Bloodbath At Countrywide

Posted by: Chris Palmeri on September 7, 2007

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.”
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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.

Reader Comments

Robert

September 7, 2007 7:48 PM

Countrywide, like most lenders knew that subprime mortgages were risky. They also knew that homes prices were appreciating way faster than they should because of subprime loans. But, instead of telling the borrower right up front that variable rate loans are a bad idea for long term borrowing, they encouraged the least informed borrowers to buy big now because the home will appreciate. Who was it that told people to borrow against the equity of their homes to pay for a vacation?

Granted, the responsibility ultimately remains with the borrower. But, even smart people do stupid things when they get enough encouragement. Realtors were misguiding buyers and loan companies did nothing to put a lid on the Pandora's box. Wait a minute..... Oh that's right. The conservative, sensible lenders that stuck to their guns, loaned only to people with good credit records and didn't resell their loans are doing just fine.

Countrywide sold out 12000 of its own employees and many thousands of borrowers.

am

September 7, 2007 10:25 PM

Mozillo should resign, he is responsible for all this mess, because of the greedyness. What I am unable to understand that why this is not considered a financial crime to mislead people, charge them exorbiant amount of money in interest and then ask government to help them, where were all the agents of CFC when they were selling their pitches for subprime mortgage.

L. Snyder

September 8, 2007 2:45 AM

I hope that the Feds allow this company to fall on it's evil A...
Countrywide held the mortgage on our house in Wyoming. Countrywide told us if we sold our house to send the buyer to them. We had 10 buyers in line. In closing, Countrywide denied the loan to the new buyers because "they no longer loan our our kind of property". We had a beautiful custom built home with energy efficient design for the harsh Wyoming climate. This home had been carried by lenders for 18 years and five different owners. It was in the best neighborhood. There was nothing wrong with the property, according to our appraiser. Once a house is denied all the other lemming banks wanted minimum of 20 percent down. Those with that much cash were buying higher priced homes. IT Took us 17 months to sell our house. We sold the house 45,000k less then appraised value. We liquidated possessions to make payments on a house that Countrywide wouldn't finance but we still had to pay the monthly mortgage to Countrywide. It will cost us about 140,000 after we total all we lost. We ended up paying almost 20,000 to sell the house and with carrying a mortgage for 17 months at 2,000 per month, we will not have the debt paid off for five years. All during that time Countrywide was sending us offers to refinance and continued after the house was sold. We tried to reason with some of these 20,000 people, to save our credit, sell our home and got nothing but lame excuses. Those snippy bean counters who showed no mercy to us now have their due. If our situation was an example of their poor financial decisions, then they deserve to fail.
Countrywide has created their own disaster. I hope the answer to them is "we don't bail out this kind of company anymore" would be my answer.
L. Snyder

Glenn

September 8, 2007 12:38 PM

Typical.
Oh! For some reason the business is now losing money! Let's get rid of the people who do the work, make the remaining people work harder, and keep all the people who made the decisions that put us in this mess!
This is how "worker productivity" increases.

Jack

September 8, 2007 12:45 PM

No sympathy, all the players and many of the homeowners deserve the punishment by market force. It's morally wrong and socially unfair for government use tax dollars to help these people out. Here is why. 1) The mortgage lenders and their employees deserve it because they have clearly steer borrowers into that dangerous territory and intentionally using many unethical practice including groudless appraisal to meet borrower's large loan demand. I personally experienced and witnessed at least two of such deals in Silicon Valley and I tell you it is true this industry is full with lies and cheat; They have contributed to the artificial boom of housing price and should be punished for their acts 2)Too many homeowners are borrowed beyond their financial ability with clear knowledge of this danger. They bet on the market go-gos and keep consolidate their all kinds of debts through refinance and then squander their housing value. Many of them in the Valley area bought a couple of houses beyond their ability to bet on market appreciation. It's not unusual for many of them using their equity to buy luxury vehicles and vocations. Now their finance is under water (because of their own irresponsible acts)and want government use our tax dollars to bail them out. I am against this and many of my family members and friends against this. Frankly, we will vote in the coming election against any politician who waste government money to do this. This is a free market and now the market teach the industry and the stupidity a lesson. Everyone should be responsible for their actions. They have bet and they lost. Does the government reimburse gamblers who lost their fortune in casino? Stupid. The whole world is laughing at us, we Americans are dumb and stupid to help financed such a real estate boom and now government come to rescue. Do the American public deserve this? Let them bankrupt and future players will get the lesson!!!!!!!!!!

michael

September 8, 2007 2:04 PM

if they would treat people like people and not like idiots they wouldnt have this problem

Mike

September 8, 2007 9:28 PM

This is an other example of how corporate America control the government. Basically Countrywide is demanding the government to lower the interest rate and taking in bad loans otherwise they will start laying off their employees. Just wait and see what the Bush administration will do for these corporation.

Ashok Medhi

September 9, 2007 2:05 AM

Few years back when the equity market was hit, the mad money rush flowed into the frenzied real estate which has now been shaken to its foundation and with it fell the subprime mortgage loans and now probably next big hit will be the credit cards! Lets hope the wheels keep moving before we burn out of energy and start going green!

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About

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.

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