Countrywide's Greed Has Led To A Loss of $19 Billion In Market Value In 2007

Implications: Countrywide's Home Loan Unit is under scrutiny by the IL and CA Attorney Generals regarding its loan origination practices. The SEC is also investigating Countrywide's CEO, Angelo Mozilo, who made significant stock trades before Countrywide's stock took a nose dive this year. Countrywide's shares has fallen by 75% this year and led to a wipe out of approximately $19 billion in market value. Countrywide has scaled back mortgages to potential borrowers with poor or shaky credit histories and funded only $17 million of these loans in November 2007, which is down from $3.06 billion in November 2006. Countrywide also originated fewer ARMs in November 2007 and loan originations were also down in November to 125,431 compared to 199,929 in November 2006. However, Countrywide reported for the month of October 2007, it generated $23 billion in mortgage loans and its home loan production increased by five percent, despite the rise in defaults, foreclosures and ongoing turmoil in the industry.

Analysis: Countrywide is feeling the heat from Attorney Generals in IL and CA as well as other states who have invested heavily in Countrywide to fund their state pension funds. Some states are filing class action lawsuits against Countrywide and other states are conducting investigations to determine if they have suffered any undue harm as a result of Countrywide's alleged deceptive lending practices. Countrywide has been accused of misleading investors  about its lending practices and by claiming it could weather the downturn in the housing market and Countrywide may have artificially boosted its income by understating loan loss reserves.

1.  Countrywide is facing mounting defaults and foreclosures as well as allegations that its brokers were deceptive in qualifying subprime borrowers for mortgage loans and put them into homes they could not afford

2.  If Countrywide's CEO doesn't have confidence in his organization it may be indicative of why the markets may have also loss confidence in Countrywide and shown the lack of confidence in the dramatic decline in its share price

Takeaway:  Despite the U.S. Treasury Department and the mortgage industry being optimistic about implementing a plan to keep higher risk subprime borrowers in their homes to prevent more foreclosures by freezing interest rates for some borrowers and readjusting rates to a more favorable rate for others, Countrywide's shares has fallen by 75% this year and led to a wipe out of over $19 billion in market value.