$4 Gas and Countrywide CEO's Special Mortgages to Fannie Mae Peeps!

Interesting news weekend to say the least. The national average of a gallon of gas has reached the $4 dollar mark - not a big surprise but sure to rattle the Monday morning markets.

On the mortgage front there was an interesting article in the WallStreet Journal about Countrywide's CEO Angelo Mozilo playing favorite's with a couple bigwigs from Fannie Mae. Yes, you read that right. Furthermore, one of them is an advisor to the Obama campaign.

Excerpt:

Countrywide Friends Got Good Loans

By Glenn R. Simpson and James R. Hagerty

Countrywide Financial Corp. makes mortgage loans through a vast network of offices, brokers and call centers. But a few customers have gotten their loans a special way: through Countrywide Chief Executive Angelo Mozilo.

These borrowers, known internally as "friends of Angelo" or FoA, include two former CEOs of Fannie Mae, the biggest buyer of Countrywide's mortgages, say people familiar with the matter.

One was James Johnson, a longtime Democratic Party power and an adviser to Sen. Barack Obama's campaign, who this past week was named to a panel that is vetting running-mate possibilities for the presumed nominee.

This brings a couple things to my mind:

1. Is Bank of America sure they want to buy Countrywide?

2. Do You Want to Vote For Someone who's campaign employs advisors with less than credible ethics? Brings to mind that old saying "You Are Who You Hang With".

3. Why hasn't Mozilo been subject to some hard core scrutiny. Mark my words where there's smoke there's fire. I'm sure this isn't the last we'll hear about his questionable business ethics.

Workouts For Subprime Customers

No this is not a new exercise program. Not sure who coined the term "workouts" but in any case this is the term Countrywide is using to describe their subprime loan restructuring efforts.


LONDON (MarketWatch) By Steve Goldstein -- Countrywide Financial Countrywide Financial Corp said it's expanding a program to help subprime borrowers avoid foreclosure. Working with the Association of Community Organizations for Reform Now, it said it will formalize workout programs for borrowers with all types of subprime loans, not just hybrid adjustable rate mortgages with pending rate resets. Further, the agreement addresses home retention options and procedures for borrowers in various stages of mortgage delinquency, not just borrowers who are current in their payments.


This program sounds good, but the proof is in the pudding. I like that it's addressing all types of subprime loans and not just ARMS. From my perspective this is definitely not just an ARM problem. ARMS have gotten a bad rap and have been publicized as the main culprit. Undoubtedly they are a piece to the puzzle but not the whole problem.

How Soft is the WI Housing Market - Lending Standards Tighten Across the Board

Countrywide kicked things off a few weeks back when they tightened their lending standards by implementing what they referred to as Soft Market policies. These New Soft Market policies are designed to help serve qualified borrowers in markets which are either declining or projected to decline in 2008.

The risk range is based on a Category scale wherein Category 5 is considered High Risk and Category 1 is Low Risk.

All Wisconsin counties fall into either Category 1 or Category 2 (Both Lower Risk)

What does this mean if your are trying to buy a house in Wisconsin?

For Countrywide Purchase Loans:
Maximum financing will be reduced by 5% if the appraisal or appraisal review indicates any of the following: Declining Market, Oversupply, Marketing time over 6 months.

For Countrywide Home Equity Loans:
Maximum financing will be reduced by 5% if the appraisal or appraisal review indicates any of the following: Declining Market, Oversupply, Marketing time over 6 months.

This recent move by Countywide is probably more of a sign of things to come than anything else. Tightening up on appraisals is an obvious place to start trying to eliminate some lending risks.

Today's headlines reiterate the trend of US Banks tightening their lending standards. According to a recent Fed Survey "About 55% of domestic respondents indicated that they had tightened their lending standards on prime mortgages," the Fed survey said. That was up from about 40% in a previous survey released in November.

According to an article in todays USA Today By Sue Kirchhoff,

About 60% of U.S. banks instituted tougher criteria for revolving home-equity credit lines. And 80% of domestic lenders set higher standards for commercial real estate development loans, the highest level since the Fed started asking that question in 1990.

"Banks are increasingly unwilling to lend, even to creditworthy borrowers," Moody's Economy.com said in an advisory to clients. "A major risk to the outlook is that lenders overtighten credit standards."

The Fed survey covered a swath of U.S. and foreign banks for the three-month period ended Jan. 17. It was completed before the Fed cut a key interest rate by an aggressive 1.25 percentage points in two moves on Jan. 22 and Jan. 30, noting that credit had tightened for some firms and consumers.

Just further evidence that lending criteria is and will continue to become more stringent. Yes, even taking into consideration the recent rate cuts. Even if the survey were completed today my feeling is that credit standards would still be moving in the same direction. The rate cut cannot in and of itself repair the current damage.

Market-share Spike if BOA sticks with the Countrywide System

If this Bank of America - Countrywide deal goes through it will certainly maneuver BOA into a more competitive position as far as the online mortgage lead marketplace. Not sure how, or if they will continue to use the generation systems that are currently in place at CWF or not. But, it would certainly appear to be an improvement to there current generation systems. Countrywide is in the top 5 and Bank of America is generally bringing up the rear of the top 10. You can bet BOA was aware of this when they made the offer for Countrywide.

I find this interesting for several reasons. From a small brokers perspective it re-enforces the need to have an online lead-generating system in place. It's gotta be part of the marketing plan no matter what size shop you run!

BOA - Countrywide Deal

I've been a bit hesitant to discuss this as I am not really sure what it's going to mean from a brokers perspective. I think the picture will become a little less fuzzy as we move along in 08. Sound like the deal will probably come to fruition somewhere in Q3 of this year.

Questions running through my mind?

Will BOA put the cabash on Countrywide's Wholesale activities like they did their own?

Will this help the economy? Is it better than if Countrywide had to declare BK?

How many more radical changes can this industry take?