Foreclosures Responsible For Drop In Countrywide Shares
On 9th January this year the shares of Countrywide reached its lowest level since the last ten years. The foreclosure crisis is being squarely blamed for this tumble. January has seen an unusual rise in foreclosure listings. The share line began to fall more than a quarter triggering rumours that Countrywide would seek bankruptcy protection. But the company denied it. The company claimed that the investors still had faith and did not want to believe such rumours.
Countrywide admitted that the foreclosure numbers had doubled to 1.44 % from 0.7% of last year. In November it increased by 1.28%. The delinquencies increased to 7.2% as compared to 4.6% in the previous year. Delinquency is the pre-foreclosure stage when the borrower has tripped on consecutive payments and is about to face foreclosure legal proceedings from the lender. Since 2002 these numbers are the highest but here the matter is not going to rest. With more mortgages ready to reset there will be further rise in delinquencies and foreclosures.
Countrywide shares closed by going down 6.4% at $5.12 – this being the lowest point since 1996. The stocks of Countrywide are down by 90% since 2006.
Washington Mutual is another giant mortgage lender. Its shares fell by 15% because of anticipated fears about rising mortgage defaults. The dull real estate market is taking its toll on the mortgage companies in USA. The situation has led to a massive credit crunch – money is not available for advancing loans.
Countrywide is in a special vulnerable position because it deals exclusively with mortgage unlike other banks like JP Morgan and Wells Fargo. As such Countrywide is more exposed to being sold off – it being finding it more and more difficult to sell mortgages under the troubled circumstances. It is unimaginable that a giant like Countrywide is stuck with these mortgages that have become useless mounds of brick and mortar that has no value in the market. Some of the houses are being demolished.
Another problem will ensue if Countrywide reports a big write down in its next quarterly returns. This will affect its chances of raising money from the Federal Home Loan Bank – a major source of getting cash support. However the officials of Countrywide are optimistic of showing profits although the market is not quite willing to buy the idea. Countrywide is silent and non-committal.
