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Countrywide to Refinance Up to $16 Billion of Loans (Update6)
By David Mildenberg and Sebastian Boyd
Oct. 23 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage lender, will make it easier for customers to keep their homes by changing the terms on $16 billion of adjustable-rate mortgages.
About 52,000 customers with subprime loans can refinance into prime or government-backed mortgages through next year, the Calabasas, California-based company said today in a statement.
Countrywide apparently would rather take the pain of putting these people into fixed rate loans and taking the loss on the low initial interest rates they sold (or 0% interest), then let thousands of its borrowers default and foreclose when their rates reset.
Location: Halfway between Number 4 Privet Drive and Forks, WA
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Well I think it's great. I'm sure some folks won't think so, though.
I'm all for homeowners keeping their homes and put into a mortgage with terms they can pay. It sure as heck beats the alternative of foreclosure and those 52,000 homes going on the market in an already inventory glut...
So, let me get this. I play by the rules and I get penalized because someone foolishly took an ARM that they had no business taking? Nice......only in America.
[quote=CouponJack;1809735]How is this different than a "bailout"?[quote]
Its different because its a business decision by Countrywide. They're making a profit/loss decision based on the cost to their business of absorbing foreclosures vs. the cost of changing loan terms to keep people in their loans and houses.
I'm not saying its good or bad from a fair or moral perspective, its just a business decision.
He paid a higher interest rate over the last 3 - 5 years than a subprime did on an ARM or Interest Only loan.
Right now it is a business decision on Countrywide's part. A bird in the hand is worth two in the bush. However, some state legislatures are looking at doing something similar for subprime borrowers, and putting them into state backed fixed rate mortgages before their ARM's reset.
I hope that some new lending policies are put into place to prevent this chicanery from happening again (qualifying subprime buyers on their initial ARM payments with no consideration if they qualify for the "reset" payment). CouponJack is right in a way, that we all do pay for this somehow. Countrywide being the largest mortgage lender in the country and swallowing $16 Bln in loan interest uncollected will affect the mortgage market somehow. It doesn't just disappear, it will be collected somewhere else.
While on one hand I think it's great countrywide is trying to help people keep their homes (which means a few less homes on the market next year), I have to agree with coupon with his statement (and yes I know it's a business decision). I play by the rules too and it gets me no where. Some (not all) people who took out these crazy mortgages that are in trouble should never have been given a mortgage to begin with and ultimately "we" are going to pay for their mistakes and they'll get off scott free without even a slap on the wrist or a good old fashion talking to. I wouldn't be surprised if 9 months after countrywide does this, they have another major layoff to help them make up for the loss of money.
He paid a higher interest rate over the last 3 - 5 years than a subprime did on an ARM or Interest Only loan.
Right now it is a business decision on Countrywide's part. A bird in the hand is worth two in the bush. However, some state legislatures are looking at doing something similar for subprime borrowers, and putting them into state backed fixed rate mortgages before their ARM's reset.
I hope that some new lending policies are put into place to prevent this chicanery from happening again (qualifying subprime buyers on their initial ARM payments with no consideration if they qualify for the "reset" payment). CouponJack is right in a way, that we all do pay for this somehow. Countrywide being the largest mortgage lender in the country and swallowing $16 Bln in loan interest uncollected will affect the mortgage market somehow. It doesn't just disappear, it will be collected somewhere else.
It is $16 Bln in loans not loan interest it is the total amount of the loans and they will still be collecting on those loans. I am sure there is some loss involved but no where near $16 Bln.
As far as the being penalized part, I won't get into that. You can make similar agruments in regards to many other business and government decisions.
CouponJack and surfingatwork are right. Call it what you want-- it's a bailout. It penalizes all those people who played by the rules, renting and saving money until they could legitimately afford to buy a home or diligently paying their higher rate fixed mortgage-- with principal-- all those years, because the teaser rate loans were an accident waiting to happen. Crash!
People who took out liar loans to buy houses they couldn't afford if they actually disclosed their real income and paid market rate get to keep their homes, while the renters and savers are priced out of the market.
People who face foreclosure because they can't pay the rates they legally agreed to pay get to refi their homes at a lower rate, with less stringent criteria than qualified people trying to get into the market. While current homeowners are rubber-stamped into nothing-down, attractive-rate loans, buyers on the sidelines are held to higher standards, need larger down payments and must provide full disclosure.
To Recap:
The Losers:
Renters and savers
Honest fixed-rate homeowners who pay P&I every month
Qualified buyers on the sidelines
The Winners:
Liar loanholders
Eyes-bigger-than-wallet delinquents facing foreclosure
The honestly in need of help (lost their job, illness, disability, etc.)
The Message:
The righteous got it wrong: dishonesty pays. This liar-liar-pants-on-fire strategy is a winner. Woohoo!
I understand that it's a business decision, made from a purely self-serving perspective. But here's my question(s). Do you really think that all these rule players are going to play by the rules the next time around? What's to stop everybody from munching on the carrot when there's no fear of the stick? And when there's nobody left to follow the rules, what happens then?
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Just Business
I wouldn't be surprised if 9 months after countrywide does this, they have another major layoff to help them make up for the loss of money.
