The Wall Street Journal reports Countrywide Home Loans is experiencing Prime Loans, when originated, are now "going bad at a rapid pace". These loans are known as option adjustable rate mortgages, or "option ARM's". They typically have low introductory rates and allow minimal payments in the early years of the mortgage. Countrywide first offered these loans in 2003 and quickly became a leader in this profitable and growing part of the mortgage market. An analysis prepared for the Wall Street Journal by UBS AG shows that 3.55% of the options ARM's originated by Countrywide in 2006 and packaged into securities sold to investors are at least 60 days past due. That compares with an average option-ARM delinquency rate of 2.56% for the industry as a whole and is the highest of six companies analyzed by UBS. The increase in overdue payments partly reflects a decline in home prices in much of the United States, which has made it more difficult for borrowers to refinance or sell their homes. Countrywide held $27.8 Billion of option ARM's as of June 30, accounting for about 41% of the loans held as investments by its savings bank. An additional $122 Billion have been packaged into securities sold to investors, according to UBS. Countrywide is due to provide an update on its business and loan quality on Friday, October 26, when it reports third quarter results. Analysts expect the company to post a large losss for the latest quarter, with estimates ranging from $600 Million to more than $2 Billion. In a recent interview, Countrywide Chairman Angelo Mozillo acknowledged that delinquent payments are "bleeding" into Prime Mortgages. A Countrywide spokesman said the UBS comparison could be misleading because lenders policies for which loans are sold can vary and geographic differences could also skew the comparsion. Countrywide Mortgage would appear to be putting the best face on a major problem. Just thinking, maybe this is one of the reasons for the Securities and Exchange Commission's investigation into the recent stock sales by Countrywide Chairman Angelo Mozilo? More information will be forthcoming tomorrow.
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