With approximately 50% of CW volume gone, the key to remember is it was the most profitable volume they had. While they lost 50% of their volume, it accounted for over 60% of their profitability. To make matters worse, agency paper “A” paper profit margins are extremely thin. The most profitable product they have now are govies and govies is a niche they do not have sunstantial market share.

Dan Brown wrote a very telling post today http://www.themortgagereports.com/2007/08/randy-woolridge.html

In it he clearly documents how Countrywide Bank is paying substantially higher yields on their CD’s to potential investors.

Dan states the following:

“And then the story takes an interesting twist when we consider that its CDs are priced so far out of the market.

Remember: Certificates of Deposit offer an interesting debt opportunity to Countrywide because each “deposit” is FDIC-insured for up to $100,000.

In other words, even if Countrywide defaults on its CDs, the holders of the CDs stand to lose nothing except the opportunity cost of giving their dollars to the Calabasas-based lender. The FDIC (i.e. U.S. taxpayers) will replace their “lost” principal balance.

This is a clear case of Moral Hazard if I’ve ever heard one. By paying a half-percent more than every other bank on Fidelity’s Web site, Countrywide appears to be taking on risk for which they won’t be responsible if the company fails.

And this is what Professor Woolridge told us. Sometimes the bank with the highest yield is the bank with the biggest troubles.

In Countrywide’s case, he may have been right again.”

Another problem with CFC is something Mozilo stated in 2005:

“their loan performance models depended on both home values continuing to rise and the ability of borrowers to withdraw principal to make mortgage payments.”

Sounds like economic realities are starting expose that business model.

I’m NOT one of those individuals that is cheering for CFC to fail, however I do know my name is not Pollyanna.

Whether CFC goes into bankruptcy, is acquired or is substantially smaller…times are tuff for them and not to recognize that is not prudent.

Comparing CW to the terribly mismanaged airline industry isn’t much of a defense.

Cheers,
Reba

Cheers,
Michael P. Lindekugel
Financial Analyst
RE/MAX Commercial
Team Reba – RE/MAX Metro Realty, Inc

Your critical analysis of CFC was right on brother.As the secondary market implodes,the base of the house of cards is loosin some joker cards.Its a freefall now,stand back.

My concern is that with all the media attention now, Prime, A paper home buyers and refinancing homeowners may decide to select another lender, which would continue to put a strain on their biggest expense: labor.

I’ve got to believe that the competition for A paper conventional loans is pretty harsh right now.

The usual market MO is to compete with rates and fees. Could Countrywide pull it off by offering the best rates and fees in the market?

What do you think?

There’s a federal law called RESPA which directs lenders on what they can and cannot do when it comes to paying taxes and insurance out of reserve accounts.

http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm

Good luck to your son, if CW goes down.

No matter if there’s a company BK, buyout, or meltdown, the entity is bound by federal law throughout the process.

Have your son follow up with the state auditor to confirm his property taxes have been paid.

Here’s when I started- 4/1:
http://www.bloodhoundrealty.com/BloodhoundBlog/?p=1250

I continued with analysis of potential defaults on book value on 8/6:
http://delmar.typepad.com/brianbrady/2007/08/will-countrywid.html

Then I called for federal action because CFC is too big to be ignored on 8/16:
http://delmar.typepad.com/brianbrady/2007/08/countrywide-in-.html

Finally, yesterday, why the CFC pricing failed them:
http://delmar.typepad.com/brianbrady/2007/08/countrywide-jus.html

All one has to do is talk to his stockbroker, read the 10-Qs, and talk to CFC employees.