Countrywide Financial Corp., the biggest US mortgage lender, said on Thursday that it is facing ``unprecedented disruptions'' in the US home-loan market, which may impair its ability to lend and reduce earnings.
The company signalled that it may be forced to retain more of the loans it makes to homeowners rather than selling them to investors. In a filing with the US Securities and Exchange Commission, it said that it may have difficulty obtaining financing from its creditors.
``The secondary market and funding liquidity situation is rapidly evolving, and the potential impact on the company is unknown,'' Countrywide said. ``These conditions may continue or worsen in the future.''
In July, Countrywide cut its 2007 earnings forecast after net income fell 33% as a growing number of borrowers fell behind on home-equity loan payments. Bloomberg News says that at least 70 mortgage companies have halted operations or sought buyers since the start of 2006.
Countrywide said that payments were at least 30 days late on about 20% of "nonprime" mortgages as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
Countrywide reported that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.
| |
|
So-called subprime customers are ones with risky credit records and at the height of the US housing boom in 2005 and 2006, banks such as HSBC bought billions of dollars of subprime loans from other lenders, lured by their higher interest rates.
The Wall Street Journal said last February that subprime mortgage lending surged over the past several years, and these days, subprime mortgages comprise about 12% of the roughly $8.4 trillion U.S. mortgage market, up from 7.5% of the market in late 2001, according to First American LoanPerformance, a San Francisco research firm. |
| |
Also on Thursday, AIG, the world's biggest insurer said total delinquencies in its $25.9 billion mortgage insurance portfolio were 2.5%.
It said 10.8% of subprime mortgages were 60 days overdue, compared with 4.6% in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading.
While maintaining that it is "comfortable" with its mortgage exposure, AIG gave a downbeat assessment of the market in a presentation to investors and analysts.
It said delinquency rates for first mortgages had risen to 3.98% in June from 3.56 in April and a low of 3.08 in July 2005. First mortgages represent 90% of AIG's domestic mortgage business.
At June 30th, AIG's finance unit recorded delinquencies of 3.68% in subprime, 2.13% in non-prime, and 0.81% in prime.
More than 2 million hybrid so-called adjustable rate mortgages (ARMs), which usually have a fixed discounted interest for a period, come up for reset in the autumn - peaking in October with more than $50 billion due.
Borrowers who contracted for hybrid ARMs in 2004 and 2005 to secure low "teaser" rates for the first two or three years of the loan may see their monthly mortgage payments jump by 35% or more.
Economy.com, which is owned by ratings agency Moody's, reported in late July that 2.5 million first mortgages will default this year.
Economy.com says that foreclosures for subprime loans will hit 10% by mid-2008. The foreclosure rate for that group is currently 4% and was as low as 2.5% in 2005.
