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Countrywide to aid subprime borrowers
Countrywide Financial made more than 4,000 subprime loans in Minnesota from 2004 through 2006.
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THE PLAN
Countrywide would refinance up to $16 billion in adjustable-rate loans, including:
• Offering new, fixed-rate mortages to 52,000 customers.
• Modifying the terms of another 30,000 loans.
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Countrywide Financial Corp., whose aggressive subprime lending has made it the poster child of the nation's housing tribulations, announced Tuesday it will offer 82,000 customers a chance to adjust their mortgages and avoid potential foreclosure.
The nation's biggest mortgage lender -- and the fourth-largest subprime lender in Minnesota for the past three years -- said it will offer help to borrowers in trouble with their adjustable rate mortgages (ARMs), as resetting interest rates bump monthly payments higher. The new offerings include modifying their existing loans or refinancing to new loans through government-insured Federal Housing Administration (FHA) mortgages.
Home ownership advocates called it a good first step by the lending industry to help fix the foreclosure problem it created.
Business analysts said California-based Countrywide is the logical leader in change after market problems wiped out 150,000 mortgage companies last year alone.
Helping 82,000 of its homeowners with a problem destined to hit 2 million Americans through next year is a small step, said Patrick Schumann, who follows Countrywide for the Edward Jones investment firm, in St. Louis.
"It's modest, but with enough modest steps ... maybe you can have some impact over time," Schumann said. Countrywide sold 4,035 sub-prime home-purchase mortgages -- valued at more than $500 million -- in Minnesota from 2004 through 2006, lending records show. That was 24 percent of the company's mortgages in the state over that time.
"I hope this is just a first step for Countrywide and others in the industry to step up and own a solution in an aggressive way," said Tim Marx, commissioner of the Minnesota Housing Finance Agency. "Homeowners are devastated by foreclosures; communities are devastated by foreclosures."
Countrywide potentially could refinance $16 billion in loans, according to its announced plan to contact ARM customers through 2008. The company will offer new, fixed-rate mortgages, including ones insured by the FHA, to about 52,000 borrowers. It will also offer to modify -- a simpler and cheaper process -- another 30,000 loans.
"Those modifications will probably run the gamut," Schumann said. "I don't expect them to go back to their initial 'teaser' rate levels, but certainly to a level acceptable to both sides -- probably a lot of meeting in the middle."
All this is a good business move, he said. As lending shrivels, mortgage companies see growth opportunities in loan-servicing -- managing the payment collections, so holding onto its borrowers is a good idea for Countrywide, he said.
"Mortgage rates are holding steady," Schumann said. "It's not like when interest rates go down, and we see people prepaying their loans. This is keeping more loans in the companies' portfolios [making] the cash flow to that unit even more valuable."
Wall Street didn't appear pleased, as shares continued their downward spiral. The stock, which has lost two-thirds of its value this year, closed at $15.05 Tuesday, down 4 percent.
Staff writer Glenn Howatt contributed to this report.
H.J. Cummins • 612-673-4671
H.J. Cummins • hcummins@startribune.com
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