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Wednesday, July 25, 2007


prime loan problems

countrywide, one of the largest of the subprime lenders, is reporting seeing default rates jump in its prime portfolio.

Countrywide Financial Corp. helped trigger a Wall Street sell-off Tuesday when it said that a growing number of customers once considered to be good credit risks were having trouble making their mortgage payments.

Until recently, such problems had been almost exclusively limited to the so-called sub-prime market, for borrowers with flawed credit records and high-cost mortgages.

But Countrywide, the nation's biggest home loan company, reported Tuesday that it was seeing more of its good-credit "prime" borrowers do the same.

"The spillover into prime, I don't think, is something that should shock anybody," Angelo Mozilo, Countrywide's chief executive, said in a three-hour conference call with investors and analysts to report second-quarter earnings.

The Calabasas-based company said payments were at least 30 days late at the end of the second quarter on 3.4% of prime first mortgages, up from 2.1% a year earlier.

The delinquency rate was worse among borrowers of prime home-equity loans — second mortgages — who missed payments at a rate of 4.6%. That was up from 1.8% a year earlier.

Sub-prime delinquencies also worsened sharply in the quarter, Countrywide said. Payments were late on 23.7% of sub-prime mortgages, up from 15.3% in the same period in 2006.

"Probably the most disheartening thing about Countrywide's results was the extent to which its weak performance in the second quarter reflected deterioration in prime home-equity loans, rather than exclusively sub-prime credit," said Kathy Shanley, a senior investment grade analyst at Gimme Credit, a New York-based corporate bond research firm. She rated the company's bonds as "deteriorating."

nonetheless, it shocked a lot of people who have spent their time dreaming up ways in which the housing depression would constitute no threat to their investment portfolio. countrywide shares tanked on the news, and the market generally shed a couple percent. they guessed at a bottom in housing somewhere out in 2009, but anything they might predict so far from now constitutes little more than reading animal entrails.

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