Countrywide Home Loans – Analysis Essay Sample
Countrywide Home Loans is one of the larges mortgage companies in the United States. The company was founded in 1969 and the concern is focused chiefly on existent estate finance and related activities. For old ages the company has been systematically among the top mortgage companies in the state. Recently. the mortgage industry has been in convulsion. Adjustable rate mortgages and a hapless lodging market are a few of the factors that are doing the industry to be indispensable turned inverted. Even when faced with today’s hapless lodging market and a clip when many mortgage companies have either closed their doors or filed for bankruptcy protection. Countrywide Home Loans has survived its ain battle to stay one of the most profitable mortgage companies in the United States.
A bulk of Countrywide’s gross is generated through two beginnings. One of those beginnings is through loan inception. Loan inception is the procedure in which the loaner really financess the loan.
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An illustration would be when a borrower decides to refinance or buy a place. the borrower will work with the loaner to O.K. their loan so the loaner can shut and fund the loan. The other beginning of gross is through loan service. This procedure is after the loan has closed and the loaner gets paid for roll uping payments from borrowers.
Not merely will Countrywide serve their ain loans. but they besides buy loans from other loaners and agents to add to their portfolio. After studies of net income of over 2 billion dollars the past two old ages. Countrywide is non on gait to make that mark this twelvemonth ( hypertext transfer protocol: //finance. Google. com/finance? q=NYSE: CFC ) . The company’s sulky studies are more of a contemplation of the current province of the market so of its ain schemes.
“Over the past few old ages. the most common type of sub premier loan has been adjustable-rate mortgages known as the 2/28 ARM. Since mid-July. five of the six biggest bomber premier mortgage loaners stopped offering 2/28 ARM’s. ” ( hypertext transfer protocol: //bankrate. com/brm/news/mortgages/subprime_20070726_a1. asp? prodtype=mtg ) . A 2/28 ARM is an adjustable rate mortgage that is fixed for merely the first two old ages and so becomes an adjustable rate mortgage after that. One major company who has fallen during the lodging diminution has been New Century Mortgage.
“New Century has become the prime illustration of a group of companies that grew quickly during the lodging roar. selling propertyless Americans with questionable recognition immense Numberss of “sub prime” loans with “teaser” rates that typically rose after the first two old ages. This concern transformed the once-tiny New Century into a loaning human dynamo that was held up as a theoretical account of the mortgage industry’s success. ” ( hypertext transfer protocol: //www. washingtonpost. com/wp-dyn/content/article/2007/05/06/AR2007050601402. hypertext markup language ) .
The speedy rise to the top was a short extremum as New Century Mortgage was one of the largest companies to travel under. “New Century listed liabilities of more than $ 100 million in its Chapter 11 documents filed with the U. S. Bankruptcy Court in Wilmington. Delaware – the largest bankruptcy instance to day of the month in the bomber premier mortgage sector. ( hypertext transfer protocol: //www. iht. com/articles/2007/04/02/business/loans. php ) ” New Century was a sub premier loaner. A sub premier loaner is a loaner that lends money to borrowers with less than perfect recognition. A major ground for the prostration of the sub premier market was because many borrowers were given adjustable rate mortgages but were qualified merely on the payment during the fixed period. These merchandises were pitched as “band-aid loans” .
The merchandise was being sold since rates were at an all clip low and borrower’s had equity in their place so they were able to afford to pay off all of their recognition card debt with the refinance. A huge bulk of these loans were 30 twelvemonth loans where the involvement rate was fixed for merely 2 old ages. What has happened and will go on to go on will be that the loan will come in its accommodation period and borrowers will non be able to afford their new payment. Since belongings values have stabilized. borrowers will no longer be able to refinance and hard currency out and the equity on their places since there is no longer equity in the place.
The concatenation reaction to that is places will travel into foreclosure ; investors will fasten their criterions on purchasing loans which is basically pass overing out the sub premier market. “In add-on. tightened lending criterions stemming from the bomber premier crisis likely mean fewer purchasers. forcing down place monetary values. hypertext transfer protocol: //money. cnn. com/2007/08/10/real_estate/mortgage_rates/index. htm? postversion=2007081016” .
Countrywide has avoided become victim to this job for a few grounds. One ground is that the company offers a broad merchandise mix. The company does non hold a niche market. They offer A through C paper merchandises. An “A Paper” is considered a borrower with first-class recognition and a solid occupation history. A “C Paper” borrower is described as person who have defects on their recognition and/or they are delinquent on the mortgage payment presently on in the recent yesteryear while “B Paper falls in between. The bulk of loans underwritten today are still “A Paper” loans. Since Countrywide offers a broad assortment of loan merchandises. the company can defy the blow of defaulting loans since it has a big portfolio of good loans.
A bulk of the mortgage loaners who went out of concern were purely “Non A-Paper” or sub premier loaners. Another ground how Countrywide has avoided traveling under is because the company services their ain loans. This has enabled Countrywide to keep on to there sub premier loans in a market in which investors have small involvement. Most mortgage loaners do non hold that luxury. Not merely does Countrywide hold the hard currency on manus to service sub premier loans. they still have one million millions of dollars available to them in warehouse lines. The ability of non being dependent on investors purchasing their loans has greatly impacted Countrywide’s ability to stay profitable during the mortgage radioactive dust.
“The nation’s biggest mortgage loaner sells two-thirds of its loans to government-sponsored endeavors like Fannie Mae. which are under authorization to maintain purchasing loans.
hypertext transfer protocol: //www. forbes. com/feeds/ap/2007/08/03/ap3984906. html” . “In a Securities and Exchange Commission filing. the Calabasas. California-based company said it was at midyear utilizing $ 93. 3 billion of its $ 283. 6 billion of short-run liquidness. go forthing $ 190. 3 billion untapped. It listed $ 3. 8 billion of long-run debt maturing within six months. hypertext transfer protocol: //money. cnn. com/2007/08/06/news/companies/countrywide_liquidity. reut/index. htm” .
Countrywide is besides remaining active in the retail mortgage market in order to last. “Countrywide Financial Corp. will purchase up to five retail loan inception subdivisions in Georgia. Florida and North Carolina from HomeBanc Corp. ( hypertext transfer protocol: //www. bizjournals. com/jacksonville/stories/2007/08/06/daily20. html” .
By purchasing smaller companies. Countrywide is able to keep its footmark in the retail mortgage market without holding to open new subdivisions. The company can transition the freshly acquired subdivisions to follow with the company’s criterions. Countrywide is besides harvesting the benefits merely because they are a big company that can defy the blows from a down market. “”The consolidation will drive the concern wholly to the largest participants. ” said Brenda White. pull offing manager at Deloitte & A ; Touche Corporate Finance LLC in New York. who consults on acquisitions. hypertext transfer protocol: //www. sltrib. com/business/ci_6569222“ .
A major advantage to being a big loaner is that the company will non be affected by the crisp addition in foreclosures and delinquent mortgages. “Countrywide said expected foreclosures as a per centum of unpaid principal rose to 1. 04 per centum from 0. 46 per centum a twelvemonth earlier. and 0. 96 per centum in June.
Delinquencies rose to 5. 10 per centum from 4. 11 per centum last July. and June’s 4. 98 per centum. hypertext transfer protocol: //money. cnn. com/2007/08/14/news/companies/bc. countrywide. loaning. reut/index. htm postversion=2007081411” .
Even with all of the convulsion that is presently blighting the mortgage industry. there will ever be net incomes to be had. Due to the fact there they will ever be the demand for places ; there will besides be a demand for money to be lent to them. Baring fortunes where borrowers do non necessitate to borrow money. there will ever be a market for loaning establishments. Since Countrywide has grown to the size that they presently are. they have the resources available to defy any dangers that may come across in the approaching months. As companies continue to shut their doors. big companies like countrywide will be able to go on to impart to borrowers which will enable them to stay one of the largest and most profitable companies in the mortgage industry.