What causes foreclosure? Countrywide's claims

By
Real Estate Mortgage Broker with American Midwest Mortgage NMLS142066/250013

I have been looking for this information.     I personally believe that the primary issue is Income as Countrywide says.   This is a result of our weaker economy, people are not getting the hours they did a few years ago and also some are being laid off.  Do you agree or disagree with this article.???  

I do know that the GAO is considering doing a study.  If anyone has any other links to other data please post that link here.   

What causes foreclosure? Countrywide's claims

Countrywide, in its presentation yesterday in San Francisco, made some fascinating arguments about what's causing the foreclosure crisis.  Countrywide CEO Angelo Mozilo "criticized media coverage of the mortgage meltdown several times Tuesday, saying reporters incorrectly blamed 'aggressive lending and exotic reset products' for rising foreclosures."

So what's driving foreclosures? Here is Countrywide's breakdown -- based on information from its servicing portfolio -- when "cause of foreclosure" is known (80.3%), the breakdown is as follows:
--Curtailment of income: 58.3%
--Illness/Medical: 13.2%
--Divorce: 8.4%
--Investment Prop./Unable to sell: 6.1%
--Low regard for property ownership: 5.5%
--Death: 3.6%
--Payment adjustment: 1.4%
--Other: 3.5%

We find this fascinating on several levels, and inconsistent with most analysis we've seen. To start, we should point out, there is probably no institution in America -- including the media and the government -- that knows more about the current crisis than Countrywide. The government doesn't collect timely data on foreclosures; Countrywide does. If this is Countrywide's best, most honest assessment of the true causes of foreclosure, it's shocking: it indicates foreclosures are spiking due to economic weakness -- "curtailment of income" -- that is so faint it barely shows up in economic statistics. If this is what happens in a fairly strong job market and a growing economy, what happens in a real recession, when unemployment rises significantly?

And if "payment adjustments" are not a problem -- as Countrywide argues -- what good would it do to refinance these loans?

There is one plausible explanation: borrowers were so aggressive -- and so hopeful -- that they essentially planned for economic perfection, and the slightest negative deviation from that plan -- say, an unexpected drop in overtime earnings for hourly workers -- is sending them into default and foreclosure.

But here is an equally plausible explanation: That the "research" is really spin -- Countrywide is eager to answer critics and argue that its own underwriting was not a factor in the foreclosure spike -- that it was entirely unforseen and driven by economic events out of the company's control.

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Comments 16 New Comment

Rainer
10,645
Sun Lakes Realty Banning, CA
Sun Lakes Realty, Inc.

I think in some cases in California, just like what Leigh said, homeowners used their homes as cash machines to purchase cars, boats, RV's, plasma TV's, etc all the while knowing their payments would increase over time.  I believe most thought that the machine wouldn't dry up and now it has and they can't refi or sell the home because the values are decreasing.  It's poor financial planning and in the end the homeowner has to be responsible.  In this case it shouldn't be the government or the lender.

I agree with Larry Morris also, It would be interesting to see how many folks bought a home they really couldn't afford and went beyond their means counting on the fact that they might earn more money next year and the year after?  Some would do anything to be in the bigger, newer and better home no matter the cost.

January 16, 2008 02:42 AM
Anonymous #13
Anonymous
Anonymous
My input is job loss and consumer irresponsibility.  This is the cause.  Chuck Schumer, et. al. should stick to doing what they don't do best - managing our country.
January 17, 2008 10:08 AM
Rainer
27,957
Matthew P. Klein
Transaction Realty

If you want to refer to income as a problem because of job loss then perhaps we should re-examine what is causing that job loss? It would be easy to just say that it is jobs going elsewhere or overseas but here, especially in the North Eastern Ohio area there are not many places that are business friendly. Further, with all the regulations laid upon businesses (ie. environmental concerns for manufacturers, permits on top of more permits for any kind of construction) the local government structure has too much beaucracy taking too long to move anything. Hence, the employment opportunities move elsewhere.

It would also be nice to blame over aggressive loan officers and exotic loans but where are the demands coming from to make these loans? Who is telling loan officers that they have to make so many loans in "x" location? Sure, there is consumer irresponsibility but when you have Washington promoting and financing with government funded dollars (ie. yours and mine tax dollars) that everyone has a right to own a home, it's setting up the game for disaster. Homeownership in this country is a privelege, not a right.

 

April 01, 2008 03:10 PM
Rainmaker
210,457
Tim Bradford
NMLS 250013
American Midwest Mortgage

Matt,

Thank you for expressing your thougths here.  I did read your post The US Economy vs. The Free Market and have to agree with most of your statements.   I assume you are aware of Ohio SB185 that took effect over a year ago.  HR 3915 sounds to cover the same subjects you mention in your post about "reasonable ability to repay" and "in the consumer's best interest". 

Regarding, Washington promoting that everyone has a right to own a home.   I did read an article recently that attributed this principle to Clinton, the article went on to say that Bush continued the same attitude.  I agree with you that homeownership is a privelege that is earned.  Another fact I read recently was that in 2006 40% of all loans written were Stated Income loans.  I believe beyond the Job Losses you mention these stated income (or no income) loans also were part of the problem.  You might also like to read http://www.oag.state.ny.us/press/2007/nov/EA%20Complaint.pdf  .   I believe it is the Basis of FNMA's "Appraisal Code of Conduct" that will take effect 1/2009.  

April 01, 2008 03:58 PM
Anonymous #16
Anonymous
Anonymous
Consumer irresponsibility is a big factor I feel in the foreclosure crisis.  Also mortgage brokers putting people in the wrong products and not educating them hasn't helped matters.  I like how Angelo of Countrywide puts the spin on income decreasing.  While this is true, I would think it can't account for a majority of foreclosures.  People buying more home then they could afford to start with and negative amortized mortgages have been lethal.  Also mortgage guidelines got way too loose.  Too many 100% financing options for sub-par credit and too many stated income and No-doc loans. 
April 02, 2008 02:15 AM
Rainmaker
210,457

Tim Bradford

NMLS 250013
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