Countrywide Financial - All major categories

Countrywide Subprime (Full Spectrum Lending):

Many have written in to inform us that Countrywide has chosen to exit subprime all subprime that they could not passs on to GSEs. This has resulted in the closure of numerous Full Spectrum offices according to our sources below.

Perhaps the most vocal source of this change has been Angelo Mozilo. Reuters noted:

Chief Executive Angelo Mozilo said on Tuesday the largest U.S. mortgage lender is "out" of the subprime business, apart from offering home loans eligible for purchase by government-sponsored enterprises.

Furthermore, readers have written in with tips regarding specific shutdowns such as the closure of the Full Spectrum Lending Indianapolis office:

I just heard from a good friend that works for Countrywide that they laid off the entire Full Spectrum business unit here in Indianapolis today. From what I hear, it may be a nationwide move. I imagine this is in response to their announced exit from subprime.

And Greensboro, North Carolina:

[Regarding] the Countrywide/Full Spectrum office in Greensboro, NC. It is a 40-60 a month office. It is closing tomorrow [September 19]. All existing/active deals in this office are moving to the Raleigh office with shut down of that office expected by the end of this month.

Not to mention this news article, which describes the closure of the San Antonio office:

Countrywide Financial Corporation has shuttered its San Antonio office that specialized in subprime lending.

As always, if you can provide additional information, clarifications or corrections to this entry, please let us know.

Original listing from 2007-08-17

It would be remiss of us not to list Countrywide as "ailing". Late last week (Aug 16.), Countrywide drew on an $11.5 billion "emergency" credit line to fund its operations. Earlier in the week, it had announced liquidity problems, reversing the position of a week earlier that it had adequate access to capital.

Countrywide had already dramatically cut back its programs, and is shifting "90%" of its origination to its banking operations. Needless to say, it will not look like the company it has in the past couple years if it survives. By some accounts, Countrywide had gone from a business based approximately 70% on traditional loans around 2003, to one 70% based on subprime and other sorts of marginal loans recently. Looks like it will need to return to its roots to make it.

However, concerns abound as to whether it will pull through, e.g.:

For Joe Mason, an economist and professor of finance at Drexel, the 30-day window is not long enough.

"[Lenders] are going to have to roll that over in 30 days, max," he said. "The problems will take a lot more than 30 days to work out."

Mason also cited Bagehot's rule, a basic banking principle which he explained as the need to distinguish between illiquid and insolvent organizations. "You want to lend to illiquid but not insolvent institutions," he said. Lending to insolvent institutions just enables them to dig themselves an even deeper hole.

To him, that's what seems to be happening.

"I would argue that Countrywide is insolvent. Their only asset is their pricing platform, their business algorithm, and that's not working. The next biggest asset they have is the toner for their copiers."

We would agree: if Countrywide's business did indeed become chiefly based on the sorts of loans that are now seeing accelerating delinquencies, they will find themselves seeing rising losses and expenses at a time of dwindling origination profits—perhaps to terminal effect.

We note that Countrywide has more than 10,000 REOs nationwide as of this writing, with an asking price of $2.2 billion. Assuming an average cost of about $50k in value losses and expenses to dispose of each of these properties, this "portfolio" would represent a potential write-down in excess of $500 million. Q1 2007 net income was $433 million. Recent trends suggest this loss area will only grow over the next year.

Disclosure: The authors have short positions in Countrywide (CFC) as of this writing.