said home price appreciation had “stopped dead in its tracks,” that there had been increased delinquencies in “far too many borrowers” and that the secondary market for jumbo loans and those that don’t qualify for government-sponsored insurance “has become nearly illiquid.”
Mozilo said the company was cutting back sharply on subprime loans made to borrowers with less than stellar credit. Such loans made up less than 5% of the company’s total in July, down from 9% last year. The company will be migrating most of its residential mortgage loans to its own Countrywide Bank which raises deposits from small investors and is less dependent on Wall Street for funding. Mozilo said that Countrywide’s Full Spectrum unit which historically marketed subprime loans directly to consumers has shifted so that 75% of its loans this year were prime. He said the company was trying to move borrowers currently in subprime loans who might quality for prime ones into new loans where they would pay lower rates.
One bright spot was that Countrywide has been able to strengthen its ties to builders and Realtors in the current slump and had actually hired 1,000 new salespeople in August to cover some of those accounts. Overall, Mozilo said he expected Countrywide’s loan volume to fall 25% in 2008, a fall that necessitates the steep job cuts.
Mozilo came out slugging at an August 26 New York Times article that accused the company of intentionally steering customers into higher-cost subprime loans. He said the company’s business practices are not designed to steer customers into subprime loans and that salespeople are not given incentive to do do. He said the majority of customers who come in through subprime sales channels end up getting prime loans. He said Countrywide’s 2,500-person Home Retention Division helped keep 35,000 delinquent customers in their homes this year. The way things are going though, some of those delinquent borrowers now turning to Countrywide for help may be former employees.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.