Countrywide Mortgage: Good Credit Borrowers Also Falling Behind

Countrywide Financial, America’s largest mortgage lender, said this week that more borrowers with good credit were falling behind on their loans - and that the housing market might not begin recovering until 2009 because of a decline in house prices that goes beyond anything experienced in decades.
The news from Countrywide, widely seen as a bellwether for the mortgage market, initiated a sell-off in the stock market, which is at its most volatile in more than a year. The slumping housing market has become the biggest worry for the stock market because of its potential impact on the broader economy and financial system.

Countrywide’s stark assessment signaled a critical change in the substance and tenor of how housing executives are publicly describing the market. Recently, some were predicting a relatively quick recovery and saying that most home mortgage loans would be fine, with the exception of those made to borrowers with weak credit who were stretched too far financially.

Executives at Countrywide had for some time been more skeptical than others, but the bluntness of their comments yesterday surprised many on Wall Street.

In a lengthy conference call with analysts, Countrywide’s chairman and chief executive, Angelo R. Mozilo, said home prices were falling “almost like never before, with the exception of the Great Depression.”

Nationally, home prices have not fallen in the approximately 35 years that the government and private services have tracked them.

“This is a huge battleship and it’s headed in the wrong direction,” Mozilo said. “Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist.”

Some researchers, such as Robert J. Shiller of Yale, have compiled data that go as far back as 1890 and show that home prices fell for several years during the 1930s.

Mozilo said the number of unsold homes must fall before the market can begin to recover. He noted that because of a large number of homes on the market, the housing sector would continue to suffer until sometime in 2008 and not begin recovering until 2009.

Shares of Countrywide fell 10.5 percent, or $3.56 yesterday, to $30.50. The stock steadily declined during the conference call, falling as far as $29.50 before recovering.

Countrywide’s earnings were the latest in a series of shocks that have rattled the markets in the last two months.

What was added to the worries this week was the idea that even credit-worthy homeowners will default on mortgages at higher rates as home prices fall - and that even a well-run company like Countrywide could be hit by big losses.

The mortgage lending industry has been grappling with a spike in mortgage defaults and foreclosures as the housing market has cooled.

Many buyers have been forced into default or foreclosure because they haven’t been able to sell their homes or end up owing more than their home is worth.