Austin Real Estate Blog

To say Countrywide's stock has gone down over the last 3 days would be an understatement. Countrywide stock was at 8.52 two days ago. Today Countrywide closed at 5.12 for a drop of 40%.

So what caused the colossal drop? Countrywide released its numbers for the third quarter of 2007 which were worse than expected. And the expectations were not good in the first place.

First off, delinquencies were up. 6.96% of its loans were delinquent last month, and 1.04% of its loans were pending foreclosure. Both are bad signs for Countrywide.

I would guess one of the reasons foreclosures are up is that Countrywide is not very adept at dealing with short sales, which is the last ditch effort to sell the property at a loss with bank approval before foreclosure. I have dealt with Countrywide on a few short sales. There inadequacy is not just bad, it’s bewildering. On one of the short sales, Countrywide stands to lose only a few thousand dollars, which should look appealing compared to the alternative of massive legal fees involved in foreclosure.

Since Countrywide is trying to stem loses and we have offers in hand, one would expect Countrywide to move quickly. Instead we are waiting for weeks to just be assigned to a case officer. If Countrywide’s survival depends on being able to sell properties, they are doomed. Before even being assigned a case officer, we were given a mountain of paperwork. One of the requested items was a copy of the note… are they that messed up that they don’t have a copy of the note themselves? If you call with questions, you are connected a different call center person each time in another country who knows nothing about your case. This may sound harsh but Countrywide at this point is not just going to bankrupt they deserve to go bankrupt.

I understand Countrywide wants to cross all their T's, but they are going to lose out in the long run. In a down market, you can only ask so much from buyers. Investors are low-balling Countrywide foreclosures because they realize it’s a royal pain to deal with them. And this royal pain will end up costing Countrywide.

Moving on, the number I found most interesting was 1.2 billion, which was loss Countrywide experienced in the third quarter. To put that number in perspective based on today’s stock price Countrywide is only worth 2.97 billion. Ouch. Management is currently making predictions for a profitable last quarter of 2007 and a profit for the year of 2008. I am going to make a different prediction. I predict that instead of being profitable in 2008, Countrywide is going to go into bankrupt in 2008.

What makes me feel that Countrywide is going to go out?

*Countrywide can't continue to have the word loss after the word billion.

*There is no reason to expect that Countrywide is going to have a better 4th quarter or a better 2008. Although the Austin real estate market is doing a little better, the national real estate market is in a funk. And regardless of Countrywide’s sunny predictions, the number of foreclosures should continue to increase as Countrywide finds that the sub prime loans they gave out earlier more and more frequently end up in foreclosure.

*Countrywide’s inability to handle short sales is going to make the high number of delinquencies and foreclosures that much more painful.