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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

Tuesday, July 24, 2007 | 03:19 PM | Permalink | Comments (64) | TrackBack (4)
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Comments

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

Posted by: GerryL | Jul 24, 2007 3:35:46 PM

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.

Posted by: m3 | Jul 24, 2007 3:36:50 PM

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

Posted by: Rubem Santos | Jul 24, 2007 3:37:44 PM

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.

Posted by: Deborah | Jul 24, 2007 3:43:59 PM

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

No one in the morgage business that was making huge profits :)

Posted by: GerryL | Jul 24, 2007 3:46:29 PM

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.

Posted by: Stuart | Jul 24, 2007 3:52:16 PM

"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.

Posted by: KirkH | Jul 24, 2007 3:52:17 PM

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

Posted by: peter from oz | Jul 24, 2007 3:52:45 PM

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...

Posted by: MarkTX | Jul 24, 2007 3:58:52 PM

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.

Posted by: wally | Jul 24, 2007 4:01:18 PM

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

Posted by: Rob Dawg | Jul 24, 2007 4:01:25 PM

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)

Posted by: MarkTX | Jul 24, 2007 4:04:28 PM

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

Posted by: hpov2000 | Jul 24, 2007 4:06:12 PM

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.

Posted by: rex | Jul 24, 2007 4:09:12 PM

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

Posted by: mhm | Jul 24, 2007 4:11:56 PM

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.

Posted by: Fred | Jul 24, 2007 4:25:26 PM

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??

Posted by: stormrunner | Jul 24, 2007 4:29:01 PM

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.

Posted by: W.Edwards | Jul 24, 2007 4:32:13 PM

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.

Posted by: Michael Donnelly | Jul 24, 2007 4:40:16 PM

...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.

Posted by: Bob A | Jul 24, 2007 4:45:17 PM

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.

Posted by: Werner Merthens | Jul 24, 2007 9:05:10 PM

"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"

Posted by: Globalized | Jul 24, 2007 11:22:43 PM

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...

Posted by: Chief Tomahawk | Jul 24, 2007 11:54:36 PM

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?

Posted by: Alex | Jul 25, 2007 1:24:16 AM

"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.

Posted by: KnotRP | Jul 25, 2007 3:34:55 AM

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