Countrywide: “Home price depreciation at levels not seen since the Great Depression”

An amazing conference call with Countrywide Financial (CFC), the largest US mortgage underwriter. It was beyond ugly. Here are some notable quotables from Chief Executive Angelo Mozilo:

– "During the quarter, softening home prices continued to affect many
areas of the country, and delinquencies and defaults continued to rise
across all mortgage product categories as a result."

-Delinquencies and defaults rising across all investment tools.

-Lower home
prices may effect credit.

-S&P Case-Schiller is strong tracking tool
for health of housing market
[Editor: we have referenced this many times]

-CFC continues to study further
tightening of loan standards for both subprime and prime

-CEO believes markets will force the weaker
mortgage companies to either work with bigger players or look elsewhere for
business

-For a Fed Governor to
say that the lending group had this coming is unbelievable.

The WTF line that I don’t get is this one:

"no one saw the
deterioration of real estate values coming."

 

Here comes the money shot:

"Company is seeing home price
depreciation at levels not seen since the Great Depression"

Previously, the company had stated they expected a
turnaround in mid-2008; now, they say they are not sure when housing
declines will cease. Refuse to rule out house price declines in 2009; 

-Surprising comment regarding the prime portfolio: so far what they have seen in deliquencies is
due to people losing job, losing health, lost marriage, more so than any resets. Stated that the "definition of prime may not be as high as some people think."

-Expects to hear
mergers and people going out of business in the near future;

-The company cut its 2007 earnings forecast to a range of $2.70 to $3.30 a share, down from previously lowered guidance of $3.50 to $4.30 range (projected in April). In the beginning of the year, the company said it expected to earn $3.80 to $4.80 a share.

>

All told, a simply brutal and market moving nearly 3 hour conference call . . .

Thanks to Briefing.com for the update

What's been said:

Discussions found on the web:
  1. GerryL commented on Jul 24

    I am sitting here watching the containment of the subprime problem. Just think what might happen if it wasnt contained.

  2. m3 commented on Jul 24

    For a Fed Governor to say that the lending group had this coming is unbelievable.

    actually that gov. was spot on… they ALL deserve this.

    it’s their mess. let ’em deal with it.

    subprime borrowers didn’t drive to CFC’s office, put guns to their head, and force them to give them loans that couldn’t be paid.

  3. Rubem Santos commented on Jul 24

    That’s because we are dancing around the bottom… did not see it coming??? LOL

  4. Deborah commented on Jul 24

    Do you remember when President Clinton said, “It depends upon what your definition of ‘is’is”? Today we asked CFC what Prime is. We learned that in CFC’s mind that there is virtually no difference in FICO scores between Prime and Subprime. This is what truly freaked out the credit markets.

  5. GerryL commented on Jul 24

    “no one saw the deterioration of real estate values coming.”

    No one in the morgage business that was making huge profits 🙂

  6. Stuart commented on Jul 24

    Hmmm….I think Kudlow should have Jeremy Bowers back on asserting that he’s sick of the subprime talk and its all old news and overstated. LOL. Shills and Montebanks unite. Getting fugly out there.

  7. KirkH commented on Jul 24

    “no one saw the deterioration of real estate values coming.”

    When the press quotes Lereah as the top “economist” with expertise in housing Joe Sixpack is sure to miss it. But I refuse to believe the smart money didn’t see this coming.

  8. peter from oz commented on Jul 24

    sorry too busy watching the Dow in the last hour and counting my cash from liquidation during recent suckers rally
    I guess we provencals just don’t get it
    enjoy!
    rgds pcm

  9. MarkTX commented on Jul 24

    did CFC let the cat out of the bag with this conference??

    or is it reality check time for people?

    all that subprime/lending/debt news

    PLUS

    AAPL chart today/yesterday could be a turning point for the market built on hype, funny numbers, and gadgets…

    good luck out there to all…

  10. wally commented on Jul 24

    His point about a Fed Governor is valid. The Fed held rates at an extreme low level well beyond a prudent amount of time. It saw that the liquidity produced was going to flakey stuff, not legit business expansion, but it persisted anyway.
    If it lowers rates again to ‘save’ the economy, the same thing will happen again. It can produce liquidity; it cannot direct where liquidity goes.

  11. Rob Dawg commented on Jul 24

    Mozillo has extracted $400m from CFC over the last few years. he can afford to tell the truth now.

  12. MarkTX commented on Jul 24

    I would like to add that GS fell below 200

    where are you when we need you Hank….

    or are your hands really tied up this time?

    (no position)

  13. hpov2000 commented on Jul 24

    I would not say “no one saw the deterioration of real estate values coming.”

    Insiders surely saw it coming. They sold off 61.5% of their holding (from yahoo finance):

    In last 6 Months
    Insider Sales 4,547,500
    Net Shares Purchased(Sold) (4,547,500)
    Total Insider Shares Held 2.85M
    % Net Shares Purchased(Sold) (61.5%)

    http://finance.yahoo.com/q/it?s=CFC

  14. rex commented on Jul 24

    Barry: What do you make of Bill Gross’s comments today?

    SAN FRANCISCO (MarketWatch) — Weakness in junk bonds and subprime-mortgage markets could lead to as much as a double-digit correction in U.S. stock markets, respected bond-fund manager Bill Gross warned on Tuesday.
    “There’s no doubt this recent upward movement in yields justifies a 5%-10% correction in stock markets,” said the longtime manager of the $103.1 billion Pimco Total Return Bond Fund.

  15. mhm commented on Jul 24

    Let people yell SELL at the top of their lungs. It feels better now doesn’t it?

  16. Fred commented on Jul 24

    Bill Gross is a great stock market prognosticator — as a contrary indicator!

    Name ONE call he has made correctly!

    BTW…we had a 93% down volume day today. That is a classic flush job. Shorts that didn’t cover will be twitching tomorrow. Look at the VIX — the fear is palpable.
    Put call went out at 1.42.

    Multiple buy signals today.

  17. stormrunner commented on Jul 24

    Governments Get
    Bolder in Buying
    Equity Stakes

    http://online.wsj.com/article/SB118523825903875664.html?mod=dist_smartbrief

    Foreign governments, flush with cash and no longer content with the meager returns to be had on safe but low-yielding investments like Treasurys, are becoming increasingly aggressive players on the equity front.

    In doing so, Chinese lender China Development Bank and Temasek Holdings Pte. Ltd., the Singapore government’s investment agency, could play a role in the outcome of the biggest bank-takeover battle ever. That increasingly bitter contest pits Barclays against a consortium of European banks led by Royal Bank of Scotland Group PLC in seeking to acquire Dutch banking giant ABN ABN Amro Holding NV.

    ____________________________________

    So, let me get this straight, Communist “Free” market regimes are now buying up the western world with reserves accumulated by the exploitation of their citizenry — slave labor, and we think were safe from transitioning into fuedalism??
    There is no way that private busines can compete with this nonsense. Soon all business everywhere will have to have the equvilent of state backing, one day we’ll wake up saying –where’d the free market go??

  18. W.Edwards commented on Jul 24

    The website countrywide-foreclosures.blogspot.com should be treated like gold for how valuable it’s been. It has been tracking the real-estate owned (REO, aka foreclosure) inventory of Country-wide since the beginning of the year. Simply put, the amount of foreclosure inventory that CFC has picked up since late January has doubled and is currently increasing at an annual rate of 300%+ with no sign of a slowdown!! And it’s a good bet that CFC hasn’t fully written down the potential losses of selling these houses in a declining market either. Look forward to many more quarters of disappointing results from CFC.

  19. Michael Donnelly commented on Jul 24

    No difference in the prime and subprime are you kidding me ? No wonder the AAA rated mortgage backed stuff at Bear is total crap.

    Everyone I talk to has been telling me don’t worry subprime is only 8% of CFC and others, its tiny. While I know that is crap, and don’t forget the Alt-A’s, if you are telling me the prime is crap as well…. !!

    Circle this day on the calendar, I’m betting this is straw that breaks it.

  20. Bob A commented on Jul 24

    …but don’t you worry about a thing folks. Just roll another fatty and sit back and watch Larry Kudlow tell you ‘Goldilocks is still alive’ on CNBC.

  21. Werner Merthens commented on Jul 24

    Well,

    Let’s see whether they sell this down some more. If they do I am planning to back up the truck and load up on the bargains they leave behind.

  22. Globalized commented on Jul 24

    “no one saw the deterioration of real estate values coming.”

    Well somebody did. How do I know? Because several of the bloggers I read (perhaps even this one) predicted that when it all came unglued, the first thing out of all the weasel’s mouths would be . . .

    “nobody could have seen it coming”

  23. Chief Tomahawk commented on Jul 24

    For those who didn’t see it, Erin Burnett had the interview with Bill Gross on CNBC. Gross likened the deteriorization of the corporate bond market over the last few weeks as akin to the Fed raising interest rates 150 basis points. Specifically Gross called it a magnitude 8.0 Earthquake. Gross stated the stock market would have to take notice and said a selloff was coming.

    THEN… Larry Kudlow participated on a roundtable discussion a half hour before his show on CNBC. Larry was steamed at Gross. Larry called Gross an ass who was talking up his book.

    And then a short time later on his show, Larry apologized for lashing out at Gross and said he shouldn’t have said what he did. Of course the three bulls on his show comforted Larry as there was only one bear (too bad Gary Shilling was on Monday night… all the mocking he’s taken from Larry) on the panel tonight. Art Laffer said something along the lines of today was but a flesh wound…

  24. Alex commented on Jul 25

    Wow. What a conference call.

    Generally, banks make a point of being a calming influence. Refusing to rule out home price depreciation into 2009 is like pulling the fire alarm…!

    I wonder if there is even MBS CDO BBB tranche that will not take a loss with home price depreciation for two years straight?

  25. The Capitalist Resistance commented on Jul 25

    The Big Picture | Countrywide: “Home price depreciation at levels not seen since the Great Depression”

    Link: The Big Picture | Countrywide: Home price depreciation at levels not seen since the Great Depression.

  26. KnotRP commented on Jul 25

    “like pulling the fire alarm”…he’s been playing with it for a while now, but the Fed hasn’t lowered interest rates, so he’s apparently decided to pull it off the wall.

  27. eyeon08.com commented on Jul 25

    More bad housing data strike higher incomes

    UPDATE: The Big Picture has details on the conference call announcing these results.
    Countrywide Financial Corp. had very bad Q2 profit numbers:

    The rise in credit-related costs were primarily related to the companys investments in prime home e…

  28. jules commented on Jul 25

    “Larry was steamed at Gross. Larry called Gross an ass who was talking up his book.”

    Sorry, but Larry is correct. Face it, when you’re running that size bond portfolio, you do NOT telegraph what you really feel before you need to make moves.

    Case in point — He is being shown massive size corporate paper. It IS in his book’s interest to “scare” corporate spreads higher to get a better prices and covenants.

    Do you actually think he moves markets out of the goodness of his philanthropic heart?

    Please!

    He doesn’t get paid on his predictions coming true — DJIA 5000, and his recent “much higher interest rates”, etc. He gets paid on performance. The only edge he has is his ability to USE CNBC to do his bidding. It’s so obvious if you open your eyes.

    Think of him as a card player…are his cards REALLY BLEEDING (you can see his hand?) If you think so you’re in the wrong business!

    These deals – Boots and Chrysler will get done. Watch the shorts scramble when they do.

    So to sum it up, when Gross moves a market on his fearful “predictions, go the other way — and make money!

  29. Michael Cook commented on Jul 25

    Interestingly everyone seems to move the recovery time back by six months every couple of weeks. With an uncertain 2009 now, should investors be thinking 2010 or later? More importantly is this rock bottom for mortgage brokers? I certainly dont think it is and based on this conference calls, things might get real ugly in this industry.

  30. W.Edwards commented on Jul 25

    I’m surprised (although I shouldn’t be) at how little coverage there has been of the Countrywide analyst call. I didn’t hear one thing about it on CNBC during the times that I watched and the WSJ appears to have made reference to it only in passing in a few small articles. The WSJ article in particular refers to how some investors in CFC are hopeful that the bottom is near and that a turn-around in the mortgage woes will soon occur. As per my comments above, the real carnage has yet to begin!

  31. jag commented on Jul 25

    Isn’t it a bit hard to reconcile:

    “no one saw the deterioration of real estate values coming.”

    with Mozillo’s relentless sale of his Countrywide stock over the last year?

  32. Jim commented on Jul 25

    “home price depreciation levels not seen since Depression” – true but from dizzying heights built upon appreciation not seen since …. ever. anyway, we savers need a correction so we can invest again with the probabilities more in our favor.

  33. Dr. Tettrazini commented on Jul 25

    Is it just me or does this resemble the last Republican credit and
    Banking scandal, i.e., The Unsecured Loans on No Basis in Fact
    that cost the economy Billions. A Bush was in on that one.

  34. KP commented on Jul 25

    Gross is trying to cause a major “flight to quality” so that his current holdings will appreciate. The last person you trust is someone with that much skin in the game.

    Housing and the dollar is bleeding to death right before our eyes and everything that depends on it will suffer for it. That is the only certainty. The timing is the only truly unknown variable, though a lot of people believe they are smart enough to get out in time.(they aren’t)

  35. Brendan commented on Jul 25

    “Interestingly everyone seems to move the recovery time back by six months every couple of weeks.”

    The F.U. time unit strikes again.

  36. michael schumacher commented on Jul 25

    what a remarkable recovery in the dollar today….how do they do it????

    If you did’nt see that coming….well

    Ciao
    MS

  37. Weaseldog commented on Jul 25

    No one could have anticipated the breach of the levees either.

    There appears to be a long lasting meme evolving here.

  38. -ck- commented on Jul 25

    “home price depreciation levels not seen since Depression” — perhaps; but the cost-of-housing in the USA over the past 10 years has risen to levels that is DOUBLE the historic average for the past 200 years. A correction is not an entirely unhealthy thing.

    Using California as an example — if values rise 20% per year for many years, and then fall 20% in one year, the 5 year average value is still up more than 50%.

    As a real estate appraiser in Denver, what I’m seeing is this — all markets are local, with very different value trends in different market sectors. Supply and Demand governs all real estate values, but the current foreclosure crisis is driven by the ARM resets in the sub-prime market, and has hit entry level neighborhoods the hardest. I’ve seen a decline 15-20% of high sale prices in entry level neighorhoods over the past nine months — which in turn, drives more homeowners into foreclosure, because their homes won’t appraise for a refi.

    Meanwhile, the move up neighborhoods are doing okay, with slight declines or modest increases in value. In the upscale and high end neighborhoods, values are booming like we haven’t seen in years. (Denver home values have been basically flat since 2001.)

    Bottom Line — the foreclosure crisis and declining values are driven by predatory sub-prime lending, with 100% LTV purchases being the worst culprit. On the other hand, the general economy (in Denver) is strong, and much of the REO inventory is being absorbed quickly, often by fix n’ flip investors who make a decent profit turning them around.

    Whether the depressed values of the REO drags down the good neigborhoods and the general economy remains to be seen.

  39. michael schumacher commented on Jul 25

    regarding countrywide…….my wife adds the following:

    CFC is a major buyer of loans, the amount they write is much lower than the rate at which they buy them at ( apparently CFC rates suck so that’s a reason for the low amount of CFC booked loans). Basically she is saying that a major buyer of all types of loans has removed itself from being the potential catalyst to purchase (or repurchase in CFC’s case) bad debt. No one seems to have mentioned this in any analysis.

    PS: she is making me type this as I do know that most of you most likely are aware of this. She’s just tired of the business getting the flak instead of the people (the buyer+lenders) from within the business who have bent the rules and allowed people to get loans who have no business even cashing a check let alone making a mortgage payment. Also Minnesota and Colorado have now taken the No doc loans(what’s been called liar loans) and banned them from being offered.
    States as regulators in the loan business will be a theme going forward I’m told.

    Ciao
    MS

  40. Weaseldog commented on Jul 25

    Policies start at the top.

    Greenspan and his friends knew what they were setting up.

    Responsibility starts with people in positions of responsibility.

    As an acquaintance that writes used car commercials once told me, “Half of the population is on the left side of bell curve and they buy cars too.”

    As I see it, we have two possibilities that explain the boom and bust cycles that are sucking the life out of the economy, the stupidest loonies that ever walked the earth are in charge of our nation’s banking systems, or… this is intentional.

    If it is intentional, then who profits?

  41. -ck- commented on Jul 25

    As I see it, we have two possibilities that explain the boom and bust cycles that are sucking the life out of the economy, the stupidest loonies that ever walked the earth are in charge of our nation’s banking systems, or… this is intentional.

    If it is intentional, then who profits?

    In good times with economic stability, the rich get richer . . .

    In times of conflict and economic instability, the rich get filthy rich . . .

  42. michael schumacher commented on Jul 25

    MD gets the award for posting the next implosion to hit the “unaware” mortgage industry. LOC delinquencies……….wait..

    Ciao
    MS

  43. Valdan commented on Jul 25

    “Greenspan and his friends knew what they were setting up.”

    Yes, I knew something was fishy when Greenspan was pushing adjustable rate mortgages about 5 or 6 years ago, when the fixed 30-year rates and the adjustable rates were only nominally different.

  44. bartkid commented on Jul 25

    >”no one saw the deterioration of real estate values coming.”

    Alright, who let Mozilo channel the American Secretary of State?

  45. Kilfarsnar commented on Jul 25

    “no one saw the deterioration of real estate values coming.”

    Umm…yeah…right

    Unprecedented appreciation for a very long time. And “no one” saw a price drop coming? I saw it coming years ago. I was in the market a couple of years ago and couldn’t believe the crap selling for $300,000. It was obvious that a correction was coming. I’m just surprised it took so long!

  46. mojo commented on Jul 25

    These deals – Boots and Chrysler will get done. Watch the shorts scramble when they do. ~ KnotRP

    From todays Marketwatch:

    The Chrysler deal is the biggest yet deal to stumble amid slackening appetite for risky leveraged loans and high yield debt.
    The deal now will be financed through having underwriters and private equity firm Cerberus, which is taking Chrysler private, hold the debt.
    Wall Street underwriters are “going ahead with the deal, but they are going ahead in a very untraditional way,” said John Atkins, fixed-income analyst at IDEAGlobal.com.
    “It does not speak well for the condition of the market that they are going about this in this way.”

    Or maybe, Knot.

  47. mojo commented on Jul 25

    Err..or maybe…jules

    My apologies to KnotRP

  48. RE.Agent commented on Jul 25

    It’s a new paradigm, and everybody who doesn’t buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

    Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

    This asset bubble is different than all of the others – it will never slow down, or pop. The gains are permanent.

  49. repo4sale commented on Jul 25

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  50. Newspoo commented on Jul 25

    “no one saw the deterioration of real estate values coming.” – Classic

    WTF?!?! Really?…This never occured to anyone in the biz that home were being way overvalued? A home that went for $118,000 just days prior going to triple that because of greed? Shitty neighborhoods now holding half-million dollar homes complete with particle board cabinets, and leaky roofs…

    Now there are tears being shed because ARMS payments can’t be afforded…waaah…it’s time to reap. The real value is watching this all unfold…A lot of us called it, but despite our largely unheard, un-paid-attention to warnings, folks took out those mortgages anyway.

    What a joke.

  51. RE.Agent commented on Jul 25

    They aren’t making any more land, and you have to live somewhere!

  52. one iteration commented on Jul 25

    Home Price Depreciation

    Sigh. Me and one of my friends whom I talk about real estate with knew this was coming, which is why we avoided buying property a few years ago (notwithstanding buying and flipping in a short time). A quote from Countrywide Financials recent c…

  53. MB9 commented on Jul 25

    The WTF line that I don’t get is this one:

    “no one saw the deterioration of real estate values coming.”

    See this chart:
    http://countrywide-foreclosures.blogspot.com

    and then tell me with a straight face you never saw it coming?

  54. One Man commented on Jul 25

    Wow,
    I’m sure pretty much everyone saw it coming. One more reason to make money online. Businesses don’t depreciate quite so quickly.

    One Man. One Year. $100,000 online. To invest in a house.
    http://www.oneyeargoal.com

  55. PSST! it commented on Jul 25

    Countrywide: Home price depreciation at levels not seen since the Great Depression

    An amazing conference call with Countrywide Financial (CFC), the largest US mortgage underwriter. It was beyond ugly. Here are some notable quotables from Chief Executive Angelo Mozilo:

    – &quot

  56. Locke commented on Jul 25

    This situation is the result of over-speculation. The frightening thing is that when ownership of houses in an area by a single person reaches a critical mass that person can destroy competition and private ownership by holding a monopoly on rent prices. The answer to this is not rent control! The solution lies within believing that land is only truly owned by a government, and the government is the ultimate rentor.

    D’word

  57. ron commented on Jul 25

    doesn’t matter what kind of loan people have they still have to foreclose because they overpaid their house by 50%.

  58. Barbara Berwick commented on Jul 29

    Take a big look at the chart of the 10-year bond for June…. you know the chart that mortgage people use to set interest rates for the loans they issue. When interest rates rise, home stats go down. And, now this same rate has back off 3/8% from their highs. This June number thing is a blip. a 3/8% cur in the 10 year bond will restore sanity to the real estate asset class.

    I saw it coming, and I made a mint! Up over 12% this month. I take clients.

    Barbara Ann Berwick

  59. halbhh commented on Jul 29

    “no one saw [it] coming” is a classic line, which we are doomed to hear over and over.

    “No one saw 9-11 coming”

    “No one saw the fall of the Iron Curtain coming”

    “No one….etc, [saw what I didn’t see]”

    I’ve experienced this myself once or twice, as I bet many of us have.

  60. Lynn Frantzen commented on Feb 21

    I would like to know if homeowners will have an option similar to the new FHA refi with Country Wide. I would think this would benefit the lender by avoiding some of the foreclosures and adding some postive PR in their direction.

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