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Treasury 5-year auction results strong; awarded at 4.248%
1:17 PM ET, Aug 30, 2007 - By Lisa Twaronite - 17 minutes ago
SAN FRANCISCO (MarketWatch) --
The Treasury Department awarded $13 billion of five-year notes in its Thursday auction at 4.248%, down from last month's 4.640%. The auction "saw strong sponsorship," according to Action Economics analysts, as the bid-to-cover -- which measures bids received to bids tendered -- was 2.74, up from last month's 2.15.
Treasury 5-year auction results strong; awarded at 4.248%
1:17 PM ET, Aug 30, 2007 - By Lisa Twaronite - 17 minutes ago
SAN FRANCISCO (MarketWatch) --
The Treasury Department awarded $13 billion of five-year notes in its Thursday auction at 4.248%, down from last month's 4.640%. The auction "saw strong sponsorship," according to Action Economics analysts, as the bid-to-cover -- which measures bids received to bids tendered -- was 2.74, up from last month's 2.15.
dirty harry says, well punk was that
the last bullet..do ya feel lucky & buy the dips?/?
ben's throwing in all he has including some on iou's.
Fed.(2) 6day RP + 5.00B [net drain .25B]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Fed.(2) 6day RP + 5.00B [net drain .25B]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
*Fed. 14day RP + 5.00B [net flat sofar
5.25B on deck....
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Public Debt:
Limit ~ $8,965 T
8/28 ~~ $8,984 T * Over the limit again.
*Fed. 14day RP + 5.00B [net flat sofar
5.25B on deck....
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Public Debt:
Limit ~ $8,965 T
8/28 ~~ $8,984 T * Over the limit again.
CFC
07:01 CFC Countrywide: Examining earnings and book value under hostile mortgage market conditions - Credit Suisse (19.81 )
Credit Suisse notes that in light of the hostile financing environment and tumultuous secondary mortgage market conditions, they have reviewed CFC's business model and have dramatically tempered their outlook for the co. Firm is reducing their FY07 est to a loss of $0.58 from $3.00 per share, owing to the sizable disruptions in the financing and secondary markets in the third quarter leading to writedowns of residuals. They expect CFC's mortgage banking profitability, as well as its thrift to suffer a disproportionate share of the decline in earnings. Firm is also revising their FY08 est to $1.60 from $3.75, owing to a sizable decline in originations, continued pressure on mortgage production profitability from lower gain on sale margins and rising credit costs, which should most severely impact Countrywide, FSB.
Nice call Doc, good race!
Treasury 2-year auction results strong; awarded at 4.115%
1:33 PM ET, Aug 29, 2007 -
SAN FRANCISCO (MarketWatch) -- The Treasury Department awarded $18 billion of new two-year notes in its Wednesday auction at 4.115%. The auction results were "very strong," according to Action Economics. The bid-to-cover -- which measures bids received to bids tendered -- of 3.97, "nearly double the 2.59 seen in July and 2.80 achieved in May -- the highest on our records back to April 1991," Action Economics analysts wrote. The indirect bid, a carefully watched category that includes foreign buyers, was 32.5% versus 28.5% last month.
Treasury 2-year auction results strong; awarded at 4.115%
1:33 PM ET, Aug 29, 2007 -
SAN FRANCISCO (MarketWatch) -- The Treasury Department awarded $18 billion of new two-year notes in its Wednesday auction at 4.115%. The auction results were "very strong," according to Action Economics. The bid-to-cover -- which measures bids received to bids tendered -- of 3.97, "nearly double the 2.59 seen in July and 2.80 achieved in May -- the highest on our records back to April 1991," Action Economics analysts wrote. The indirect bid, a carefully watched category that includes foreign buyers, was 32.5% versus 28.5% last month.
CFC
05:31 CFC Why is Countrywide sliding? - WSJ (19.31 )
The Wall Street Journal reports Bank of America's (BAC) $2 bln investment in Countrywide (CFC) last week was supposed to put an end to fears about the financial strength of the nation's largest home-mortgage lender. Investors still don't know how badly Countrywide has been wounded by the recent credit crunch. At a minimum, Countrywide faces a hit to near-term earnings; some analysts expect a loss in the current quarter. At worst, the co could be forced to dump assets at fire-sale prices or seek another emergency infusion of capital, potentially slashing the value of its stock further. "Two billion dollars from Bank of America is not a lot compared to what they may need," says Stuart Plesser, an equity analyst at Standard & Poor's. Frederick Cannon, an analyst at Keefe, Bruyette & Woods, says the total amount of loans waiting to be sold may now top $40 bln, given the current difficulty of finding buyers for many types of loans. Mr. Cannon says it isn't clear what share of the loans can be sold to Fannie and Freddie or how much Countrywide may have to mark down the value of the others. Countrywide also had about $23 bln of "trading securities," mostly mortgage-related, as of June 30. Mr. Cannon worries that some of these also may have lost considerable value. A Countrywide spokesman says the "overwhelming majority" of those securities are backed by Fannie or Freddie or the U.S. government, and there is "no serious impairment" to the portfolio's value. In addition, Countrywide's savings bank held about $15.7 bln of mortgage securities, excluding those guaranteed by Fannie or Freddie, and may have to mark down some, Mr. Cannon adds. The spokesman declined to comment. Analysts can only guess at what the value of Countrywide's holdings might be at the end of the third quarter. But Paul J. Miller Jr. of Friedman, Billings says Countrywide may need to write down $1 bln to $2 bln in the value of loans that don't fit the criteria for sale to Fannie or Freddie. Keefe Bruyette's Mr. Cannon roughly estimates that Countrywide will have a loss of $0.99 in Q3.
Fed. 1day RP + 5.25B [net Add 3.25B]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Fed. 1day RP + 5.25B [net Add 3.25B]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
W@G2 QQQQ 08/29/07 for a 08/31/07 close
47.80 bob3
47.50 rayrohn
47.30 marin
47.00 dr_sean
46.50 anderl
l dono, if U listen talking heads
they seem to think Ben is not acting fast enough...geez give the guy a chance....he has acted as needed but he's not a magician.
Fed. 1day RP + 2.00B [net all add]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Fed. 1day RP + 2.00B [net all add]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Same here, could find No news on auctions
maybe Ander scooped them up. :o)
In some cfcvc oct15p, after all the
research l stll think it tanks..
Waiting, that injection changed
my mind....was going to open puts @.70, damn Fed running the markets again &%#$
Fed. 10day RP + 9.50B [All Add]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Fed. 10day RP + 9.50B [All Add]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
[CFC] Lehman Bros. trims Countrywide 2007 EPS target
8:09 AM ET, Aug 27, 2007 - 53 seconds ago
02. [CFC] Lehman cuts Countrywide '07 EPS target to $1 from $2.80
8:09 AM ET, Aug 27, 2007 - 53 seconds ago
03. [CFC] Lehman cuts Countrywide price target to $28
8:09 AM ET, Aug 27, 2007 - 53 seconds ago
W@G1 QQQQ 08/27/07 for a 08/29/07 close
49.06 frenchee
48.20 DrWorm
47.80 bob3
47.30 marin
Multi post RE CountryWide CFC
*No position Yet
#msg-22371041
Multi post RE CountryWide CFC
*No position Yet
HARDING: Panic Averted - But
by Sy Harding
August 24, 2007
BEING STREET SMART
A week ago Friday the Federal Reserve created excitement when it cut the 'discount rate', the rate that troubled banks pay to borrow money from the Fed. The news ended a scary six-day market plunge. The Dow jumped 233 points on the Fed decision, and a huge sigh of relief could be heard around the country.
However, in the background there was some concern, given the publicity surrounding the credit crunch, that troubled banks would be reluctant to go to the discount window for fear of revealing that they are in trouble. So this week, in a move that had Fed pressure written all over it, four of the largest banks in the nation, Bank of America, CitiGroup, JP Morgan Chase, and Wachovia, stepped up to the window to borrow a total of $2 billion ($500 million each). Unfortunately, that apparently didn't work to remove the stigma of using the discount window. On Thursday the Fed reported that total borrowing at its discount window since its rate cut had been - $2 billion. So much for the assistance to the troubled banking system provided by the discount rate cut.
On Wednesday, in another move that looked like it had Federal Reserve pressure behind it, Bank of America announced a $2 billion investment in troubled national mortgage-provider Countrywide Financial Corp. Bank of America said it was making the investment to bolster confidence among creditors and investors.
The announcement created some early excitement in the financial media and in the stock market, until it was realized that it wasn't as much a vote of confidence in Countrywide as it originally appeared to be. For its $2 billion investment, BankAmerica is getting preferred stock that will pay it a 7.2% yield, more like a high-yield bond, which will bolster its own earnings. And later the preferred stock can be converted to common stock at $18 a share if everything works out for Countrywide and its stock price rises.
However, even that effort ran into a brick wall. In an interview on Thursday, the CEO of Countrywide Financial himself poured icy cold water over the attempt to bolster confidence, saying the current financial situation is among the worst he's seen in 55 years, the current housing slump will lead to a recession, and that there is still a tremendous liquidity problem.
He may be right. This week came reports that real estate foreclosures increased by 9% in July, and are up 93%, almost double, over a year ago. Meanwhile, the U.S. Consumer Comfort Index fell 9 points last week, to minus 20, the sharpest decline in the more than 21 years the poll has been conducted.
It's interesting to see how widely the impact of the bursting of the real estate bubble varies across the country.
Some areas are not surprises. Among the hardest hit with foreclosures have been Nevada (#1 on the list) Arizona , California , Colorado , and Florida , states where the previous housing boom was the hottest. But also making the top ten in foreclosure rates per household are Georgia , Michigan , Ohio , Massachusetts , and Indiana .
It is an indication that economic problems, as well as the bursting of the real estate bubble, are involved. Michigan 's economy for instance has been hard hit by the problems in the auto industry. The city of Detroit showed a 70 percent month over month increase in foreclosures in July, pushing the pace to one in every 97 households, seven times the national average.
In the other direction, hardly impacted at all are New Hampshire , #34 on the foreclosure list, and Vermont #50.
The problems have many lenders unwilling to make loans of any kind for the time being, but particularly those brought to them by outside mortgage brokers. Major banks have been closing those types of operations across the country, and laying off employees. The latest reports show 23,000 employees in the financial services sector have lost their jobs just this month so far.
Caught in the middle are borrowers whose credit record might qualify them for better terms but they are at risk of losing their homes anyway if they can't find a lender willing to refinance their existing mortgages.
It does seem the problems will take time to work out. Meanwhile, the stock market must deal with uncertainties about the economy as well as the continuing problems in the financial industry, not usually a supportive situation.
http://decisionpoint.com/TAC/HARDING.html
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Countrywide CEO: economic outlook grim
August 23 2007: 4:10 PM EDT Edit after market closed.
Countrywide CEO says housing market downturn could lead to a recession, urges cut in Fed discount rate.
NEW YORK (Reuters) -- Countrywide Financial Corp. Chief Executive Angelo Mozilo warned on Thursday that the U.S. housing downturn could lead the country into recession and the Federal Reserve should cut its discount rate to boost liquidity.
In an interview on CNBC television, Mozilo said the housing market is showing no signs of improvement.
There is a "very serious situation going on" in the U.S. housing market, Mozilo said. "This environment is certainly not getting better."
Asked if there would be a recession, Mozilo said: "I think so ... I know I've been proven wrong so far, but I can't believe that when you're having a level of delinquencies, foreclosures - equity has disappeared, equity is gone, the tide has gone out - that this doesn't have a material effect, A, on the psyches of the American people, and eventually on their wallet."
"If you really want to create liquidity, then you should bring the discount window down to the Fed funds rate, so they [banks] can use it without paying more than they would to other banks," Mozilo said in an interview, adding: "A statement by the [Bush] Administration and [Fed Chairman Ben Bernanke] that they are concerned about housing, are paying attention, and won't let it get out of control, has a psychological impact."
Last week, the Federal Reserve cut the discount rate, which it charges banks for short term loans, to 5.75 percent in a move to improve market stability and liquidity. The Fed funds rate, which banks charge for loans to each other, is 5.25.
Others agree more is needed.
"The Fed has cut the discount rate and added liquidity to the markets but those things aren't enough to turn the fundamental market around," said Phil Orlando, chief equity market strategist at Federated Investors in New York. He said the funds rate should be cut to 4.25 percent by year end.
"I've seen this movie before, and the ending of the movie always ends up in some form of recession," Mozilo said. "I can see the economy slowing down substantially enough to give the regulators, the Fed some pause in what's going to happen next."
Mozilo, 68, said markets are in "one of the greatest panics I've ever seen in 55 years in financial services."
Mozilo said he can see the U.S. economy slowing down enough to concern banking regulators about what will happen next. He also called for a temporary lifting of portfolio caps on mortgage companies Fannie Mae (down $1.27 to $68.11, Charts) and Freddie Mac (down $0.66 to $64.23, Charts, Fortune 500), saying "at the very time they're desperately needed to create liquidity for first-time homebuyers, their balance sheet has been capped."
In the interview, Mozilo also accused Merrill Lynch & Co. analyst Kenneth Bruce of "irresponsible behavior" in suggesting in an Aug. 15 research report that downgraded Countrywide to "sell" from "buy" and said that Countrywide might face a possible bankruptcy if market conditions worsen.
At least two analysts this month had said that Countrywide's fate could include bankruptcy.
Merrill Lynch (Charts) spokeswoman Carrie Gray declined to comment and said Bruce was not granting interviews.
"There is no more chance for bankruptcy today for Countrywide than there was six months ago, a year ago, two years ago, and when the stock was $45 a share," Mozilo said. "We're a very solid company."
Going it alone
Countrywide faced a credit shortage this month as mortgage defaults rose and capital markets tightened. On Aug. 16, it announced an unexpected drawdown of an entire $11.5 billion credit line because it had trouble selling short-term debt.
Bank of America Corp. (up $0.25 to $51.90, Charts, Fortune 500) on Wednesday invested $2 billion in Countrywide, buying preferred securities convertible into common stock and helping to shore up the latter's finances.
However the investment also raised speculation that the second-largest U.S. bank might eventually buy Countrywide, which Mozilo helped launch in 1969.
"We've gone it alone for 40 years and can go it alone for another 40 years," he said.
Analysts have said Countrywide might lose mortgage market share to well-diversified commercial banks with deeper balance sheets, including Bank of America, Citigroup Inc. (down $0.07 to $48.36, Charts, Fortune 500), JPMorgan Chase & Co. (down $0.39 to $45.61, Charts, Fortune 500) and Wachovia Corp. (down $0.04 to $49.66, Charts, Fortune 500)
Countrywide held a 17.4 percent market share from January to June, according to the Inside Mortgage Finance newsletter.
Countrywide (up $0.22 to $22.04, Charts, Fortune 500) shares fell about 1 percent while Mozilo spoke. In afternoon trading, they were up more than 1.2 percent on the New York Stock Exchange.
http://money.cnn.com/2007/08/23/news/companies/countrywide_ceo_outlook.reut/index.htm?source=yahoo_q....
-------------------------------
Fed bends rules to help two big banks
By Peter Eavis, Fortune writer
August 24 2007: 5:09 PM EDT
If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.
NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.
The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.
This unusual move by the Fed shows that the largest Wall Street firms are continuing to have problems funding operations during the current market difficulties, according to banking industry skeptics. The Fed's move appears to support the view that even the biggest brokerages have been caught off guard by the credit crunch and don't have financing to deal with the resulting dislocation in the markets. The opposing, less negative view is that the Fed has taken this step merely to increase the speed with which the funds recently borrowed at the Fed's discount window can flow through to the bond markets, where the mortgage mess has caused a drying up of liquidity.
On Wednesday, Citibank and Bank of America said that they and two other banks accessed $500 million in 30-day financing at the discount window. A Citigroup spokesperson declined to comment. Bank of America dismissed the notion that Banc of America Securities is not well positioned to fund operations without help from the federally insured bank. "This is just a technicality to allow us to use our regular channels of business with funds from the Fed's discount window," says Bob Stickler, spokesperson for Bank of America. "We have no current plans to use the discount window beyond the $500 million announced earlier this week."
There is a good chance that other large banks, like J.P. Morgan (Charts, Fortune 500), have been granted similar exemptions. The Federal Reserve and J.P. Morgan didn't immediately comment.
The regulations in question effectively limit a bank's funding exposure to an affiliate to 10% of the bank's capital. But the Fed has allowed Citibank and Bank of America to blow through that level. Citigroup and Bank of America are able to lend up to $25 billion apiece under this exemption, according to the Fed. If Citibank used the full amount, "that represents about 30% of Citibank's total regulatory capital, which is no small exemption," says Charlie Peabody, banks analyst at Portales Partners.
The Fed says that it made the exemption in the public interest, because it allows Citibank to get liquidity to the brokerage in "the most rapid and cost-effective manner possible."
So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle.
Sure, the temporary nature of the move makes it look slightly less serious, but the Fed didn't give a date in the letter for when this exemption will end. In addition, the sheer size of the potential lending capacity at Citigroup and Bank of America - $25 billion each - is a cause for unease.
Indeed, this move to exempt Citigroup casts a whole new light on the discount window borrowing that was revealed earlier this week. At the time, the gloss put on the discount window advances was that they were orderly and almost symbolic in nature. But if that were the case, why the need to use these exemptions to rush the funds to the brokerages?
Expect the discount window borrowings to become a key part of the Fed's recovery strategy for the financial system. The Fed's exemption will almost certainly force its regulatory arm to sharpen its oversight of banks' balance sheets, which means banks will almost certainly have to mark down asset values to appropriate levels a lot faster now. That's because there is no way that the Fed is going to allow easier funding to lead to a further propping up of asset prices.
Don't forget: The Federal Reserve is in crisis management at the moment. However, it doesn't want to show any signs of panic. That means no rushed cuts in interest rates. It also means that it wants banks to quickly take the big charges that will inevitably come from holding toxic debt securities. And it will do all it can behind the scenes to work with the banks to help them get through this upheaval. But waiving one of the most important banking regulations can only add nervousness to the market. And that's what the Fed did Monday in these disturbing letters to the nation's two largest banks.
http://money.cnn.com/2007/08/24/magazines/fortune/eavis_citigroup.fortune/?postversion=2007082417
---------------------------------
Inside the Countrywide Lending Spree
By GRETCHEN MORGENSON
Published: August 26, 2007
ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. “I want to be sure you are getting the best loan possible,” the sales representatives would say.
But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.
Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.
Now, with the entire mortgage business on tenterhooks and industry practices under scrutiny by securities regulators and banking industry overseers, Countrywide’s money machine is sputtering. So far this year, fearful investors have cut its stock in half. About two weeks ago, the company was forced to draw down its entire $11.5 billion credit line from a consortium of banks because it could no longer sell or borrow against home loans it has made. And last week, Bank of America invested $2 billion for a 16 percent stake in Countrywide, a move that came amid speculation that Countrywide’s survival was in question and that it had become a takeover target — notions that Countrywide publicly disputed.
Homeowners, meanwhile, drawn in by Countrywide sales scripts assuring “the best loan possible,” are behind on their mortgages in record numbers. As of June 30, almost one in four subprime loans that Countrywide services was delinquent, up from 15 percent in the same period last year, according to company filings. Almost 10 percent were delinquent by 90 days or more, compared with last year’s rate of 5.35 percent.
Many of these loans had interest rates that recently reset from low teaser levels to double digits; others carry prohibitive prepayment penalties that have made refinancing impossibly expensive, even before this month’s upheaval in the mortgage markets.
To be sure, Countrywide was not the only lender that sold questionable loans with enormous fees during the housing bubble. And as real estate prices soared, borrowers themselves proved all too eager to participate, even if it meant paying high costs or signing up for a loan with an interest rate that would jump in coming years.
But few companies benefited more from the mortgage mania than Countrywide, among the most aggressive home lenders in the nation. As such, the company is Exhibit A for the lax and, until recently, highly lucrative lending that has turned a once-hot business ice cold and has touched off a housing crisis of historic proportions.
“In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.”
Started as Countrywide Credit Industries in New York 38 years ago by Angelo R. Mozilo, a butcher’s son from the Bronx, and David Loeb, a founder of a mortgage banking firm in New York, who died in 2003, the company has become a $500 billion home loan machine with 62,000 employees, 900 offices and assets of $200 billion. Countrywide’s stock price was up 561 percent over the 10 years ended last December.
Mr. Mozilo has ridden this remarkable wave to immense riches, thanks to generous annual stock option grants. Rarely a buyer of Countrywide shares — he has not bought a share since 1987, according to Securities and Exchange Commission filings — he has been a huge seller in recent years. Since the company listed its shares on the New York Stock Exchange in 1984, he has reaped $406 million selling Countrywide stock.
As the subprime mortgage debacle began to unfold this year, Mr. Mozilo’s selling accelerated. Filings show that he made $129 million from stock sales during the last 12 months, or almost one-third of the entire amount he has reaped over the last 23 years. He still holds 1.4 million shares in Countrywide, a 0.24 percent stake that is worth $29.4 million.
“Mr. Mozilo has stated publicly that his current plan recognizes his personal need to diversify some of his assets as he approaches retirement,” said Rick Simon, a Countrywide spokesman. “His personal wealth remains heavily weighted in Countrywide shares, and he is, by far, the leading individual shareholder in the company.”
Mr. Simon said that Mr. Mozilo and other top Countrywide executives were not available for interviews. The spokesman declined to answer a list of questions, saying that he and his staff were too busy.
A former sales representative and several brokers interviewed for this article were granted anonymity because they feared retribution from Countrywide.
AMONG Countrywide’s operations are a bank, overseen by the Office of Thrift Supervision; a broker-dealer that trades United States government securities and sells mortgage-backed securities; a mortgage servicing arm; a real estate closing services company; an insurance company; and three special-purpose vehicles that issue short-term commercial paper backed by Countrywide mortgages.
Last year, Countrywide had revenue of $11.4 billion and pretax income of $4.3 billion. Mortgage banking contributed mightily in 2006, generating $2.06 billion before taxes. In the last 12 months, Countrywide financed almost $500 billion in loans, or around $41 billion a month. It financed 177,000 to 240,000 loans a month during the last 12 months.
Countrywide lends to both prime borrowers — those with sterling credit — and so-called subprime, or riskier, borrowers. Among the $470 billion in loans that Countrywide made last year, 45 percent were conventional nonconforming loans, those that are too big to be sold to government-sponsored enterprises like Fannie Mae or Freddie Mac. Home equity lines of credit given to prime borrowers accounted for 10.2 percent of the total, while subprime loans were 8.7 percent.
Regulatory filings show that, as of last year, 45 percent of Countrywide’s loans carried adjustable rates — the kind of loans that are set to reprice this fall and later, and which are causing so much anxiety among borrowers and investors alike. Countrywide has a huge presence in California: 46 percent of the loans it holds on its books were made there, and 28 percent of the loans it services are there. Countrywide packages most of its loans into securities pools that it sells to investors.
Another big business for Countrywide is loan servicing, the collection of monthly principal and interest payments from borrowers and the disbursement of them to investors. Countrywide serviced 8.2 million loans as of the end of the year; in June the portfolio totaled $1.4 trillion. In addition to the enormous profits this business generates — $660 million in 2006, or 25 percent of its overall earnings — customers of the Countrywide servicing unit are a huge source of leads for its mortgage sales staff, say former employees.
In a mid-March interview on CNBC, Mr. Mozilo said Countrywide was poised to benefit from the spreading crisis in the mortgage lending industry. “This will be great for Countrywide,” he said, “because at the end of the day, all of the irrational competitors will be gone.”
But Countrywide documents show that it, too, was a lax lender. For example, it wasn’t until March 16 that Countrywide eliminated so-called piggyback loans from its product list, loans that permitted borrowers to buy a house without putting down any of their own money. And Countrywide waited until Feb. 23 to stop peddling another risky product, loans that were worth more than 95 percent of a home’s appraised value and required no documentation of a borrower’s income.
As recently as July 27, Countrywide’s product list showed that it would lend $500,000 to a borrower rated C-minus, the second-riskiest grade. As long as the loan represented no more than 70 percent of the underlying property’s value, Countrywide would lend to a borrower even if the person had a credit score as low as 500. (The top score is 850.)
The company would lend even if the borrower had been 90 days late on a current mortgage payment twice in the last 12 months, if the borrower had filed for personal bankruptcy protection, or if the borrower had faced foreclosure or default notices on his or her property.
Such loans were made, former employees say, because they were so lucrative — to Countrywide. The company harvested a steady stream of fees or payments on such loans and busily repackaged them as securities to sell to investors. As long as housing prices kept rising, everyone — borrowers, lenders and investors — appeared to be winners.
One former employee provided documents indicating Countrywide’s minimum profit margins on subprime loans of different sizes. These ranged from 5 percent on small loans of $100,000 to $200,000 to 3 percent on loans of $350,000 to $500,000. But on subprime loans that imposed heavy burdens on borrowers, like high prepayment penalties that persisted for three years, Countrywide’s margins could reach 15 percent of the loan, the former employee said.
Regulatory filings show how much more profitable subprime loans are for Countrywide than higher-quality prime loans. Last year, for example, the profit margins Countrywide generated on subprime loans that it sold to investors were 1.84 percent, versus 1.07 percent on prime loans. A year earlier, when the subprime machine was really cranking, sales of these mortgages produced profits of 2 percent, versus 0.82 percent from prime mortgages. And in 2004, subprime loans produced gains of 3.64 percent, versus 0.93 percent for prime loans.
One reason these loans were so lucrative for Countrywide is that investors who bought securities backed by the mortgages were willing to pay more for loans with prepayment penalties and those whose interest rates were going to reset at higher levels. Investors ponied up because pools of subprime loans were likely to generate a larger cash flow than prime loans that carried lower fixed rates.
As a result, former employees said, the company’s commission structure rewarded sales representatives for making risky, high-cost loans. For example, according to another mortgage sales representative affiliated with Countrywide, adding a three-year prepayment penalty to a loan would generate an extra 1 percent of the loan’s value in a commission. While mortgage brokers’ commissions would vary on loans that reset after a short period with a low teaser rate, the higher the rate at reset, the greater the commission earned, these people said.
Persuading someone to add a home equity line of credit to a loan carried extra commissions of 0.25 percent, according to a former sales representative.
“The whole commission structure in both prime and subprime was designed to reward salespeople for pushing whatever programs Countrywide made the most money on in the secondary market,” the former sales representative said.
CONSIDER an example provided by a former mortgage broker. Say that a borrower was persuaded to take on a $1 million adjustable-rate loan that required the person to pay only a tiny fraction of the real interest rate and no principal during the first year — a loan known in the trade as a pay option adjustable-rate mortgage. If the loan carried a three-year prepayment penalty requiring the borrower to pay six months’ worth of interest at the much higher reset rate of 3 percentage points over the prevailing market rate, Countrywide would pay the broker a $30,000 commission.
When borrowers tried to reduce their mortgage debt, Countrywide cashed in: prepayment penalties generated significant revenue for the company — $268 million last year, up from $212 million in 2005. When borrowers had difficulty making payments, Countrywide cashed in again: late charges produced even more in 2006 — some $285 million.
The company’s incentive system also encouraged brokers and sales representatives to move borrowers into the subprime category, even if their financial position meant that they belonged higher up the loan spectrum. Brokers who peddled subprime loans received commissions of 0.50 percent of the loan’s value, versus 0.20 percent on loans one step up the quality ladder, known as Alternate-A, former brokers said. For years, a software system in Countrywide’s subprime unit that sales representatives used to calculate the loan type that a borrower qualified for did not allow the input of a borrower’s cash reserves, a former employee said.
A borrower who has more assets poses less risk to a lender, and will typically get a better rate on a loan as a result. But, this sales representative said, Countrywide’s software prevented the input of cash reserves so borrowers would have to be pitched on pricier loans. It was not until last September that the company changed this practice, as part of what was called in an internal memo the “Do the Right Thing” campaign.
According to the former sales representative, Countrywide’s big subprime unit also avoided offering borrowers Federal Housing Administration loans, which are backed by the United States government and are less risky. But these loans, well suited to low-income or first-time home buyers, do not generate the high fees that Countrywide encouraged its sales force to pursue.
A few weeks ago, the former sales representative priced a $275,000 loan with a 30-year term and a fixed rate for a borrower putting down 10 percent, with fully documented income, and a credit score of 620. While a F.H.A. loan on the same terms would have carried a 7 percent rate and 0.125 percentage points, Countrywide’s subprime loan for the same borrower carried a rate of 9.875 percent and three additional percentage points.
The monthly payment on the F.H.A. loan would have been $1,829, while Countrywide’s subprime loan generated a $2,387 monthly payment. That amounts to a difference of $558 a month, or $6,696 a year — no small sum for a low-income homeowner.
“F.H.A. loans are the best source of financing for low-income borrowers,” the former sales representative said. So Countrywide’s subprime lending program “is not living up to the promise of providing the best loan programs to its clients,” he said.
Mr. Simon of Countrywide said that Federal Housing Administration loans were becoming a bigger part of the company’s business.
“While they are very useful to some borrowers, F.H.A./V.A. mortgages are extremely difficult to originate in markets with above-average home prices, because the maximum loan amount is so low,” he said. “Countrywide believes F.H.A./V.A. loans are an increasingly important part of its product menu, particularly for the homeownership hopes of low- to moderate-income and minority borrowers we have concentrated on reaching and serving.”
WORKDAYS at Countrywide’s mortgage lending units centered on an intense telemarketing effort, former employees said. It involved chasing down sales leads and hewing to carefully prepared scripts during telephone calls with prospects.
One marketing manual used in Countrywide’s subprime unit during 2005, for example, walks sales representatives through the steps of a successful call. “Step 3, Borrower Information, is where the Account Executive gets on the Oasis of Rapport,” the manual states. “The Oasis of Rapport is the time spent with the client building rapport and gathering information. At this point in the sales cycle, rates, points, and fees are not discussed. The immediate objective is for the Account Executive to get to know the client and look for points of common interest. Use first names with clients as it facilitates a friendly, helpful tone.”
If clients proved to be uninterested, the script provided ways for sales representatives to be more persuasive. Account executives encountering prospective customers who said their mortgage had been paid off, for instance, were advised to ask about a home equity loan. “Don’t you want the equity in your home to work for you?” the script said. “You can use your equity for your advantage and pay bills or get cash out. How does that sound?”
Other documents from the subprime unit also show that Countrywide was willing to underwrite loans that left little disposable income for borrowers’ food, clothing and other living expenses. A different manual states that loans could be written for borrowers even if, in a family of four, they had just $1,000 in disposable income after paying their mortgage bill. A loan to a single borrower could be made even if the person had just $550 left each month to live on, the manual said.
Independent brokers who have worked with Countrywide also say the company does not provide records of their compensation to the Internal Revenue Service on a Form 1099, as the law requires. These brokers say that all other home lenders they have worked with submitted 1099s disclosing income earned from their associations.
One broker who worked with Countrywide for seven years said she never got a 1099.
“When I got ready to do my first year’s taxes I had received 1099s from everybody but Countrywide,” she said. “I called my rep and he said, ‘We’re too big. There’s too many. We don’t do it.’ ”
A different broker supplied an e-mail message from a Countrywide official stating that it was not company practice to submit 1099s. It is unclear why Countrywide apparently chooses not to provide the documents. Countrywide boasts that it is the No. 1 lender to minorities, providing those borrowers with their piece of the American homeownership dream. But it has run into problems with state regulators in New York, who contended that the company overcharged such borrowers for loans. Last December, Countrywide struck an agreement with Eliot Spitzer, then the state attorney general, to compensate black and Latino borrowers to whom it had improperly given high-cost loans in 2004. Under the agreement, Countrywide, which cooperated with the attorney general, agreed to improve its fair-lending monitoring activities and set up a $3 million consumer education program.
But few borrowers of any sort, even the most creditworthy, appear to escape Countrywide’s fee machine. When borrowers close on their loans, they pay fees for flood and tax certifications, appraisals, document preparation, even charges associated with e-mailing documents or using FedEx to send or receive paperwork, according to Countrywide documents. It’s a big business: During the last 12 months, Countrywide did 3.5 million flood certifications, conducted 10.8 million credit checks and 1.3 million appraisals, its filings show. Many of the fees go to its loan closing services subsidiary, LandSafe Inc.
According to dozens of loan documents, LandSafe routinely charges tax service fees of $60, far above what other lenders charge, for information about any outstanding tax obligations of the borrowers. Credit checks can cost $36 at LandSafe, double what others levy. Some Countrywide loans even included fees of $100 to e-mail documents or $45 to ship them overnight. LandSafe also charges borrowers $26 for flood certifications, for which other companies typically charge $12 to $14, according to sales representatives and brokers familiar with the fees.
LAST April, Countrywide customers in Los Angeles filed suit against the company in California state court, contending that it overcharged borrowers by collecting unearned fees in relation to tax service fees and flood certification charges. These markups were not disclosed to borrowers, the lawsuit said.
Appraisals are another profit center for Countrywide, brokers said, because it often requires more than one appraisal on properties, especially if borrowers initially choose not to use the company’s own internal firm. Appraisal fees at Countrywide totaled $137 million in 2006, up from $110 million in the previous year. Credit report fees were $74 million last year, down slightly from 2005.
All of those fees may soon be part of what Countrywide comes to consider the good old days. The mortgage market has cooled, and so have the company’s fortunes. Mr. Mozilo remains undaunted, however.
In an interview with CNBC on Thursday, he conceded that Countrywide’s balance sheet had to be strengthened. “But at the end of the day we could be doing very substantial volumes for high-quality loans,” he said, “because there is nobody else in town.”
http://www.nytimes.com/2007/08/26/business/yourmoney/26country.html?_r=1&adxnnl=1&oref=slogi...
-----------------------------
* Biding limit CFCVC Oct 15p @ .50
US$: Dark side of the moon
Dollar Falls on Reduced Concern Housing Will Slow Global Growth
By Bo Nielsen
Aug. 25 (Bloomberg) -- The dollar fell the most against the euro since March on diminished concern that U.S. housing weakness will slow global growth.
The yen posted its biggest weekly decline versus the euro since 2003 as investors returned to carry trades in which they borrow in Japan to invest in higher-yielding assets elsewhere. Global stocks rose and volatility fell as traders increased bets the Federal Reserve will cut rates in September.
``Things are calming down sufficiently enough for the market to go back to the trades that dominated prior to the shake-out: buying other currencies against the yen and selling the dollar,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, with about $250 million in funds under management.
The dollar dropped 1.5 percent this week to $1.3675 per euro, for the biggest weekly decline since mid-March. The dollar rose 1.8 percent to 116.44 yen. The yen plummeted 3.4 percent to 159.26 per euro, for the biggest loss since September 2003.
``People are calmer because they expect the Fed will cut rates in September,'' said Mark Meadows, a strategist at currency-trading company Tempus Consulting Inc. in Washington.
The yen advanced last week by the most against the euro since 2000 as the subprime mortgage crisis spread through global credit markets, spurring investors to sell riskier assets funded by loans made in Japan.
Housing Report
Purchases of new U.S. homes unexpectedly rose 2.8 percent to an annual pace of 870,000 last month, the Commerce Department said yesterday. The level exceeded the highest estimate in a Bloomberg News survey of 73 economists.
The Standard & Poor's 500 Index rose 2.3 percent for the week, the biggest gain since March. The Chicago Board Options Exchange's VIX index of stock volatility fell to 20.70 this week after reaching 37.50, the highest since 2002, on Aug. 16, the day before the Fed cut the discount rate it charges banks.
Interest rate futures show traders are certain the Fed will cut its 5.25 percent target rate for overnight loans between banks at least a quarter-percentage point by its Sept. 18 meeting. Bets a month ago suggested a 10 percent chance of a rate cut.
Goldman Sachs Group Inc. and Merrill Lynch & Co. cut their forecasts for the dollar this week. Goldman said the dollar will weaken to a record of $1.43 in three to six months, from a previous estimate of $1.35. Merrill forecast $1.40 by December, compared with $1.36 before last week.
2007 Economic Growth
``The fundamental picture has deteriorated quite materially for the dollar,'' said Jens Nordvig, a New York- based analyst for Goldman Sachs.
The dollar reached an all-time low of $1.3852 on July 24.
The U.S. economy is forecast to expand 2 percent this year, according to a Bloomberg News survey published Aug. 9. That's 0.1 percent lower than the July forecast.
The yen dropped against all of the 16 most active currencies this week as traders returned to carry trades after the Bank of Japan on Aug. 23 kept its benchmark borrowing cost at 0.5 percent, the lowest among major economies.
Japan's key rate compares with 4 percent in the euro region, 11.5 percent in Brazil and 8.25 percent in New Zealand. The Swiss franc, another source of funding for the carry trade, fell 0.9 percent against the euro this week. Switzerland's benchmark rate is 2.5 percent.
To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net
Last Updated: August 25, 2007 00:50 EDT
US$ retracing recent gains
Fed Ops: 5.00B Matures this week.
Thu: 5.00B 14day
Float: 19.00B
===================================================
Temp Ops:
Perm Ops:
=========================================================
Public Debt:
Limit ~ $8,965,000,000,000.00 T
8/23 ~~ $8,980,175,548,008.47 T
http://www.treasurydirect.gov/NP/BPDLogin?application=np
Fed Ops: 5.00B Matures this week.
Thu: 5.00B 14day
Float: 19.00B
===================================================
Temp Ops:
Perm Ops:
=========================================================
Public Debt:
Limit ~ $8,965,000,000,000.00 T
8/23 ~~ $8,980,175,548,008.47 T
http://www.treasurydirect.gov/NP/BPDLogin?application=np
Don Coxe: Financial Vasectomy
Audio program from Thursday
http://events.startcast.com/events/199/B0003/#
Run time 32min
Don Coxe: Financial Vasectomy
Audio program from Thursday
http://events.startcast.com/events/199/B0003/#
Run time 32min
Sean, if it get's there we both
have a new position...but stink bids prolly not today. barely moved since we first talked about the trade.
Total puts added past 2hrs 2500.
Sean we agree again, l'm pondering
CFCVC oct 15s puts very attractive now @ .70
BAC has the pref shares & this pos can still tank IMO.
Keep up the contacts, my Grandson has 1 more
yr & had made lots of contacts past 2 summers in Cooperstown, NY ( Baseball Hall of Fame ) where he does tech theater, the building & rigging shows.
He met a big shot who told him to come see him but no details or chat till he has Degree in hand.
I agree, just a random non-event
or a build toward EOM action / keeping guide lines of debt limits.
BTW how did ur interviews go ???