Thursday, August 16, 2007

Countrywide Mortgage in Liquidity Crisis.

Forbes 8-6-7:
"Countrywide Financial offered hope Monday that it might avoid the fate of other troubled lenders. The mortgage company revealed that it has cash access that could help it survive brutal industry conditions. In Monday filings with the Securities and Exchange Commission Countrywide revealed it has $186.5 billion in available liquidity. It also said it has access to $46.2 billion in highly reliable short-term funding. "

Fast forward ten long days. Today we were greeted by another bad sign that mortgage markets have stopped working. Countrywide is the largest lender in the country. They originate through retail and broker channels roughly 20% of all mortgage loans. They funded $40 billion last month. This is not subprime, or ALT A, the majority of these loans are very prime mortgage loans to folks fully documenting their income. They were forced to tap a line of credit they have to the tune of $11.9 billion. They did this because they couldn't use their traditional financing of borrowing in the short term commercial paper market. This is bad in that the largest lender in the country is not being trusted by the global community to lend money to on a very short term basis.

The impact of these events and others to follow is that mortgage rates will likely continue to rise for any mortgage loan that doesn't fall into the conforming guidelines of Fannie Mae or Freddie Mac. This will have large ripple effects throughout the financial community and especially so in housing over the coming days. The rates for non-conforming loans is between 6.75-7.75% for scenarios of putting 20% down, fully documenting income, and prime credit levels. This is up from the high 6% range. This is putting pressure on the $650-$1.5m market. This can be clearly illustrated by our friends at Above these values you move into super jumbo mortgage rates and they have been in the 8-10% range for most scenarios. I have to get back to the grind. Stay sane and remember that Rome isn't burning, it's just a little smoke.

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