What causes foreclosure? Countrywide’s claims

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Countrywide, in its presentation yesterday in San Francisco, made some fascinating arguments about what’s causing the foreclosure crisis. Countrywide CEO Angelo Mozilo ‘criticized media coverage of the mortgage meltdown several times Tuesday, saying reporters incorrectly blamed ‘aggressive lending and exotic reset products’ for rising foreclosures.’

So what’s driving foreclosures? Here is Countrywide’s breakdown -- based on information from its servicing portfolio -- when ‘cause of foreclosure’ is known (80.3%), the breakdown is as follows:
--Curtailment of income: 58.3%
--Illness/Medical: 13.2%
--Divorce: 8.4%
--Investment Prop./Unable to sell: 6.1%
--Low regard for property ownership: 5.5%
--Death: 3.6%
--Payment adjustment: 1.4%
--Other: 3.5%

We find this fascinating on several levels, and inconsistent with most analysis we’ve seen. To start, we should point out, there is probably no institution in America -- including the media and the government -- that knows more about the current crisis than Countrywide. The government doesn’t collect timely data on foreclosures; Countrywide does. If this is Countrywide’s best, most honest assessment of the true causes of foreclosure, it’s shocking: it indicates foreclosures are spiking due to economic weakness -- ‘curtailment of income’ -- that is so faint it barely shows up in economic statistics. If this is what happens in a fairly strong job market and a growing economy, what happens in a real recession, when unemployment rises significantly?

And if ‘payment adjustments’ are not a problem -- as Countrywide argues -- what good would it do to refinance these loans?

There is one plausible explanation: borrowers were so aggressive -- and so hopeful -- that they essentially planned for economic perfection, and the slightest negative deviation from that plan -- say, an unexpected drop in overtime earnings for hourly workers -- is sending them into default and foreclosure.

But here is an equally plausible explanation: That the ‘research’ is really spin -- Countrywide is eager to answer critics and argue that its own underwriting was not a factor in the foreclosure spike -- that it was entirely unforseen and driven by economic events out of the company’s control.

We’d love to hear your thoughts on this. Email story tips to lalandblog@yahoo.com
Photo Credit: AP