Bank Feels the Pain of Home Foreclosure

October 26, 2007 11:42 AM
by findingDulcinea Staff
Countrywide Financial offers refinancing for adjustable-rate loans to avoid adding to its growing inventory of repossessed properties; meanwhile sub-prime debtors file for bankruptcy in a bid to keep their homes.

30-Second Summary

Countrywide Financial Corp., the biggest U.S. mortgage lender, has announced plans to refinance or modify up to 82,000 of the adjustable-rate mortgages (ARMs) on its books.

The bank described the move as an effort to assist borrowers whose interest rates will rise by the end of 2008.

But necessity must have played a part in the bank’s decision. One week in October saw 13,000 properties for sale on the Countrywide Web site, in contrast to the 5,000 that were advertised at the start of 2007.

With the housing market slowdown, more borrowers are finding their homes repossessed before they can be sold. Lenders who are unwilling to make a loss on these properties are then left holding an expanding inventory of real estate.

Countrywide’s answer is to renegotiate some of the higher-risk loans to allow homeowners to continue making mortgage payments.

The alternative for many borrowers is to file for bankruptcy. Figures for August suggest that a rising number of borrowers are taking that option.

Reactions to Countrywide’s announcement have been mixed, but mostly positive. The Wall Street Journal judged that the decision “certainly beats the Beltway alternatives” to the mortgage crisis.

The Los Angeles Times noted that “Countrywide wins no angels’ wings” for steering borrowers towards more affordable loans for which they readily qualify.

That point will have raised eyebrows at The New York Times. In August 2007, the Times ran a story about former Countrywide employees who alleged that the company deliberately sold riskier ARMs to borrowers who could have taken out a much safer product.

Commentators such as Andrew Leonard at Salon have drawn the inference that Countrywide hopes to counter accusations that its lending practices are predatory at a time when its CEO is under investigation for insider trading.

Headline Links: Personal bankruptcy and the Countrywide plan

Opinion: Assessing the proposal

Background: Countrywide's problems and personal bankrupty

Countrywide Financial Corp.
Personal bankruptcy

Key Players: Angelo Mozilo

Reference Material: Housing market slowdown, bankruptcy and an '04 prediction of the sub-prime crisis


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