Countrywide refi plan gets cool reaction
Countrywide Financial Corp. unveiled a plan Tuesday to refinance or modify $16 billion in loans to help struggling borrowers, drawing cautious praise from some consumer advocates. But the lender’s stock sank to a four-year low.
The stock’s woes could increase pressure on Chief Executive Angelo Mozilo, who faces scrutiny from the Securities and Exchange Commission and calls for his resignation amid expectations that Countrywide will report a large third-quarter loss Friday.
Countrywide, the nation’s largest mortgage lender, said its loan-workout plan called for contacting borrowers in delinquency or at risk of it, most of whom have adjustable-rate sub-prime loans. A spokesman said the Calabasas company would use phone calls, e-mails and traditional mail to reach these borrowers, in many cases before their interest rates and monthly payments are adjusted upward.
“Countrywide believes that none of our sub-prime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,” the lender’s president, David Sambol, said in a statement.
Though the modifications to loans serviced by Countrywide would reduce the amount of money the company takes in each month, they could be good for it in the long run. That’s because foreclosing on homes in a glutted market can be costlier.
But Countrywide’s shares tumbled 63 cents, or 4%, to $15.05, the stock’s lowest closing price since April 2003. The stock is down 65% year to date, prompting calls for Mozilo’s resignation.
The CEO has become a lightning rod for criticism in the sub-prime mortgage debacle and has been attacked for accelerating sales of his own shares in Countrywide before the stock’s plunge and before it became apparent to many investors how deep the losses on dicey home loans would run.
Mozilo and Countrywide are the subjects of one of “several large investigations” of mortgage lenders being conducted from the agency’s Los Angeles office, according to an SEC official. It isn’t clear whether that probe of Countrywide is separate from the agency’s previously reported inquiry into Mozilo’s stock sales. Fredric Firestone, an associate SEC director of enforcement in Washington, told a securities-law conference in L.A. last week that the regulator was investigating “about a dozen” sub-prime lenders for alleged misrepresentations to investors in mortgage-backed securities.
Analysts expect Countrywide to report a large third-quarter loss Friday.
“The time has long passed for Angelo to go,” said James Glickenhaus, a partner at investment firm Glickenhaus & Co. in New York, which recently sold its holdings of Countrywide stock.
Countrywide declined to respond to the calls for an ouster, saying it was constrained in commenting shortly before reporting earnings. The company has defended Mozilo’s stock sales as legal and motivated by personal factors unrelated to the company’s business prospects.
Borrower advocacy groups have criticized the mortgage industry, and Countrywide particularly, for moving slowly to address the problems of homeowners with sub-prime loans whose payments shoot up after two years. In recent months, the Bush administration has joined in the calls for lenders and loan servicers to rework such loans, saying 500,000 homes could be lost to foreclosures over the next 18 months as the monthly payments jump.
Countrywide said its program would seek by the end of next year to provide fixed-rate prime loans -- which go to people with good credit -- to 52,000 borrowers with $10 billion in adjustable sub-prime loans, which normally go to people with poor credit. The borrowers would get no break from normal refinancing fees and closing costs, the company said. Countrywide said it already had refinanced 33,000 sub-prime borrowers this year into prime loans.
Another part of the program would try to help about 20,000 Countrywide borrowers with $4 billion in adjustable-rate loans who can’t qualify for a refinancing but have shown they can make payments at the initial interest rate. For such borrowers, Countrywide would modify their loan terms, typically extending the initial rate for an additional five years, Countrywide spokeswoman Jumana Bauwens said.
In a third effort, Countrywide said it was sending letters to 10,000 delinquent borrowers whose $2.2 billion in loans have reset to higher rates and payments. For these borrowers, Countrywide said it would offer to cut their interest rates by year-end. Countrywide services a portfolio of 8.9 million prime and sub-prime mortgages valued at $1.5 trillion. Of those, 5.9%, or more than 520,000 loans, were delinquent at the end of September.
The company also said that today in Washington, it would announce details of a partnership with the Neighborhood Assistance Corp. of America to help troubled borrowers stay in their homes. The nonprofit counseling group has been one of Countrywide’s fiercest critics.
Kevin Stein, associate director of the nonprofit California Reinvestment Coalition, said the Countrywide plan “sounds positive,” but he said he wanted to see more details. “We hope to see more of these announcements coming” from other lenders, Stein said, noting that the 82,000 homeowners Countrywide is proposing to help are a small fraction of the total number of the nation’s distressed borrowers.
The Assn. of Community Organizations for Reform Now said the plan “raises as many questions as it answers” because Countrywide didn’t say how it would determine whether borrowers qualify for a modification. The organization also questioned the plan’s emphasis on replacing sub-prime loans with prime mortgages.
“These borrowers were either steered unscrupulously into inferior sub-prime, adjustable-rate loans in the first place -- or they could only qualify for a sub-prime loan, making it highly unlikely that they can qualify for an affordable, prime, fixed-rate loan today,” said Maude Hurd, the group’s national president.
Such criticisms, coupled with the complaints from some shareholders and investor-advisory groups, are creating pincers of pressure on the company as it prepares to release its earnings.
The American Federation of State, County and Municipal Employees’ pension fund last week called for Mozilo to give up his post as chairman and for the company’s board to rethink its stock option practices.
CtW Investment Group, an advisor to seven large union pension funds, wants Mozilo to quit the company entirely. “It is clear to us that the company can only return to prosperity after a wholesale change in leadership,” wrote William Patterson, CtW’s executive director, in a letter dated Friday to Countrywide’s lead director, Harley W. Snyder.
Some investors in Countrywide offered support Tuesday for the 68-year-old Mozilo, who founded Countrywide in 1969.
“He’s made us a whole lot of money for a long time,” said Ron Muhlenkamp, head of Wexford, Pa.-based Muhlenkamp & Co., which owns 3.2 million Countrywide shares. The stock had surged 314% from the end of 2001 through the end of last year.
Muhlenkamp said investors had gotten too pessimistic about Countrywide’s future. He also argued that the stock was being hammered in part for technical reasons: Many mutual funds end their fiscal years Oct. 31 and often sell their portfolio losers in October to record losses that can be used to offset gains on other stocks, a strategy aimed at reducing capital-gain taxes.
Muhlenkamp said his greatest fear regarding Countrywide was that the company would be tempted to sell out at a low price to another financial-services company in the near term, rather than hold out for the next upturn in the housing market.
But James Glickenhaus, the partner at the New York investment house that bears his family name, said the firm sold its 1.6-million-share stake in Countrywide in late summer because it had lost faith in the business.
Glickenhaus said Mozilo had offered repeated assurances that Countrywide faced little risk from its sub-prime loans. “We didn’t feel we’d been given quite as complete a story as we should have,” Glickenhaus said.
tom.petruno@latimes.com
