Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Losses Threaten Countrywide Deal


Capital position threatened by lower payment options.

Mounting losses in Countrywide's (CFC) mortgage portfolio are putting the completion of its takeover by Bank of America (BAC) in question.

In Countrywide's 10K, filed last Friday, the company detailed the abysmal performance of option adjustable-rate mortgages, or Option ARMs. Option ARMs allow borrowers to choose between monthly payment options, the lowest of which result in principal being added to the balance of the loan, known as negative amortization (see number five).

Option ARMs more than 90 days delinquent increased to 5.4%, up 900% from a year ago. In Countrywide's $28 billion Option ARM portfolio, 71% of borrowers are only making the minimum payment and 80% of the loans did not require borrowers to verify their income.

$87 billion of the company's entire mortgage portfolio is backed by loans in either California or Florida

The Wall Street Journal notes higher than expected losses on home equity loans have forced loan servicers to trap repayments to protect bond investors. Countrywide is obligated to continue advancing borrowers' requested funds, further pressuring its capital position. The firm claims this situation was "deemed remote" until late 2007, and that its "maximum obligation cannot be defined."

Countrywide's already shedding assets, likely beginning with its REO portfolio of thousands of bank owned properties. The true value of REO assets is widely unknown, and forced selling may cause banks like Washington Mutual (WM) that hold vast quantities of this paper to incur additional losses. Shareholders will experience more pain, but eliminating this rot is one of the first steps to repairing the industry's balance sheets.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos