Countrywide Chairman tells Homeowners they are Disgusting

Countrywide Financial Corp. Chairman Angelo Mozilo reaped $132 million as the mortgage lender got hammered in 2007. It appears this wad of cash has not made him appreciative of his customers; he views homeowners as “disgusting”.

Apparently Mozilo does not know the difference between the reply and forward buttons, setting the stage to send an absurd email response to a homeowner. It does reveal the contempt that the executive holds for homeowners seeking help with unaffordable adjustable-rate mortgages, loans that were pressed on them due to Countrywide’s inappropriate business practices.

As outlined by the government and consumer groups, the mortgage giant has a history of focusing on loans that generate the maximum fees even if they were totally unsuitable for the homeowners, while not properly explaining the terms of the loan. Furthermore many loan agents, as shown in this case once again, made “promises” about refinancing and other loan attributes that would defined in most courts as fraud.

Despite these mortgage companies claiming in Washington that they are taking steps to alleviate the pain of homeowners; the email exchange underlines the stark reality that the mortgage giants actually could give less than two hoots about these mortgage-holders.

Mozilo on distressed borrower's appeal for help: "disgusting"

Countrywide Financial Chairman Angelo Mozilo's e-mail sets off a furor

Watch out for Foreclosure Rescue Scams

ABC News recently presented a good segment on avoiding foreclosure rescue scams. There are two types of common scams; the first is where a firm charges you hefty upfront fees to negotiate with your bank and then promptly disappears while doing nothing. The second is where the firm buys your house for below market value, and leases it back to you on unfavorable terms. Eventually the former homeowner can not keep up with the rental payments and is evicted, leaving the firm owning the house.

Catch the ABC News clip:
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=7408730&ch=4226721&src=news

So how many homeowners will be underwater?

Sometimes you have to wonder if press headlines indicate the bottom of the economic downside in some sort of contrary manner. The most recent incarnation, It's So Much Worse Than You Think, actually focuses on the number of homeowners that will have negative equity as housing prices continue to fall.

As outlined in the article, currently housing prices are down 8.4% placing 13.5% of homeowners in a situation where they have negative equity in their homes. The downside of housing prices is likely to reach 15% without a recession and 30% with a recession. A 30% decrease in housing prices would leave 39% of U.S. homeowners with negative equity in their homes.

Owning more money than the home is worth; many of these homeowners may simply walk away from their homes. We have seen this occur with local housing crashes in the past, such as Texas during the oil bust. Now the table is set for a nationwide incarnation of this scenario.

This of course will place the banks under additional stress that normally plan for a mere 1 or 2% default rate; rather than the 5 or 6% default rate from prime loans which would be seen with this type of recession.

On one hand the article may be on target that vicious cycle of additional housing driven downside remains; on the other hand it could serve as a signal that it is time to start buying rental housing on the cheap.

More: Avoid Foreclosure Scams

Mortgage scams are not only prevalent in rising real estate markets, but are common in falling markets as owners are desperate to avoid foreclosure. Freddie Mac has come out with a video about foreclosure scams that I would urge folks to watch.


Another complete summary of the many different types of mortgage fraud can be found here:
Let Me Count The Ways
http://alamedalearning.com/reality/2007/06/08/let-me-count-the-ways/

I would urge everyone to be knowledgeable and avoid these scams. You don't even have to be financially troubled for solicitations to start arriving via mail and phone for these scams. Know what to look for and ditch the scammers.

The Mortgage Plan

The administration rolled out its mortgage initiative late this week. The plan will help 340,000 mortgage holders whose teaser rates are due to reset. Another 60,000 sub-prime customer are already so far behind on payments that they will not qualify for the plan. The standards for inclusions in the plan require that “the loan must have been originated between January 1, 2005 and July 31, 2007 when underwriting standards were at their worst. They must also have been made for at least 97 percent the value of the home, and the borrower cannot be more than 30 days delinquent.” The rate freeze scheme would lock in the initial teaser rates for a period of five years, avoiding payment increases for homeowners.

With an estimated 1.4 million homeowners expected to enter foreclosure in 2008, any plan that will possibly enable nearly a quarter of the houses to escape the situation is likely to be received positively on Wall Street. Reducing the number of foreclosures by 25% clearly reduces the stress on mortgage-backed derivative debt.

However the immediate upbeat reaction ignores the reality that the bulk of outstanding mortgages are still likely to flounder. A report released today shows that mortgage delinquencies have risen to a 20 year high. One in five adjustable-rate sub-prime loans had late payments in the quarter. The deterioration of the housing situation is accelerating. The U.S. is likely to establish new standards for peaks in foreclosures, crests that even exceed those in the 1930s.

U.S. Mortgage Delinquencies Rise to 20-Year High
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNNNcUnDqS_g&refer=worldwide

Subprime plan seen reaching 340,000
http://www.reuters.com/article/ousiv/idUSN0731666420071207

Quick Takes: U.S. Real Estate Crisis Score Card

• $500B in loan related write-downs at banks and rising.
• $2 Trillion in economic credit impairments in lending.
• 446,726 homes currently in foreclosure (1 for every 196 households).
• 1.4 Million or more homes expected to enter foreclose in 2008.
• Foreclosures increasing at over 34% per quarter.
• U.S. GDP projection for 2008 lowered to 1.9% due to mortgage problems – down a full percentage point.
• Likelihood of 6.4% unemployment with an additional 3 million jobs lost.
• Property value drops nationwide estimated at 7% for 2008 – a loss of $1.2 Trillion to homeowners.
• U.S. Home Prices fall 4.5% nationwide in Q3 of 2007 – the largest decrease ever.
• 191 Mortgage Lenders out of business.
• Cities expected lose a minimum $400B of economic activity due to the housing crisis.

Was loosening the traditional lending standards really worth it?

References:

S&P: 3Q Home Prices Fall by 4.5 Percent
S&P Says 3rd-Quarter Housing Prices Dropped by Sharpest Rate in Index's 21-Year History
http://biz.yahoo.com/ap/071127/home_price_index.html?.v=2

Report: Foreclosures Will Sap U.S. Cities
http://www.cbsnews.com/stories/2007/11/27/business/main3542359.shtml

Since late 2006 - 191 major U.S. lending operations have "imploded" (11/27/2007 figure)
http://ml-implode.com/

Have We Seen Worse of Mortgage Crisis?
New Wave of Mortgage Failures Could Create a Nightmare Economic Scenario
http://biz.yahoo.com/ap/071124/doomsday_scenario.html?.v=2

Housing to slow growth in 2008
A report warns of 20 percent hit on Triangle economy; U.S. growth may slow 25 percent
http://www.newsobserver.com/business/story/795068.html

Foreclosures increase crime and drop property values

Suddenly foreclosures rather than “how to flip your home to make millions” is the focus of the majority of homeownership articles. It only took a mere six months to go from one extreme to the other in the financial press.

In a tribute to “Captain Obvious”, recent articles hawk the reality that foreclosed homes are a magnet for crime and cause neighboring property values to drop. One figure to note, each foreclosed house in your neighborhood will cause your home value to drop by 1%.

In the meantime, those turning off the lights at bankrupt mortgage companies wring their hands and exclaim, “Who would’ve thought that lending money to people who never could have repaid it would cause a crisis in neighborhoods across America.”

Empty Houses Home to Crime As Loans Fail
Neighborhoods Suffer As Crime Follows Foreclosures Into Vacant Houses
http://biz.yahoo.com/ap/071113/vacant_homes_crime.html?.v=1&.pf=insurance

Protecting your Home’s Value in the Era of Foreclosures
Foreclosures can affect the value of your property even if you've been paying your mortgage faithfully. Here are some ways you can protect your home's worth if your area is hit hard by foreclosures.
http://biz.yahoo.com/cnnm/071115/111507_toptips.html?.v=2&.pf=loans