Sunday, March 30, 2008

Lehman Loses $300 Millon on Stated Loans.

Lehman brothers has anounced today that they have lost $300 million from one borrower on their super stated income loan business.

UPDATE: Lehman Wants Repayment For Alleged Loan Scam: Reports
March 31, 2008: 12:44 AM EST

HONG KONG (Dow Jones) -- Lehman Brothers Holdings Inc. is expected to file a lawsuit in a Tokyo court Monday seeking repayment from Marubeni Corp. of $350 million in funds its says were misappropriated in a loan fraud carried out by two former employees of the Japanese trading house, according to news reports.
Lehman last year granted loans to a fund run by a medical consulting firm owned by LTT Bio-Pharma Co. in Tokyo, according to The Wall Street Journal.
The funds were to be used for the purchase of medical equipment and were secured with certificates bearing Marubeni letterhead and a seal of a Marubeni board member, the Journal reported, citing a person familiar with the matter.
The New York-based investment bank later found the board member's seal was forged, the report said.
Marubeni said it is a victim of identify fraud and that the documents involved in the transaction were forged. Marubeni said in a weekend statement an internal investigation showed it had no involvement in the forgery of documents used to secure the loans and had no obligation to compensate Lehman's for its losses.
Reports said a minimum of two meetings to finalize the deal were conducted at Marubeni's Tokyo headquarters.
Lehman entered into the transaction with two Marubeni employees who were at the time senior staff with the Japanese firm's life care business. The two employees have since been sacked, although Marubeni has not said why they were terminated.
Shares of Marubeni (MARUY) were down 7% at the midday recess in Tokyo trading Monday.
A Lehman statement cited in The Journal report said the investment bank "was closely working with authorities to seek full recovery of funds it believes to have been frequently misappropriated."
The funds weren't repaid at the end of February, prompting concern at Lehman. The unit of LTT Bio-Pharma filed for bankruptcy protection on March 19.
Lehman said that it has investigated the situation and filed a criminal complaint with Japanese police.
Both companies are cooperating with Japanese authorities, the Journal reported.
Lehman Bros. (LEH) shares fell 2.2% Friday to close at $37.87.

So these are the banks that we need to bail out? Did they "lend" $300 million to a couple of Modern Day Ocean's 11 style financial heist crew? They realized there was a problem when they didn't get the payment?! Maybe they should have examined a little more than two executives and some letterhead. Mr.Mortgage's opinion regarding your tax dollars is NO BAILOUT!

Tuesday, March 25, 2008

Don't Let Fear Blind You

FEAR is ruling the financial markets. Billions of dollars have been lost in mortgage-related investments. The Federal Reserve worked madly over the weekend to engineer a takeover of Bear Stearns and avert a systemic meltdown. But the big fear remains. How low will house prices go?

If prices continue to fall, mortgage defaults will move well beyond the subprime sector. Trillions of dollars in losses for investors are not impossible. But that doesn’t mean they are inevitable.
In 1997, inflation-adjusted house prices were close to their average levels over the previous half-century. Only four years later, the price of the average home nationwide exceeded anything ever seen before in the United States. Prices continued to rise for another five years, peaking in 2006 at nearly twice the average price in 1997 (as can be seen on the graph on the bottom right, which is based on data collected by the Yale economist Robert Shiller). If house prices are heading back to the levels seen in 1997, then we are facing catastrophe.

But there are good reasons to believe that much of the increase in prices was a rational response to changes in fundamental factors like interest rates and supply. The deeper fundamentals continue to suggest strong housing prices for the future.

Sure, speculation did run rampant toward the end of the housing boom. (The debut of the reality television show “Flip That House” on Discovery Home Channel, followed shortly by “Flip This House” on A&E, was a clear sign that the boom’s end was near.) Prices will fall further, especially in the speculative developments built on the outskirts of the major cities. So yes, we overshot the fundamentals.

Still, especially in coastal areas where zoning regulations have restricted the supply of land that developers can build on, house prices were driven up by increasing population, low interest rates and strong economic growth.

More and more people want to live on the coasts, but land is hard to come by in places like Manhattan and San Francisco. Cities and regions built on ideas — like Boston, Los Angeles, New York and the San Francisco Bay Area — have grown even as areas built on manufacturing, like Detroit and the Rust Belt, have declined. And of course, government isn’t getting any smaller, so Washington and its suburbs, another hot spot of rising house prices during the boom, will continue to grow.

Even in places where land seems plentiful, zoning and other land-use regulations have made it scarce. To meet demand, we should encourage high-density development, but homeowners fought to restrict housing supply when house prices were increasing. Now that house prices are falling, the incentives of owners to restrict supply are even stronger.
Several studies estimate that the average house prices of 2004 were close to fundamental levels, so we may see prices stabilize near that level. Just like any market, bargains are to be had for the careful buyer. Did you know that on days when the stock market is down, often half the stocks are up for the day? You can't paint an entire market, let alone state or city with the same brush. Pasadena Real Estate is very different than Hawthorne yet they are both in LA County. Good deals are to be had by the prudent and patient.

Tuesday, March 18, 2008

On FED Watch. Mortgages up or down?

Mr.Mortgage is on FED watch this morning as this may have positive or negative implications for clients. When the Federal Reserve lowers the Fed Funds Rate, mortgage rates tend to increase, and it's always for the same, few, related reasons:

Rate cuts create long-term inflation pressure. Bought gas or food lately?
Rate cuts makes the U.S. dollar weaker.
Rate cuts reflect short-term economic weakness

But rate cuts are just one way that the Federal Reserve can impact mortgage rates; there's more than one color in the Fed's crayon box, after all.
How the FOMC treats the Fed Funds Rate today is only one part of the story. The other part is what the Federal Reserve does to make mortgages feel "safe" to market investors.

One reason why mortgage rates are slightly down this past week is because the Fed has intervened with normal market activity on multiple occasions and with each intervention, the Fed is implicitly or explicitly saying, "We will not let conforming mortgage debt default."
This "guarantee" from the Federal Reserve reduces the risk of mortgage loans sold through Fannie Mae and Freddie Mac. Lower risk = lower rates.

What the Fed says today will be as important as what the Fed does. If the press release reveals a proclivity for guaranteeing additional mortgage debt, expect mortgage rates to fall because mortgage debt will be considered "safer" for investors. The jumbo loan market will key off the conforming market.

Thursday, March 13, 2008

Is it a good time to buy?

For Americans wanting to buy a new home, there are always two time frames to consider:
Now and Later

It's why prospective home buyers love to ask the question: "Is now a good time to buy?" If now is not a good time, they reason, certainly later must be. Strangely, though, "Is now a good time to buy?" is a question that people ask their real estate agent but never Mr.Mortgage.

It's probably a good thing, because we have have seen a lot of changes over the last few months and we're expecting a lot more this year. But it's okay. You can ask me now: "Is now a good time to buy?"

And I answer: "Absolutely and unequivocally yes, if you have a five year time horizon."

Now is a good time to buy -- not because home prices are flat or because sellers are willing to make a deal-- but because none of us mortgage guys can predict what the mortgage market will look like "later". "Now" is full of knowns. "Later" is full of unknowns. Mortgage markets are seizing and lenders have no choice but to limit what they will lend and to whom. Stated income has largely disappeared and FICO requirements have increased dramatically in the last few weeks.

It may appear that lenders are going overboard with their restrictions but that's not the case at all. Lenders are simply more concerned about not wasting money than they are about making money. They have made far too many trips around the middle east and asia raising capital to "waste" it on a high risk borrower. Remember a loan is a earned, it isn't one of your rights below freedom of speech.

Today, a bank doesn't mind if it passes on 9 good loans in a stack of applications if it means that it also passes on the 1 bad one that's in there. Jumbo Mortgages are only a small percentage of the bank's balance sheet, but it's the uncertainty about the demand for mortgages by investors that makes them nervous. If mortgage bonds become worth less, the little guy could eventually topple the giant bank much like david vs goliath.

The first major change we expect to see is with second mortgages. Currently, 90% home equity lines of credit are available from most banks. Judging from the recent decreases of 150k Countrywide customers HELOC loan limits in CA and Chase limiting HELOCs to 80% LTV max and 65% in Las Vegas, we expect that percentage to fall to 80% or lower very soon.

The second major change we expect are more credit score-based fees. Currently, a 680 score puts mortgage applicants in the safe zone from credit-score based fees.
Expect that minimum score to raise to 720.

The third major change we expect is for the declining market designation to expand. This will force every home buyer to need an additional 5 percent (or more) of his own funds beyond what the bank's lending guidelines will allow. If you needed a 10% downpayment now, you may need a 15% downpayment later.

The fourth major change we expect is based on property type. New construction condos are in ample supply in many cities and that may create an overall weakness in pricing. If a single-family home requires a 20% downpayment, banks may protect themselves by requiring 25% downpayments on condos.

And the last major change we expect is for every mortgage product in existence to get a complete makeover. New minimum standards will apply in all categories.
It's impossible to know what these new standards will be, but expect mortgage lenders to follow their losses and trim their menus accordingly. If you find yourself in the same Risk Class as other homeowners with high default rates, expect a tough road ahead. We have seen rates from Fannie Mae on adjustable rates for low FICO borrowers move from 7%-8% to 10%+. Investors are demanding higher rates to compensate for the enormous defaults. Someone has to pay the tab.
So back to the question: "Is now a good time to buy?"

Yes it is. Not because homes may be priced right, though, but because mortgage products should look very different come this Fall. And no matter how "cheap" the home, you can't buy it if you can't get financing for it or write a check for it. If you are considering buying or refinancing look at your mortgage options now.

Saturday, March 8, 2008

New 2008 Conforming Jumbo Loan Guidelines

The long awaited guidelines have been released.
In our opinion very few loans will qualify and few people will want the financing. Fannie Mae is cherry picking the very best jumbo loans. Deal breakers for high-cost areas are the fact that 2nd mortgages can't be paid off using this program(item 7).

1. Fixed rates can be sold to Fannie on or after April 1; ARMs on or after May 1. The loan has to be closed on or after March 1 to be subject to the following rules; inventory loans (closed from last July to March) have to be subject to a "negotiated commitment."

2. No AUS approvals. It seems they plan to update Desktop Underwriter (their automated underwriting system) before the year is out, but they haven't done so yet and they're rollin' without it.

3. For principal residences, fixed-rate loans are limited to 90% LTV/CLTV for a purchase, and 75% LTV/95% CLTV for a no-cash-out refi. ARMs are limited to 80%/80% on a purchase and 75%/90% on a no-cash-out refi. CASH OUT REFIS ARE NOT ALLOWED. LTV is loan to value. CLTV is combined loan to value. 1st plus any 2nd mortgage.

4. For second homes and investment properties, the maximum LTV/CLTV is 60% in all cases for purchases and no-cash-out refis.

5. Minimum FICO for any loan is 660, with a minimum of 700 for LTVs greater than 80%.

6. One-unit properties only.

7. On a primary residence, existing subordinate liens(HELOCs) must be resubordinated. The new loan cannot "cash out" an existing subordinate lien. Most banks are refusing to resubordinate for clients with little or no equity. They are forcing the hand of the borrower to pay the loan off if they want/need a new first mortgage.

8. No late mortgage payments in the preceding 12 months.

9. 45% maximum DTI, with ARMs qualified at fully-amortizing fully-indexed rate.

10. Full doc only.

11. For purchases, the borrower must make at least 5% of the down payment from his or her own funds.

12. A full appraisal with interior inspection is required on all loans; if the property value is more than $1 million, a field review appraisal is also required.

13. Loans are subject to all current pricing adjustments, plus another .25 for FRMs and .75 for ARMs. Fannie is charging more for this program over any other.

The traditional jumbo loan market is serving good credit clients well and the addition of this program is helpful but it is not the savior of the home owner politicians billed it to be. Why am I not surprised?

Thursday, March 6, 2008

You Don't Understand Mortgage Rates....

unless you are a seasoned Wall St professional, a mortgage banker or a CNBC junkie. Repeat after me:The FED doesn't move mortgage rates. This widely held belief came about over the last decade when the FED's moves would cause other debt instruments to move up or down.

Mortgage rates are set by the investors who buy the debt. Fannie and Freddie Mac who handle the conforming market repackage mortgages into 1 billion dollar pools. These pools are bid on and purchased by pension funds, insurance companies, banks, mutual funds, and foreign investors. Basically, any entity with a need to invest in safe debt instruments.

The investors are having a bit of a revolt right now because of inflation(out of control), the falling dollar, an ineffective FED that can't cut it's way out of the deflation and deleveraging that is happening in every sector of the credit markets. Credit is the life blood of the economy. Credit is dramatically contracting because investors are losing faith in the debt and US government policy in general. As an easy example, the FED is at 3.00% right now, since they cut, the national average rate on a 30Y conforming mortgage has moved up to 6.75% from 5.875%. On the jumbo mortgage side the rates for a 30Y fixed jumbo have moved from 7.00% to 7.875%. The adjustable mortgage products continue to be much more attractive.

Be careful in wishing for FED cuts. They are trashing the dollar, creating hyper-inflation and investors aren't stupid. They see the FED can't do anything to stop the credit/leverage meltdown. The easy days of having an 800 FICO and confidently knowing you could get a loan have passed. Credit is tightening daily. Until the losses stop we expect guidelines to get tighter. I encourage you to explore your loan options now if you need to refinance anytime in the next 2-3 years. The investors may not be around when you need them to fund your loan or the rates will be well north of your expectations. The money comes from somewhere and that money is running scared.
Here is the Bloomberg piece that inspired this lecture.

Agency Mortgage-Bond Spreads Rise; Markets `Utterly Unhinged'
By Jody Shenn
March 6 (Bloomberg) -- Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump.
The difference in yields, or spread, on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 21 basis points, to 237 basis points, the highest since 1986 and 103 basis points higher than on Jan. 15. The spread helps determine the interest rate homeowners pay on new prime mortgages of $417,000 or less.
The markets have become ``utterly unhinged,'' William O'Donnell, a UBS AG government bond strategist in Stamford, Connecticut, wrote in a note to clients today. A lack of liquidity has ``led to stunning air-pockets in price levels.''
Investors are realizing that banks have little room to make new investments amid rising losses and a flood of unwanted assets, said Scott Simon, head of mortgage-backed bonds at Pacific Investment Management Co. The world's top banks have reported more than $181 billion in asset writedowns and losses, been stuck with $160 billion of leveraged buyout loans, and bailed out $159 billion of structured investment vehicles.
``Everything is telling you the financial system is broken,'' Simon, whose Newport Beach, California-based unit of Allianz SE manages the world's largest bond fund, said in a telephone interview today. ``Everybody's in de-levering mode.''
Agency mortgage securities outstanding, which are guaranteed by government-chartered Fannie Mae and Freddie Mac or federal agency Ginnie Mae, total almost $4.5 trillion, about the same size as the U.S. Treasury market
No Savior
The widening spreads prompted speculation the government may step in to support securities guaranteed by Fannie Mae and Freddie Mac, said Tom di Galoma, head of U.S. Treasury trading in New York at Jefferies & Co., a brokerage for institutional investors. The Treasury Department said the rumor isn't true.
``The Fed can't really save the mortgage market,'' di Galoma said. ``As they keep cutting, mortgage rates aren't going lower.''
The spread of current-coupon fixed-rated securities guaranteed by Ginnie Mae against 10-year Treasuries has climbed 55 basis points this month to 205 basis points, also the highest since the 1980s, according to Bloomberg data. Debt guaranteed by Ginnie Mae is explicitly backed by the U.S. government, and based on loans already insured or guaranteed by its agencies. A basis point is 0.01 percentage point.
Carlyle Margin Call
Carlyle Group's publicly traded mortgage bond fund, which raised $300 million in July and used loans to buy about $22 billion of agency mortgage securities, failed to meet margin demands and has received a notice of default. In margin calls, banks demand more collateral on their loans because of falling prices. Lenders have been imposing ``additional collateral requirements'' outside of margins call, Carlyle said today.
``The capital issues at commercial banks are making them, in general, reluctant to lend, so lending is either harder to find or when you do find it, it's more expensive or the other terms are more-limiting.'' Steven Abrahams, an analyst with Bear Stearns Cos., said in a telephone interview yesterday.
``If there's less money to finance positions and less balance-sheet available to warehouse positions, the markets are going to become more volatile,'' he said.
Carlyle Capital Corp. missed four of seven margin calls yesterday totaling more than $37 million, the Guernsey, U.K.- based fund said today in a statement. Thornburg Mortgage Inc., the Santa, Fe, New Mexico-based owner of ``jumbo'' mortgages and securities backed by adjustable-rate loans, said yesterday it received a default notice from JPMorgan Chase & Co.
Next to Blow Up
``The single biggest concern right now is who's the next hedge fund to blow up, and how big are they,'' Arthur Frank, the New York-based head of mortgage-backed-securities research at Deutsche Bank AG, said in an interview today. ``The more the market widens, the more likely it is that another leveraged player has to sell, so it does feed on itself.''
Bloomberg current-coupon indexes represent the average of yields for the two groups of bonds with prices just above and below face value, the ones that lenders typically package new loans into.
Prices for agency securities backed by adjustable-rate mortgages with five years of fixed-rates fell 0.63 percent this month through yesterday, according to Lehman Brothers Holdings Inc. index data. Fixed-rated securities fell 1.66 percent, according to the New York-based company. The various classes of collateralized mortgage obligations used to repackage agency bonds collectively have fallen 0.9 percent, according to Merrill Lynch & Co. index data.
``Traders are putting their phones down and backing slowly away from their desks,'' O'Donnell said today in a telephone interview. ``Relatively little'' agency mortgage-backed securities are being traded, Pimco's Simon said.

Wednesday, March 5, 2008

New Conforming Loan Limit Announced.

Beginning tomorrow, the new conforming limit on loans insured by the Federal Housing Administration will be temporarily raised to $729,750, more than double the current limit of $362,790, the U.S. Department of Housing and Urban Development announced today.
The limit, which is good until the end of the year when it reverts back to $362,790, will apply only to loans insured under a program administered by FHA, which targets low to moderate-income home shoppers.
HUD will announce tomorrow the new conforming loan limit for all markets, a spokesman said. Conforming loans are sold to government-sponsored buyers such as Fannie Mae and Freddie Mac and have a current limit of $417,000 in California and most states.
The FHA and conforming limit increases could give the housing market a boost. Rates on jumbo loans, which are above the limit, have risen to about a percentage point above conforming rates.
The average rate Tuesday on a 30-year fixed conforming loan in Orange County was 5.841% with a one-point fee, while the average jumbo rate on a 30-year fixed was 6.908% with a one-point fee.
But Fannie Mae and Freddie Mac have yet to say when they will begin buying larger loans or if they will impose any restrictions, such as requiring larger down payments. Some housing watchers say rates on loans up to $729,750 might not drop as much as government officials hope.
President Bush signed a stimulus package into law last month that included granting HUD the power to raise the conforming limit based on 125% of the median home price in high-cost areas. HUD said today Orange County’s median home price is $710,000. That’s much higher than DataQuick, which pegged the median home price in January at $520,000 for all houses and condos, and $583,250 for just resale houses.
HUD said it calculated median prices based on government and commercial data.
From HUD’s release, here is a list of each county in California, with the median home price and the new FHA limit on the far right. HUD tomorrow is expected to release limits for areas in other states. To find the new limits for your county visit the direct HUD search tool here.

Alameda County 995000 729750

Alpine County 438000 547500

Amador County 355000 443750

Butte County 320000 400000

Calaveras County 370000 462500

Colusa County 318000 397500

Contra Costa County 995000 729750

Del Norte County 249000 311250

El Dorado County 464000 580000

Fresno County 305000 381250

Glenn County 230000 287500

Humboldt County 315000 393750

Imperial County 260000 325000

Inyo County 350000 437500

Kern County 295000 368750

Kings County 260000 325000

Lake County 321000 401250

Lassen County 200000 271050

Los Angeles County 710000 729750

Madera County 340000 425000

Marin County 995000 729750

Mariposa County 330000 412500

Mendocino County 410000 512500

Merced County 378000 472500

Modoc County 125000 271050

Mono County 370000 462500

Monterey County 599000 729750

Napa County 615000 729750

Nevada County 450000 562500

Orange County 710000 729750

Placer County 464000 580000

Plumas County 328000 410000

Riverside County 400000 500000

Sacramento County 464000 580000

San Benito County 790000 729750

San Bernardino County 400000 500000

San Diego County 558000 697500

San Francisco County 995000 729750

San Joaquin County 391000 488750

San Luis Obispo County 550000 687500

San Mateo County 995000 729750

Santa Barbara County 615000 729750

Santa Clara County 790000 729750

Santa Cruz County 719000 729750

Shasta County 339000 423750

Sierra County 228000 285000

Siskiyou County 235000 293750

Solano County 446000 557500

Sonoma County 530000 662500

Stanislaus County 339000 423750

Sutter County 340000 425000

Tehama County 250000 312500

Trinity County 200000 271050

Tulare County 260000 325000

Tuolumne County 350000 437500

Ventura County 599000 729750

Yolo County 464000 580000

Yuba County 340000 425000

Tuesday, March 4, 2008

Countrywide admits:Ticking Time Bombs

I know it seems like a decade ago but people used to get a big head about their recent investment property purchase or their great 1% rate on their 1.3m condo in the city. WAMU, Countrywide, INDYMAC, World Savings(bought by Wachovia) and countless bankrupt lenders did these loans all day long. They allowed the borrower to have a payment that was less than the interest on the underlying mortgage. The "teaser rate" allowed people to qualify for a lot more home than they could possibly afford. Up until mid 2007 borrowers would be qualified based on the teaser rate that typically lasted for 5 years or until the loan had negativly amortized to 105% or 110% of the original balance. Then the loan would fully amortize. Meaning a HUGE spike in the payment. Let's not even mention the people that believed the loan officer or broker who swore on his/her upcoming BMW payment that the 1% was fixed. Yes, it is fixed but they were placing a serious bet about their income and the property market overall. Overall industry standard performance on these loans is that around 75% of people make the 1% negative amortization payment on their pick-a-pay. More like pick-your-poison.
I am all for financial innovation and creative financing but this product was heavily pushed to the point of terrible underwriting. The banks placed bets as well that property would continue to appreciate and/or the borrower would make a lot more in the future. During 2006, 60% of the loans done in Los Angeles/Orange County CA were interest only. A great percentage of the loan volume in CA done between 2004-07 were the option arm variety. The radio jingle ran" No points, no fees, lower your mortgage payment today 1% call today 1-800-...."

The time bomb begins to go off starting in 2009. These loans will be like a neutron bomb. Kill the formerly happy home owner/investor and leave the house standing in line for a foreclosure. Granted a great percentage of these will be fine, but if you think defaults were interesting from a perspective of that only happens in "working class"(read:poor) neighboorhoods then you have seen nothing like the upcoming disaster of 2009-2011. As an example here is the breakdown on a 750k loan with a 1.25% teaser and a fully indexed rate of 6.826% which is an excellent rate for a super prime borrower:

Minimum Payment Rate: 1.250%
Fully Indexed Rate (FIR): 6.826%
Minimum Payment: $2,499.39 ( Deferred Interest: $1,766.86 )
Interest Only Payment: $4,266.25
Fully Amortizing 30-Year Payment: $4,902.44
Fully Amortizing 15-Year Payment: $6,668.46
Fully Amortizing 40-Year Payment: $4,566.25 (not available)
Possible Minimum Payment Changes (based on a 30-year loan term)
Year 1
= Base of Minimum Payment
Year 2
= $2,499.39 + 7.50%
Year 3
= $2,686.84 + 7.50%
Year 4
= $2,888.36 + 7.50%
Year 5
= $3,104.98 + 7.50%

When the loan hits 105-110% of the original balance they go fully amortizing. That big old 5k payment you see above. Hmm, maybe that will impact Cheese Cake Factory, Coach, Starbucks and the local car dealer. Funny how they are already slowing down now. Wait until the big resets occur. We are in the first quarter of a long drag out football game.

If you like the math misery done for you on a negam visit the calculator here. Also if you would like to read a previous post on the topic and watch a video of the time bomb click here.

As of the end of December, Countrywide had nearly $29 billion in pay-option loans, with about $26 billion of the total having grown beyond their original loan amount, the company said in a filing late Friday with the Securities and Exchange Commission.
"Our borrowers' ability to defer portions of the interest accruing on their loans may expose us to increased credit risk," the company said. It added that its risk could be greater because the amount of deferred interest on pay-option loans was on the upswing.
The company noted some 81 percent of the loans were made out to borrowers who provided little or no documentation on their income. As of the end of December, 71 percent of borrowers with pay-option loans were electing to make less than full interest payments.
Even though borrowers with such loans had the option to just make interest payments, many were increasingly missing payments, the company said.
Some 5.71 percent of the loans based on unpaid principal balance were at least 90 days late as of Dec. 31, up from 0.65 percent a year earlier.
Like other lenders, Countrywide has since tightened its lending criteria and curtailed lending of so-called no documentation loans. It has also ramped up programs aimed at modifying loans for borrowers before their loans reset to higher rates.
At the close of last year, Countrywide's total loan servicing portfolio was valued at about $1.5 trillion.
Total delinquencies as a percentage of the number of loans was 6.96 percent, up from 5.02 percent at the end of the prior year. Some 1.04 percent of loans were facing foreclosure, up from 0.65 percent a year earlier.
California accounted for the highest portion of Countrywide loans, according to unpaid principal balance, of any state, the lender said.
The state had around $389 billion in loans, followed by Florida, with loans totaling around $113 billion. Texas, New York and New Jersey rounded out the list.
The company's banking unit, which also funds some of Countrywide's home loans, had $87.1 billion loans held for investment on its books at the end of the year.
A large portion of that stemmed from loans made in California and Florida, once-hot housing markets that have now been battered by falling prices and rising mortgage defaults and foreclosures. About $37 billion in loans were made to borrowers in California. Another roughly $6 billion pertained to loans in Florida.