Filed under: Bank of America (BAC), Countrywide Financial (CFC), Housing
During the days when subprime lending wasn’t widely seen as a quagmire, pay-options mortgages were popular. Here’s how it worked: “homeowners” (I will hence forth put “‘homeowners” in quotes when I’m referring to situation where the borrower owes more on the home than it’s worth) could choose to make a smaller monthly payment than normal, and then tack the difference on at the back-end of the loan. This came in very handy for borrowers looking to travel to Cancun or invest in plasma-screen televisions.
Now, Countrywide Financial (NYSE: CFC) is worried about these negative amortization loans. At the end of December, the company had $29 billion in pay-option loans, with $26 billion of that amount having increased beyond the original loan amount. People with pay-option loans are exercising that option and will likely continue to do so — the housing downturn means that you have to think that the increased loan balances are leaving a huge chunk of those subprime borrowers upside down.
Here’s the best part: 81% of those loans were made to borrowers who provided little or no documentation of income.
I wonder how much of this carnage Bank of America (NYSE: BAC) was aware when it decided to buy into the company. Obviously it sees value but I can’t help being skeptical: Given its status as a poster child of pathological stupidity, does the Countrywide brand really have any value at all?
Read | Permalink | Email this | Comments
