Countrywide’s Bombshell
Countrywide Financial Corp., the biggest U.S. mortgage lender, saw its shares drop by more than 10% earlier today (the worst performance in the S&P 500) after the lender said overdue payments reduced second-quarter profit by $388 million. CNNMoney quoted CEO Angelo Mozilo as saying, “Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories.” The third straight quarterly earnings decline for the lender decline adds to signs that late payments on consumer loans are spreading from subprime borrowers (those with poor/limited credit histories) to people with more reliable repayment records, according to Bloomberg today. A June 14 report issued by the Mortgage Bankers Association showed that loans held by prime borrowers entered foreclosure at a record pace in the first quarter of 2007.
Countrywide’s CEO Angelo Mozilo went on to say in an afternoon conference call that, “We are experiencing home price depreciation almost like never before, with the exception of the Great Depression.” According to Forbes, Mozilo told Wall Street analysts in the phone call that, “This is a huge battleship and it’s headed in the wrong direction.” Lawrence Yun, a National Association of Realtors economist, said that the median U.S. home price is forecast to fall 1.4% to $218,800 this year, the first national decline since the Great Depression in the 1930s. In addition, declining home values make it difficult for people with adjustable rate mortgages, whose payments are increasing, to refinance or sell the property.
Mozilo said the U.S. housing market won’t recover until 2009, according to Liz Rappaport of TheStreet. “Nobody saw this coming,” he claimed.
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