I went to the Countrywide event yesterday at the La Costa Resort and Spa - for those who haven't seen the $140 million remodel of the Resort yet, go by and take a look - they did a nice job.
Today's presentation was in the new ballroom, and about 250 realtors and mortgage originators were in attendance.
The main speaker was Brian Hale, President, Consumer Markets Division for Countrywide Home Loans, Inc. Here is his biography:
http://about.countrywide.com/bios/Biography.aspx?CtlID=22
He is touring the country, speaking to agents in order to set the record straight, or at least reach out in person to explain the mortgage situation from their perspective. I was glad to see it - at least they are making an effort to defend themselves, and tell their side of the story.
He acknowledged the negative press, and went on for at least an hour about his thoughts and feelings about Countrywide, and their future - then he took some questions.
Here are my random notes:
They are the 8th largest bank in the country, with $138 billion in bank assets - and that number increased by $30 billion in the last 60 days. They have 'excess liquidity' currently, their loan volume is less than their intake on CDs.
They are funding all mortgages out of the bank, and keeping their jumbo loans in their portfolio until there are adequate funding sources - places to sell the loans.
CFC has 64,000 employees.
In his division, Mr. Hale has had to cut 3,600 jobs and lower his budget by $340 million.
Predicts that of the loans funded in his division next year, 15% to 20% will be for purchasing an REO property. It used to be 2%.
Countrywide Bank had just changed to a savings and loan, overseen by a different regulator - the OTS - in June of this year. The jumbo money dried up the second week of August after Bear Stearns and others began writing off billions of dollars in losses. Countrywide was forced to scramble, and convert their loan documents over to the Bank in just two days, to keep their fundings on-going.
The $11 billion credit line that they were ridiculed for tapping (in full) was an emergency line that they have paid $10 million per year to maintain - just in case of an event like this.
37 states have no licensing requirements for mortgage brokers.
The new guidelines that were implemented in February, 2007, eliminated 15% to 20% of the buyers at that time.
http://www.ofheo.gov/media/pdf/PRGuidance121306.pdf
There were pools of mortgages created in 2006 where 40% of the borrowers didn't make the first payment - mostly due to fraud.
Countrywide Bank is efficient, they only have 1,100 employees, and they utilize ATM's, kiosks in Countrywide retail-loan-processing locations, and good internet service. US Bank, a similar-sized bank ($136 billion) has 61,000 employees.
The average age of the Bank's depositor is 67 years old - rate shoppers.
There are 1,000 changes coming to Fannie Mae and Freddie Mac underwriting guidelines - mostly "add-ons", extra charges for any reason outside of the perfect loan/borrower. They are going to price-in all the risk (or at least as much as possible).
All big banks will eliminate their wholesale/broker divisions and fund retail operations only, due to the weak quality of loans/high delinquency.
Bill Dallas, founder of both First Franklin and OwnIt Mortgage (both acquired by Merrill Lynch - one mortgage executive said that some Merrill officials are calling its $100 million investment in OwnIt one of the worst investments the mortgage group has ever made...) - the Countrywide guy didn't mention this, I brought it up because I am still shaking my head as to why Merrill made this deal - I'd like to meet this Bill Dallas guy someday.
Anyway, Bill Dallas said there were 57,000 mortgage brokerage operations in the US, employing on average around 7 people. He predicted that half would be out of business in 12 months, and half of the other half in the following 12 months. (or 300,000 total out of the business - with 100,000 left throughout the country)
Six states have passed laws that include criminal penalties and jail time for realtors and mortgage brokers that do things that aren't in the buyer's interest. The first state to try and pass a similar law, Massachusetts, was threatened by Countrywide and other lenders that they would stop funding loans in the state. But Massachusetts went ahead with the law. There is a version currently in the California State Legislature, and if passed, Arnold will sign it.
The future of residential lending is that seven banks; Bank of America, Countrywide, Chase, Citi, Wachovia, Washington Mutual, and Wells Fargo will fund plain vanilla loans that are dictated by Fannie/Freddie guidelines, plus jumbo loans for their portfolio - and may sell those when the market appears.
$90 Billion written off by banks so far, and expect $480 Billion total over the next five years.
VA is doing Jumbo loans now (higher than their limit of $417,000) - I was scratching my head on this one.
The FBI has made mortgage fraud their number on goal for the next three years, and they are cracking down. He knew of a loan originator who was a single mom of five kids whowas making $2 million a year in commissions and was busted by the FBI over a $100,000 fraudulent loan she did, and is facing 77 years in jail.
He thinkgs it is very likely that FHA limits will rise to $417,000 soon, and that FHA is the future.
He also believes that the Fannie/Freddie limit increases were brought up at a bad time, and they had no choice but to deny them. But he thought we'd see it again, and it would eventually be passed - maybe even up to the $1 million Fannie loan.
Countrywide Bank has $38 Billion in excess capacity, and another $18 Billion in cash - I'm not sure what the difference is.
Could some outside entity purchase Countrywide? The stock closed at $12.51 today, and he said the book value is $24 - some overseas company could get interested at some point, but he knew of none. He re-iterated that Bank of America was not a candidate, due to their recent purchase of LaSalle Bank - resulting in BofA having to divest itself of branches to lower their total deposits under the required 10% of the total bank deposits in the country.
Countrywide has $1.5 trillion in loans in its portfolio.
Arizona and Nevada real estate will be hit a lot worse than California.
He thought the Fed would be forced to lower their Fed Funds rate by 150 basis points by spring, which could put the 10-year Treasury around 3%, and mortgage rates in the 5% to 5.5% range. He discussed some of the "unevenness" of the spread between the 10-year and mortgage rates, admitting that lagging on rate changes is a profit center. The lower rates would "stabilize the drop".
Answers to questions from the audience:
He didn't know enough about the Bush rate-freeze, but said that Countrywide has already been doing modifications. From what he could tell, the rate-freeze wasn't that well thought out, and probably wouldn't be used much. He believed that borrowers will need to provide income documentation (tax returns on all candidates), and borrowers will have to sign a form stating that their income/verification is accurate and true under penalty of $10,000 and 2 years in jail. He didn't think many will sign that.
They've added 2,500 employees to loan administration for short sales.
Reverse mortgages for senoirs are growing 80% annually.
Called Cramer a "snapperhead', but pointed out that even Cramer recommends to NOT try and time the stock market - same thing with real estate, buy a property because it suits other needs - shelter, security, safety, and schools.
Mortgage Bankers Association said there were 530,000 loan originators at the peak, there are under 200,000 now, and by next year will be around 125,000.
Countrywide and other lenders will start foregoing any collection of HELOCs if it'll help them get the first mortgage under the Fannie Mae limit of $417,000 for a refinance.
Last question - from me, I asked him to comment on the $51 billion they got from the Atlanta Fed, and he said that the Atlanta Fed is their regional location due to Countrywide Bank being chartered in Virginia (sounded like they bought an existing bank). Sen. Schumer made a big stink on Capitol Hill, issuing a press release that said, "“Countrywide is treating the Federal Home Loan Bank system like its personal ATM”.
The head of the Atlanta Fed wrote back, stating that Countrywide was in full compliance, and that the Atlanta Fed knew how to conduct their business and for Sen. Schumer to keep his big nose out of it. Countrywide was never close to their limit of borrowing with the Fed. It kind of felt like he was dodging the question.
Then we heard from Hank Lopez, from the Home Retention division (formerly Loss Mitigation Department)
He said it is taking 4-6 weeks to get an answer once you send in a full package to Countrywide on a short sale - include the offer to purchase.
You don't have to be delinquent to get a short sale. (hard to believe)
They don't start processing a notice of default until at least 90 days late.
They have gone paperless, and once you send a full package in, it takes them 5-7 days to download it onto their systemt, then assign it to a processor. Each processor has 100-150 files thet are working on at one time.
They are receiving 400 new short sales packages every day.
They are processing around 60,000 files currently in loss mitigation, 2/3 foreclosures, and 1/3 short sales.
For every short sale they resolve, three more are coming in.
(they are buried, lots of complaints from audience members - but others spoke in glowing terms)
He said the difference in response times is due to dealing with different investors - and their unique criteria/work load.
They are issuing a promissory note if they feel the borrower has means, though they charge no interest and they are un-secured notes. They aren't doing any asset searches either.
They are not evicting any non-paying borrowers, and aren't loading up additional junk fees for doing short sales.
All in all, it was very informative and rather revealing - I give the guys credit for at least laying it on the line. There wasn't any boasting, or guarantees that they were going to make it - just lots of confidence that they are doing the right things and picking up market share.
One point that Hale dwelled on was that mortgage brokers are cooked, and that in the near future there will be primarily retail bank employees funding in-house loans, plus a few stragglers. He expects to keep hiring the good brokers, he has over 200 in the hiring process currently.