So, you've heard about the foreclosure crisis, and to you foreclosure sounds a lot like opportunity. Maybe you've scanned the lists of foreclosed houses on the market and fallen in love with the house with "great bones" and faux Tudor facade in Sacramento that's had its price cut from $314,900 to just $214,900. Or maybe you've reached the point in life where you can consider something closer to the seven-figure range, like the $860,000 six-bedroom colonial in Maryland. But with all you've heard about the credit crunch, how are you going to get a loan to buy your new house?
Well, you're in luck. Because there's one lender certain to finance your purchase: Countrywide, the biggest mortgage lender in the country. And, yes, the very same company that foreclosed on these houses in the first place.
As the real estate market tanks and foreclosures surpass 2 million a year, financing the purchase of foreclosed houses is one bright spot in the mortgage market. As you might imagine, it's not something that lenders are rushing to advertise. But within the real estate world, the importance of this business is not a secret.
In December, according to notes made and posted online by one attendee at a Countrywide conference at the La Costa resort in Carlsbad, Calif., Brian Hale, a Countrywide exec responsible for the company's branch network, told real estate agents that this year financing REOs ("real estate owned," bank-speak for foreclosed properties) would make up 15 percent to 20 percent of his division's business in 2008. At the rate Countrywide's going right now, even the low end of that range would mean $22 billion in loans.
Right now Countrywide's Web site lists more than 14,000 houses that it has foreclosed on and is trying to resell. (The Countrywide Foreclosures Blog keeps a nice running tally for those keeping score.) That's a small fraction of the total that Countrywide has foreclosed on (a number that Countrywide's never released, but of the 9 million mortgages Countrywide manages, more than 101,000 have foreclosure pending). It doesn't include houses that Countrywide has already sold, or many thousands of others it has in inventory and hasn't listed with realtors yet.
So how eager is Countrywide to finance these houses a second time? The contract real estate agents give to potential buyers requires that unless they're paying all cash, they have to get "prequalified" by the local Countrywide office before they can even submit an offer.
You don't have to take Countrywide's offer (with all those houses on its books, Countrywide would probably rather sell the house even if they don't provide the mortgage). But of course making you get that prequalification is a chance for them to sell you on their loans.
And if you do get your loan from them, Countrywide will even throw in an appraisal for free by their appraisal unit. That'll save a few hundred bucks.
Take that offer and that means you'll be buying a house from Countrywide, financed by Countrywide, on the basis of an appraisal from Countrywide. You can file that under Department of Foxes and Henhouses.
Of course, Countrywide is a mortgage lender, so it's natural that they'd offer mortgages to buyers already on their doorstep. But playing the role of seller, lender, and perhaps appraiser creates some peculiar incentives. And remember, this is a company whose appetite for giving zero-down low-doc (go ahead and fudge!)and no-doc (guess-timate what you'd like to earn!) loans give it a special place in real estate history. Indeed, on Tuesday, a federal judge authorized a sweeping Justice Department investigation into allegations of widespread abuse in the firm's lending practices. Countrywide declined to comment for this story.
Surprisingly, exactly what kinds of loans Countrywide is pushing and how much its underwriting practices have changed is still a murky question. A year ago, a "leaked" Countrywide memo to brokers said that the company would no longer give out loans for 100 percent of a house's value. Then, just a few days later, Angelo Mozilo, Countrywide's ever sanguine CEO reassured potential customers that no, they could still get a house with no money down.
When it comes to its own foreclosed properties, that's most assuredly the case. Take this two-bedroom starter house in San Diego's Linda Vista subdivision: a Countrywide foreclosure that sold for $330,000 in August and was financed again with a 100 percent mortgage from the folks at Countrywide. Or the house in Palm Springs, Calif., that sold not long afterward, in September, for $275,000. Who knew you could get a house in Palm Springs for less than $300,000? Even better, according to mortgage records, the new mortgage from Countrywide was for the full $275,000.
The rub, of course, is that in the heady days of mortgage free love, all those zero-down mortgages tended to come with unpleasant side effects, such as high interest rates and prepayment penalties. And they often went to people who, not being able to afford to put any money down, were very optimistic about how much they could pay each month.
We won't know for a while whether the loans in this go-round are any less toxic than the ones that came before. But if the experience of other booms and crashes is any indication, there's every reason to think that however low standards went on the way up, they can go even lower in the last ill-fated efforts to keep the game going on the way down.
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