Posted on 08/25/2007 5:59:22 AM PDT by Hydroshock
Edited on 08/25/2007 11:43:24 AM PDT by Admin Moderator. [history]
NEW YORK (Reuters) - Countrywide Financial Corp Chief Executive Angelo Mozilo said on Thursday the U.S. housing downturn is likely to lead the country into recession, but that the largest U.S. mortgage lender will survive.
In an interview, Mozilo also said that to promote liquidity, the U.S. Federal Reserve should cut the rate it charges banks to borrow.
Countrywide faced a credit shortage this month as mortgage defaults rose and capital markets tightened. On August 16, it announced an unexpected drawdown of an entire $11.5 billion credit line because it had trouble selling short-term debt.
But on Wednesday, Bank of America Corp said it would invest $2 billion in Countrywide, buying preferred securities convertible into common stock.
This eased fears about Countrywide's fate, which at least two analysts this month had said could include bankruptcy.
Mozilo called the investment a "vote of confidence" and a "priceless endorsement," but said housing and the economy were not out of the woods.
Falling home prices hurt homeowners psychologically and cause them to spend less, he said. The 68-year-old executive has worked in financial services for more than a half century.
"I've seen this movie before, and the ending of the movie always ends up in some form of recession," he said. "I can see the economy slowing down substantially enough to give the regulators, the Fed some pause in what's going to happen next."
Mozilo called on the Bush Administration and Fed Chairman Ben Bernanke to state that they will not allow the housing environment to get out of control.
Last Friday, the Fed cut the discount rate at which it lends to banks to 5.75 percent. Mozilo said it should be reduced so that it is the same as the federal funds rate, now 5.25 percent.
Others agree that more is needed.
"The Fed has cut the discount rate and added liquidity to the markets but those things aren't enough to turn the fundamental market around," said Phil Orlando, chief equity market strategist at Federated Investors in New York. He said the funds rate should be cut to 4.25 percent by year end.
GOING IT ALONE
Analysts have said Countrywide might lose mortgage market share to well-diversified commercial banks with deeper balance sheets, including Bank of America, Citigroup Inc, JPMorgan Chase & Co and Wachovia Corp.
Countrywide held a 17.4 percent market share from January to June, according to the Inside Mortgage Finance newsletter.
The Bank of America investment also raised speculation that the Charlotte, North Carolina-based company might eventually buy Countrywide, which Mozilo helped launch in 1969.
Mozilo said that was not happening. "We've gone it alone for 40 years and can go it alone for another 40 years," he said.
In an interview with CNBC television, Mozilo said markets are in "one of the greatest panics I've ever seen in 55 years in financial services."
Still, he rejected as "irresponsible and baseless" an August 15 report by Merrill Lynch & Co analyst Kenneth Bruce that downgraded Countrywide to "sell" from "buy" and said the company might face bankruptcy if market conditions worsen.
"There is no more chance for bankruptcy today for Countrywide than there was six months ago, a year ago, two years ago, and when the stock was $45 a share," Mozilo said on CNBC. "We're a very solid company."
Merrill spokeswoman Carrie Gray declined to respond to Mozilo's comments, and said Bruce wasn't granting interviews.
Countrywide shares closed up 20 cents at $22.02. They have fallen 48 percent this year.
(Additional reporting by Joseph A. Giannone, Ellis Mnyandu and Dan Wilchins)
I know.
The loan giant took advantage of the public for years ! ! !
Excerpt:
ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied.http://www.nytimes.com/2007/08/26/business/yourmoney/26country.html?_r=2&hp&oref=slogin&oref=slogin“I want to be sure you are getting the best loan possible,” the sales representatives would say.
But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees.
Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.
Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.
In effect, this was tantamount to engaging in organized criminal activity. Why is that so hard to for some people here to grasp ?
If Mozilo's crew was engaged fraud on the font end dealing with customers and hiding obvious underwriting scams -- why would they not commit fraud on the back end in selling mortgage paper on Wall Street. ? ? ? ? ?
R.I.P. Countrywide
Soon to be Bank of America
Isn't that the point of a business, to "wring" maximum profits? Should it be illegal?
Mortgage broker or realtor ?
You were complaining because they took too much risk. Now you complain because they calculate in a way that reduces risk?
which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.... In effect, this was tantamount to engaging in organized criminal activity
Last time I bought a car, the salesman tried to up-sell me. Didn't realize this was tantamount to "organized crime."
Lawyer or Blog-Pimp?
You obviously did not read the NYT article. Closed minded or don’t like to read?
Sorry, I failed to see anything in the story that links Countrywide to organized crime. Maybe you could point it out to me.
Image is from that GREAT NYT expose of Countrywide.
You would be very wise to read it, people ! Also, watch that video. Snicker.
He probably will be to busy at his lawyers office for years to come to file. The trial lawyers smell blood in the water on this whole mess.
JMPO. Mozillo is a public figure. Has been for years and years. Countrywide is in the news. < / snicker>
He every well could be the first one to taste the tar and feathers, but I figure not the last.
The taxpayers shouldn’t bail out Countrywide, or any other loan company that makes loans to people who want big, fine houses and the lavish lifestyles that go with them, and then can’t, or won’t, pay the loans back, because they are so deeply in debt from borrowing money for things they want, but probably don’t need, and then going out to buy them. Nor should the taxpayers bail out homeowners who keep borrowing money to buy all the finer things in life. Let loan companies and homeowners who make stupid decisions suffer the consequences. Let them go under. They deserve it.
Better yet, why do we have loan companies anyway? Banks offer loans, and have been doing so for many years. We don’t need loan companies. Let all the loan companies go under. If you need a loan, go to the banks, just as everybody who needed loans used to do before loan companies got started.
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