Countrywide Delinquencies Rise
Wall Street Journal
March 2, 2007
Countrywide Financial Corp., the largest U.S. home mortgage lender, reported sharp increases in late payments, including loans by borrowers with relatively strong credit records.
In a Securities and Exchange Commission filing, the Calabasas, Calif., lender said payments were at least 30 days late at the end of 2006 on 2.9% of prime home-equity loans serviced by the company, up from 1.6% a year earlier and 0.8% at the end of 2004. Countrywide said payments were late on 19% of subprime mortgage loans, up from 15.2% at the end of 2005 and 11.3% at the end of 2004. Subprime loans are for borrowers with weak credit records. A loan servicer collects payments.
The new data come amid growing anxiety about a surge in late payments on subprime loans, which accounted for about a fifth of all new home mortgages granted last year. While prime loans are performing much better and the vast majority of Americans are keeping up on payments, some analysts fret the damage is starting to creep up the credit spectrum and won't be confined to subprime borrowers.
The Federal Reserve and other bank regulators are expected to release proposed guidance as early as today to subprime lenders. According to one person familiar with the guidance, it may require lenders to ensure that subprime borrowers can afford to meet the higher payments that kick in after the first "reset" from the initial low rate that typically applies for the first two or three years.
The Mortgage Bankers Association, a trade group in Washington, opposes the idea of forcing lenders to determine whether the borrower can afford the potential cost of the loan after two or three years. "We think you're going to knock a lot of borrowers out of the market," said Steve O'Connor, senior vice president, public policy, at the association.
New data from First American LoanPerformance, a research firm in San Francisco, also show a generally rising trend in delinquent payments. The firm said payments were at least 60 days late in December on about 14% of subprime loans packaged into mortgage securities, up from 8.3% a year earlier. For Alt-A loans, a category that falls between prime and subprime, the rate increased to 2.4% from 1.2%.
Meanwhile, IndyMac Bancorp Inc., Pasadena, Calif., another large mortgage lender that is a big player in Alt-A loans, said earnings this year probably will fall from the 2006 level partly because of a squeeze on profit margins. For 2006, IndyMac previously reported record net income of $343 million, or $4.82 a share.