No more no-money-down mortgages from Countrywide


From Reuters
Friday, March 9, 2007;_ylt=A...

Countrywide Financial Corp., the largest U.S. mortgage lender, on Friday told its brokers to stop offering borrowers the option of no-money-down home loans, according to a document obtained by Reuters.

Loans financing 100 percent of a home's value are among those that have led to a sharp rise in delinquencies at U.S. mortgage lenders. Such mortgages below "prime" quality have resulted in losses, sales and even closures at more than two dozen mortgage lenders, analysts say.

"Please get in any deals over 95 LTV (loan-to-value) today!" Countrywide said late on Friday in an urgent e-mail to brokers. "Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12."

Countrywide joins other large lenders that will require homeowners to have at least a 5 percent stake in their homes, including Washington Mutual Inc. and General Electric Co.'s WMC Mortgage. Fremont General Corp. last month stopped making "piggyback" loans that are often used to make up 100 percent LTV loans, and last week stopped lending altogether amid pressure from regulators.

The surge in delinquencies, due to loose underwriting standards and a cooling housing market, has alarmed financial markets in part because it has happened so quickly. The bulk of delinquencies is coming from loans made last year that are as little as one month old, making 2006 perhaps the worst ever in terms of mortgage credit quality, according to analysts at UBS Securities.

Countrywide Chief Financial Officer Eric Sieracki this week said the Calabasas, California-based company will survive the downturn in subprime mortgage credit quality since it has not been forced to sell loans into a turbulent market.

Monoline lenders such as Fremont and New Century Financial Corp., which focus on subprime mortgages rather than a broader line of lending, have to sell their loans to maintain cash flows. They are going through "a very dark time," Sieracki said at a Raymond James Financial conference in Orlando, Florida.

Countrywide is the largest subprime lender, with $38.5 billion originated in 2006, according to trade publication Inside B&C Lending. But the volume makes up less than 10 percent of the total $468.2 billion originated by Countrywide last year, Sieracki said.

The general pullback in credit to riskier borrowers will take a toll on the overall economy, economists at Goldman Sachs Group Inc. said in a research note this week.

More cautious lending could cut annual new home purchases by 200,000 units in "a relatively conservative scenario," the economists wrote. Higher defaults and foreclosures of existing loans will dump more supply on the market, they added.

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