Subprime Fallout Astounds Analyst

The rate at which the subprime market has fallen is “astounding,” wrote Vandy Vartaj, an analyst for the subsidiary of Countrywide Capital Markets, saying it was time to “fasten your seatbelts.”

He also noted that few pools of subprime whole loans had gone out to bid in the previous week, and most of those that did were trading at a discount to par servicing released.

When contacted by MortgageDaily.com, Vartaj did not dispute the contents of a leaked memo reported by Source Media Friday.

The note was written as Calabasas, Calif.-based Countrywide Financial Corp., the parent of Countrywide Capital Markets, revealed in a Securities and Exchange Commission filing that delinquencies in its subprime servicing portfolio climbed to 19% at the end of the fourth quarter, up from 17% at the end of the third quarter, and up from 15.2% at the end of 2005.

Meanwhile, delinquency on Countrywide’s prime loan servicing portfolio was at 2.9% at the end of the fourth quarter, nearly double the 1.6% year earlier figure, and indicating that problem loan growth is not limited to subprime mortgages.

Last week, the San Francisco-based research firm First American LoanPerformance reported that 14% of all securitized subprime loans were delinquent, a high percentage but one-fourth lower than Countrywide’s 19%.

Last summer RBS Greenwich Capital reported in a study that Countrywide’s subprime Option ARMs had higher delinquency rates than those originated by competitors Washington Mutual, IndyMac and Downey Financial.

Subprime mortgages accounted for about a fifth of all new mortgages last year and about 13.5 percent of outstanding home loans, according to the Mortgage Bankers Association.

Michael Moskow, president and CEO of the Federal Reserve Bank of Chicago, recently noted that in looking for the causes of recent foreclosures, much of the attention has been focused on nontraditional mortgages, including subprime. But he pointed out that “these diverse mortgage options help people manage their finances and allow more people to afford their own homes.”

While these nontraditional mortgages “may not be suitable for the average borrower,” Moskow said during a presentation of the Home Ownership Preservation Initiative award to Residential Capital Corp. CEO Bruce Paradis last Thursday that sound lending practices can ensure that customers “understand the loan terms and have the capacity to repay.”

“There are no winners when a foreclosure occurs,” Moskow said. “Lender, servicer, home owner, investor, community — none of these parties gains anything from a foreclosure.”

Late last year, Countrywide Chief Executive Angelo Mozilo, concerned over his company’s rising delinquencies, said he was calling some delinquent borrowers himself to help find ways for them to become current.

On March 1, the day Countrywide filed its fourth quarter results with the SEC, and on the previous day, Mozilo exercised his options on 116,000 shares of Countrywide stock and then immediately sold all of those shares on the open market.

Countrywide began pushing subprime mortgages in 2003, when its subprime production reached $20 billion, up from only $9.4 billion in 2002. Last year, the company said it’s nonprime originations, including subprime and home equity loans, totaled $88.5 billion.

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at demuth933@earthlink.net