Friday, August 10, 2007

Why is Countrywide going after brokers?

A friend of mine in the mortgage business told me that Countrywide is aggressively going after brokers around the country. Why?.. to get some of their money back that they provided brokers with during the last few years in terms of rebates and broker kick-backs. In the event that the brokers can't come up with the funds, they are "requesting" that they sign over their companies to Countrywide or face litigation. It seems to be a cheap way to grow the company's footprint "under the radar" and in light of its "unprecented disruptions" in future profits, as reported from the Mortgage Insider blog at the OCRegister:

Countrywide Financial Corp. today said the market for debt it needs to fund itself is experiencing “unprecedented disruptions” that could impact its future profits and financial condition.

In its second-quarter filing with the SEC, the lender said there is less liquidity in the debt market and greater “risk premiums.” I imagine Countrywide means it may have to pay higher yields on its own debt or produce more collateral, or both. Anyway, the lender said it needs to maintain investment-grade ratings on its debt, and that is not a sure thing.

It also said the market to sell home loans on Wall Street is experiencing “unprecedented disruptions” caused by a drop in investor demand.

To be sure, official quarterly reports with the SEC often contain a lot of ominous-sounding boiler plate language. But using the term “unprecedented disruptions” twice in one filing stands out.

Here’s more from the company:

“While our capital and liquidity positions are currently strong and we believe we have sufficient capacity to hold additional mortgage loans and mortgage backed securities until investor demand improves and yield requirements moderate, our capacity to retain mortgage loans and mortgage backed securities is not unlimited. As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes and could have an adverse impact on our future earnings and financial condition.”

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