Last signals heard from Titanic by Carpathia, "Come as quickly as possible old man: the engine-room is filling up to the boilers"
Countrywide Sees Losses Widen in Q1; Prime Borrowers Hit a Wall, Too
By PAUL JACKSON
Published: April 29, 2008
Countrywide Financial Corp. said Tuesday morning that losses continued to widen during the first quarter as homeowners faltered at a record pace.
The nation’s largest lender and servicer said that it lost $893 million, or $1.60 per share, during Q1, compared to $434 million in earnings one year earlier; the net loss during the first quarter was more than double the loss recorded during the fourth quarter.
Citing “materially higher credit-related costs,” Countrywide said it set aside more than $3 billion for credit-related losses and write-downs during the quarter as delinquencies, defaults and loss severities continued to climb higher. Roughly $1.5 billion of that amount was tied to expected credit losses — a ten-fold increase from year-ago levels — and another $456 million was set aside for expected loan buybacks, it said. Rapidly rising delinquencies on home equity loans and so-called rapid amortization on HELOCs also led to hundreds of millions of dollars in losses.
Rapid amortization charges were the source of significant concern in Countrywide’s fourth quarter results, according to rating agency Moody’s Investors Service. The lender took a $704 million charge tied to subordination of its repayment interest on HELOC advances in the fourth quarter; similar charges fell to $154 million during Q1.
Origination volume fell 38 percent during the quarter to $73 billion, off 38 percent from one year earlier, as conduit acquisitions essentially ceased and CRE (commercial real estate) fundings dropped 96 percent. Reflecting broader market movement towards FHA-insured originations, Countrywide saw government fundings rise 188 percent to $10.2 billion during Q1, while ARM and home equity funding activity both fell more than 70 percent relative to year-ago funding activity.
Despite struggles in originations, Countrywide’s substantial servicing portfolio continued to grow, posting 10 percent annual growth and finishing March at $1.48 trillion in volume.
Borrowers under duress
Delinquencies continued to increase during the first quarter, according to statistics in Countrywide’s quarterly report with the Securities and Exchange Commission. A stunning 35.9 percent of all subprime loans serviced were recorded as delinquent by the end of March; 21 percent of the total were 90 or more days in arrears, including 11.6 percent of subprime loans classified as held for investment.
Prime home equity loans also saw DQs ratchet up to 8.29 percent from 3.77 percent one year earlier — underscoring the duress now facing many prime borrowers, given that the HELs on the books at Countrywide boast an average CLTV of 84 percent and average FICO of 727.
But perhaps the most surprising delinquency statistic of all was a stark jump in prime, conventional firsts that appear to have hit a wall during the first three months of 2008. Countrywide said that 6.48 percent of more traditional borrowers were delinquent during March, with 3.19 percent 90 or more days in arrears. That’s a jump of 127 percent in conventional first-lien DQs from one year ago, and a rise of nearly 13 percent in just one quarter.
It also appears that once they get there, more prime borrowers aren’t getting out of delinquency: the number of severe delinquencies within prime firsts alone rose nearly 40 percent between December and March.
S&P cuts $41 bln of mostly higher-rated Alt-A deals
Tue Apr 29, 2008 6:15pm EDT
NEW YORK, April 29 (Reuters) - Standard & Poor's cut the ratings on about $41 billion of mostly higher-rated U.S. residential mortgage-backed securities backed by so-called Alt-A loans on Tuesday.
The rating agency's action affected 2,183 RMBS classes from 334 Alt-A deals originated during 2006. S&P cut $5.86 billion of "AAA"-rated debt, while keeping $58.16 billion under review for possible downgrade.
S&P said it will assess whether further rating actions are warranted on the "AAA" securities placed under review by analyzing available credit support to projected losses during the timeframe issues remain outstanding.
The Alt-A segment spans a spectrum of credit quality and performance, ranging from near-prime to near-subprime.
While credit scores of borrowers are generally better than subprime, certain attributes are similar, such as the inclusion of stated income loans, reduced-documentation loans and second-lien mortgages, creating a layering of risks similar to subprime securities.
The rating agency also cut $4.65 billion of "AA+" Alt-A RMBS ratings, $8.09 billion of "AA" issues, $2.72 billion of "A+"debt and $1.46 billion of "A-minus" issues.
"The downgrades and CreditWatch placements reflect our opinion that projected credit support for the affected classes is insufficient to maintain the ratings at their previous levels, given our current projected losses," said S&P in a release on Tuesday.
The rating agency said it was assuming total loan loss of 34 percent for Alt-A RMBS transactions backed by fixed-rate and long-reset hybrid collateral, which are loans with fixed-rate periods of at least five years, issued in 2006.
"Due to current market conditions, we are assuming that it will take approximately 15 months to liquidate loans in foreclosure and approximately eight months to liquidate loans categorized as real estate owned (REO)," it said.
S&P estimated a loss severity of 35 percent on deals backed by mortgage loans with a negative amortization feature while assuming a loss severity of 35 percent for transactions secured by adjustable-rate loans and short-reset hybrid loans with fixed-rate periods of less than five years.
The rating agency said it also affirmed 144 classes of Alt-A RMBS securities and removed them from CreditWatch negative.
