Dear Kai, Countrywide needs your cash

Kai Ryssdal Aug 21, 2007

Dear Kai, Countrywide needs your cash

Kai Ryssdal Aug 21, 2007


Kai Ryssdal: I got home from work yesterday, went straight to the mailbox as I always do. Once I got past all the flyers and advertising supplements, I started plowing through the rest of the junk mail.

And I opened this: an invitation from Countrywide to apply for a 40-year mortgage. Pointing out that it would offer low monthly payments, and that they’ve approved four out of every five applicants they’ve gotten.

Of course, that piqued my interest, seeing as how Countrywide’s reported to be teetering on the brink of bankruptcy. So we went looking for a mortgage broker to talk to. Seth Asher is with Seth, good to talk with you.

Seth Asher: My pleasure.

Ryssdal: All right. So what happens if I take Countrywide up on its very kind offer for a 40-year loan, and in, I don’t know, a month, month and a half, they go belly-up?

Asher: Well, it really depends where you are in the application process. If you haven’t actually funded the loan yet, then chances are you’re gonna get your application kicked out. If they’re belly-up, they can’t perform on the funding of the loan and you’ll have to go elsewhere to get your loan.

Ryssdal: What if I have closed and everything’s fine, and I’ve been making payments for a month or two?

Asher: Then you should have no problem. You might experience a little discomfort not knowing where to send your check if they haven’t sold off the loan. Sometimes they keep loans on their books, but oftentimes, after about a month, they’ll sell the loans and they get packaged, become mortgage-backed securities.

Ryssdal: Right, and we all know how that turns out. But here’s the thing — it’s my house, and I don’t want discomfort with my mortgage. I want to know that where I’m sending it is the place it’s supposed to be.

Asher: Yeah, and that could affect a large number of consumers out there. Because obviously, Countrywide’s a huge company. A lot of people have Countrywide loans and there may be no way to avoid that discomfort.

Ryssdal: Back to this letter from Countrywide. Obviously, if they’re gonna weather this storm they’re having, they have to keep selling into the crisis to generate the business, right?

Asher: Yes, they have to. Absolutely.

Ryssdal: And your professional opinion on how that’s gonna go for them?

Asher: Ah, you know, they’ve made a lot of silly loans in the past. They’ve got to really strike the right balance between being aggressive enough to be able to do loans that need to be done in today’s marketplace, yet not take too much risk, like they seem to have done in the past — which is apparent, since they’ve had a fair number of loans go bad, which has brought them close to insolvency or bankruptcy. Whatever the rumor of the day is.

Ryssdal: Fine line though, right, between taking the risk that’s gonna make you a little bit of extra money and playing it safe and maybe not getting enough in return.

Asher: It is really a fine line, and it’s up to the senior management of that organization to really strike that balance. And it’s especially difficult with such a large ship, like Countrywide, to make all the right critical choices.

Ryssdal: How worried are you if Countrywide should not be able to work itself out? I mean, it makes one out of every five loans in this country.

Asher: Sure. And not only is it one out of every five loans, but also just the ripple effect that one other catastrophe in the mortgage industry will have an effect on the appetite for loans for the remaining lenders in the marketplace.

Ryssdal: Seth Asher is a mortgage broker at Seth, thanks a lot.

Asher: It’s my pleasure.

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