Alright, I want you people to school me real quick. I’ve been reading these stories about the Countrywide mortgage company getting mean and nasty with foreclosures, and the Countrywide CEO leeching huge personal profits from the company — Krugman even compares Countrywide to Enron.
Now normally, financial news just flies by my bleary eyes and is ignored, but the name in this case perked me up: the mortgage on my house is through Countrywide. Do I have to worry?
I wouldn’t think so. We got our mortgage at a good, low fixed rate some years ago, we haven’t had any problems keeping up on the payments (the cost of living in Morris is wonderfully low), and we don’t foresee any reason to trouble a lender in the future. But I have noticed an annoying uptick in dunning phone calls from Countrywide “offering” to renegotiate the mortgage (we neither need nor want to), and now all this chatter has me losing confidence in them.
I know there are economics wizards and smart legal minds among the readers here. Reassure me.
Me too, as another Countrywider. We’re even getting personal letters now from the individual we dealt with when we did our mortgage – “I was good to you then, so why not trust me now and tap your equity?” letters. Makes me feel slimy just handling the envelope.
Chris Bell says
Run for your life.
I’m surprised you signed a mortgage years ago and that lender never sold it to begin with.
You have nothing to worry about. You have a good fixed rate and you’re paying on time. They can’t take your home or force you to change your terms with them regardless of their own troubles. The most that would happen is they’d sell your note to another company who you would still have the same terms with — you’d just write the check to another entity. Just don’t allow them (or anyone else) to talk you into changing your terms.
Wicked Lad says
I work for a mortgage company, PZ, and I also have a fixed-interest (4.5%) mortgage from a few years ago. I don’t know what Countrywide is telling you, but you should be okay, even if Countrywide goes belly-up. And frankly, I think Countrywide is not as frail as some other mortgage companies.
Mortgage originations are way down, so all the mortgage companies are desperately trying to drum up business, and sure, if a customer with a good credit rating and good payment history wants to trade his 4.5% mortgage in for a 6% mortgage, they’ll be happy to accommodate you. I for one am ignoring all the “offers.”
Keep paying your mortgage on time, keep an eye on the escrow account and you’ll be fine.
As for the broader economy, though, I’m worried about the impact of the crash in the mortgage-backed debt securities market. People keep addressing it as a liquidity problem, but it’s a potential solvency problem. If bigger institutions start failing, we could have some serious problems.
The markets* seem to have concluded people like me are overly pessimistic, though, so you’re probably safe ingnoring me on the macro-economic outlook.
*For wonks, I’m talking about the the recent narrowing in swap spreads.
I wouldn’t simply dismiss the opportunity of re-financing your mortgage. Chances are that interst rates are lower now than when you took your loan out, so even though you don’t need or want to, you could be throwing money away each month by not taking action. When I re-financed, I was able to keep my payments basically the same, but halve the loan period to 15 years. There are some good deals to be had out there to people with solid credit.
Take care – enjoy your blog hugely.
AARRRGGGGHHHHH!!! Just heard from a friend of mine. Her daughter had to sell her home to avoid foreclosure.
She got a subprime, zero money down 2/28 adjustable ARM.
Bad in the first place. The interest rate was….12% initially. In two years it was to go to …..18%. The going rate right now is 6-7% for prime.
This is usery, highway robbery, a ripoff. I told the daughter that the mortgage was going to eat her alive unless she refinanced. Wasn’t able to refinance and looked at that 18% bumpup and bailed.
She isn’t stupid at all, but her family bought into the take on huge amounts of debt and have it all right now mentality.
Just a ditto… As long as you’re not looking to refinance or pull out your equity, just chugging along making your payments, you’re fine. Worst case, they go belly up and someone else takes over the note, or they sell the note to someone else… in which case, as noted above, you send your check to a different address every month.
If you do choose to refinance, be sure to read the fine print very carefully. But you should be doing that on any mortgage anyway.
NetBank just went under because of, in part, bad loans. My wife had a small account there — no problem —ING took over the accounts and everything seems to be transitioning smoothly, EXCEPT for people who did not realize the FDIC limits insurance at $100,000 for each account holder at each bank.
So — if you have $110,000 in some FDIC-insured account somewhere, take some out and put it in an account at another bank.
There are various exceptions and wrinkles on this — go to the FDIC site if you have anything approaching 100k in one bank. http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html
I also have my mortgage through Countrywide. We do seem to be getting a lot of refi/home equity offers recently.
I have a Visa through them as well. For every $2500 on the card, we get $50 towards our mortgage principal. They aren’t making any money on us (other than the merchant fees) as we pay in full each month. So I wouldn’t be surprised if they eventually pull that offer. I’ll be disappointed, as we’ve only had the card for 4 months and have already put an extra $250 towards principal!
Reed A. Cartwright says
We’re lucky. We don’t have a standard mortgage holder. Because my father is a commercial property developer, we had access to mortgage options that very few families would have.
My biggest worry would be if Countrywide is your mortgage servicer, which they presumably are. It’s their job to make sure your mortgage payments are applied to the lender (whom you don’t know; your mortgage is probably in a pool of mortgages that has been securitized and purchased by a bank or insurance company). So they can royally screw up there. When I refianced years ago I gained with a new servicer, but the previoius one (a very crappy one now out of business) did not apply the most recent payment, so I was delinquent for a while. Getting that payment from one servicer to another was a real chore. I hope that this was not too alarming, I believe the chances are low for a screw-up.
I am a retired Federal bank examiner. Nearly every bank I examined that originated mortgages sold them to Countrywide, among others, becasue they were the biggest, and the banks never had a problem with them (to my knowledge). If they go bankrupt, someone else will take over, leaving most of the employees in place, so hopefully you should not have the same problem I had.
I have a nephew who is a mortgage broker. He says he and his coworkers spend most of their time these days doing either of two things: (a) handing Kleenex to crying clients while explaining why they’re losing their homes and (b) trying to lure solvent clients into refinancing deals to churn up business.
When I made a slightly snarky remark to my nephew about predatory mortgage companies, he colored a bit and said he made almost no sales pitches personally: clients flocked to sign up for adjustable-rate mortgages and interest-only instruments. I know him well and I’ll give him the benefit of the doubt, but I’ll bet he could have tried harder to warn his customers away from bad deals. That’s just not his job.
First off, if you’re in a fixed rate mortgage, you can do whatever you wish. Countrywide can’t change the terms.
In all likelihood Countrywide is just doing what lenders try to do: Get you and your trophy wife, borrowers with good credit and a good history of paying on time, to take out a bigger mortgage at a higher rate. The interest in doing a new deal is entirely theirs, not yours. On the other hand, as Robert suggested, they could be amenable to a lower rate or shorter term or a combination but I doubt it. They’re one of the stronger and bigger sub-prime lenders and have been hit hard by some write-offs, so logically they should be looking for ways to increase their revenue and margins. Getting you to bite–take out a bigger mortgage at a higher rate–is one way. They’re counting on your greed to have it all now, you know like putting a Ferrari in your garage to drive the two blocks to UM Morris and impress your students.
Also, they may well have sold your mortgage to another bank or lender, but you would probably not even know, since Countrywide would still service the mortgage, skimming some of your monthly payments off for their effort.
Given current economic conditions, I’d ignore them. But, if you like to haggle, ask them for an offer and see what happens. You can always tell them “No thank you.”
You are in serious trouble! You need to sign over your house, property and Trophy Wife(TM) to me. Only by getting your assets overseas can you avoid being cast out onto the streets.
I promise you can still live in our basement/garage/whatever you have.
I had a mortgage through Countrywide originally. When rates went down they weren’t interested in helping me refinance at the rate that several other banks were offering, so I dumped them. My refinance kept the same payment and halved the term. Woo Hoo! Now I get “come back to us” letters from them every so often. I have no use for them anymore. While I was with Countrywide I didn’t have any problems though. Paid with electronic transfer every month so I never gave them reason to be unhappy with me. Recently my new mortgage holder sold my note to another lender and the transition went seamlessly as far as I can tell, so no worries on that front either.
Matt M says
I work for a company that finances mortgage lenders. The bad times seem to be slacking off, but we are still in the “You can’t have a loan” business. Foreclosing on mortgage lenders is complicated.
Countrywide is going to be one of the remaining companies, once the shake-out is over. They have reserves, assets, backers, and a strong name.
A lot of smart marketing people have taken advantage of a lot of average Americans, when it comes to home financing. As with credit cards, the best bet is to never assume that the mortgage companies are not trying to screw you.
I’m a bankruptcy lawyer and my business is booming. My clients bought houses at the height of the market, with no money down and at a teaser rate, which is now “resetting” upward. The housing market has tanked and their houses are now worth much less than they owe and their monthly payments are shooting upward.
By now, they’ve run up their credit cards to try to stay afloat. Their best option is often starting all over by filing bankruptcy.
The good news is they don’t make much money. That’s good because under the new bankruptcy law, filing the easier kind of bankruptcy is tied to income and shuts out many people of even modest means.
Yes, I’m quite familiar with Countrywide.
But PZ, unlike my clients, you were smart in getting a fixed rate mortgage that you can afford. And I bet you read all the paperwork before you signed it.
Kat, My wife worked in the mortgage industry, and I’m sure you know that all borrowers have a credit rating. Some prime borrowers mortgages are flagged as being very stable, and get put into no sell groups that companies will hold onto because they are low risk almost guaranteed loans. Our mortgage is currently held by the issuer (Countrywide. Apt name, as by the inference of these forums, ‘tehy pwn all ur bases’) But to PZ’s original question, I concur with all of the other commenters. With a fixed rate, and a monthly payment your comfortable with, don’t change anything.
I just got a mild scare, and it involved Countrywide. Somebody calling me telling me that my Countrywide adjustable is about to go up. The problem? I don’t have a loan with CW! I can’t figure out if it was a scam or just someone with really bad information out there.
You should be fine so long as you don’t have a subprime loan.
Leapin’ Lizards! She may as well have put her house on a VISA card. Ouch.
I worked for a sub-prime lender a few years ago. They want to keep people out of foreclosure because it’s lengthy and very costly. Just because mortgage companies are helping people avoid foreclosure doesn’t mean that these people will keep their homes. Often the mortgage company will offer them a deal like “cash for keys” (you vacate and we’ll give you $1000 to move out), or encourage a short sale or deed in lieu (you sign over the dead and we’ll forgive the debt) to stop the foreclosure/eviction.
Most states offer redemption periods too where the house can be reclaimed by the borrower if they can catch up on their account within a set amount of times. At least one state allows a year. That means the house is tied up until the redemption time is over in most cases even after a lengthy foreclosure.
Many sub-prime lenders are in as much trouble as their clients financially, especially the ones that offered a lot of ARMS, MTAs (why are these being offered again?), and IO loans to people who couldn’t really afford them. My old company is approaching bankruptcy. It’s ugly.
You should be fine if you stick with your mortgage and keep paying. If they send you any kind of offers and suggest you must take them, I would pay a few bucks and consult a lawyer. Seems to me you ar in excellent shape.
Turd Ferguson says
Just an FYI. If any of you have equity lines (HELOCs), call your lender and ask for a lower rate. I did and they dropped it by a 1/4%. Never hurts to ask. That goes for credit cards and any other revolving credit you have.
When interest rates were falling, I got a similar letter after I sent a big extra payment. My mortgage company wanted to cut my interest rate. No catch; I’m guessing they just wanted to discourage me from paying it off early, as they preferred lower interest to no interest. I ended up saving some money with minimal hassle. But with rising interest rates and a questionable company, it could be a different story.
jane hay says
Check out the website Calculated Risk – all you ever want to know and very up to date about the housing and mortgage market. Read the comment sections especially. I read it every day to keep up with the imploding economy.
You have nothing to worry about.
For a while, it looked like Countrywide had something to worry about. Their CDs offered a 5.4% interest rate when most other CDs of the same term offered 5.1% They are FDIC backed, so it was a good deal for me, but it implied that Countrywide was having a bit of a cash crunch or they wouldn’t have been offering a premium like that.
Cathy W says
Hubby used to work in the mortgage business; he’s confirmed my instinct that as long as you keep the existing mortgage and make the payments, the worst case scenario is that you’ll have to send your check to a different address. You, as a reliable borrower, have nothing to worry about.
One plus (if you can call it that) of aging is that this real estate thing has gotten old.
Let’s see. There was the house we couldn’t sell for 2 years in the early 80s. Then the house that stagnated in the late 80s/early 90s. It’d doubled by the time we sold it late 90s.
A house is a place to live. Real estate has this habit of going up and down. Anybody who thought it would go up forever has gotten their education. I feel sorry for them, but it just seems to keep happening over and over so it’s not like an informed borrower wouldn’t have known about it.
Our first mortgage was at 12%. And yes, we did refinance promptly at the next rate drop — all the way to 9%. It’s OK to stretch a little when buying a place, but deals that depend on the market behaving a certain way are a bad strategy.
I’ve got you all beat.
Habitt for Humainty, 0% interest–yes, zero, no interest. Every payment I make goes directly to principle and a little into escrow to cover property taxes and insurance. Even I get lots of offers to refinance. Hahaha.
Paul Krugman is…well, a rather ‘liberal’ economist, which means I would take him with a little more than a grain of salt. This is not to say that he’s incorrect, but look around and see what other economists say – and I don’t mean random people who call themselves “economists”, I mean academic economists, or, say, Fed economists.
ArtK @ 19: Same thing happened to me, although they did get my mortgage originator/servicer right. I’m not sure if it really was a scam, or just a blanket mailing that pulled my mortgage servicer (publicly available where I am) and assumed that I had an adjustable rate mortgage. My parents have received similar letters, and they bought their house with cash – so there’s never been a note associated with their property.
Chuck C says
I just left Washington Mutual’s mortgage servicing division. You have nothing to worry about if you make your payments: you have a contract with them, and they can’t just rip it up. And even if Countrywide went completely belly-up, the servicing your mortgage would just be assigned to a new servicer (Countrywide probably doesn’t even own your mortgage itself: it probably sold it within days of obtaining the note on it, and are now just functioning as book-keepers for whoever actually does own it. That, to slightly over-simplify the concept, is what ‘servicing’ refers to in regards to mortgages).
As for Mozilo skimming, I think CW’s performance has been poor not because he’s shady, but because he’s kind of an idiot. He doesn’t exactly command a great deal of respect in the industry from what I’ve heard in the last year, NYSE Magazine articles non-withstanding. Every time he opens his mouth, he says something stupid and CW stock drops or the great American freak-out over housing increases, or both.
Regarding post #8: One can deposit way more than $100,000 in one bank and be totally insured by the FDIC. For instance, if I have $300,000 to deposit, I would break it up into four $75,000 accounts, each under a different designation. Account#1 would be jointly held by my wife and me. Account#2 would be mine held in trust for my wife. Account#3 would be my wife’s held in trust for me. Account#4 would be joint between my wife and me held in trust for one of our kids. One could go on and on with different variations depending on the size of one’s family.
Why, in my example, did I divide the $300,000 into four $75,000 units rather than three $100,000 units? If I did the latter, accruing interest would push each unit over the $100,000 insurance limit.
check out GIMPEL’S GALLERIES
PZ Myers says
Thanks for the advice! Of course, imagining having to worry about exceeding the $100,000 insured limit is nothing but a wild fantasy, as far as I’m concerned. Perhaps next everyone can tell me where I can get the best deal on mooring fees for my personal yacht.
I wouldn’t say that its pessimistic to worry about solvency in regards to this. The feeling is that Bernake will continue to bail out troubled lenders by buying back their financial goods at above-market rates, but if things continue to go down, then that’s not a policy he can maintain for long without risking inflation. The fact that his first attempt at bailing out right after the big drop at the beginning of Sept. and before the rate hike only seemed to drop the relative value of the dollar doesn’t exactly inspire confidence in our economy’s health or in Bernake’s capability.
Then again, I’ve never liked the guy’s policy to be honest. A Central Banker who’s first big statement on the U.S. economy was basically, “Spend all you want and don’t worry about beggaring the nation, because foreign govs will bail us out with investments,” is just too short-sighted in my view.
Brian X says
I had sort of been under the impression that a lot of these corrupt subprime mortgage companies (or at least their officers) were making their money off the backside — taking a hit on the loan but making up enough of the difference to make a profit at auction. In all fairness, though, that’s the only way the term “predatory lending” makes sense to me.
Brian X says
Of course, in all fairness, I’m also one of those naive fools who is convinced that the oil companies are jerking around the commodities markets to make their profits. Silly tinfoil-hatted me.
Worst case scenario (being unfamiliar with federal and Minnesota mortgage regulations, I don’t know if the worst case can actually happen), and what to do if it does:
Worst case – There is a “call” provision in your mortgage documents allowing Countrywide or whoever holds the note to call the entire remaining amount due. As I noted above, I am not familiar enough with federal and Minnesota mortgage lending regulations to know if this is banned as a predatory lending practice. Even if it’s allowed, realistically there’s little chance of it. It’s not a very efficient way for Countrywide to collect most of the mortgage debt they’re owed, so it would be absolutely a last-ditch attempt by Countrywide to stave off bankruptcy or creditors.
What to do in the very unlikely event the worst case happens: – Someone else will want to give a reliable customer like you a mortgage, which would mean they’d pay off Countrywide and give you a new mortgage. It might have a slightly higher interest rate if prevailing mortgage rates are higher than when you took out your original mortgage.
My professional advice is to take them up on every offer they push you, no matter how ridiculous it sounds. Refinance your mortgage, buy another house, whatever they ask, you do. Just make sure you’ve got Dick Cheney’s social security number and personal information to put on the forms. :D
They want you to refinance simply so they can make a couple of bucks on the transaction. In their ideal world, you would opt for an adjustable rate mortgage so in the future they could perform and even more efficient walletectomy every month. Even if you selected another long-term fixed rate deal, they would pick up a few bucks on the closing. At this point, they are not much different from the avearge prostitute – they don’t make any money off a john that turns them down.
If you have an escrow account, you might want to check that it is going where it is supposed to; this is especially so if the mortgage is sold, refinanced, or paid off.
Also realize that many loans have pre-payment penalties that allow mortgage lenders to recoup a loss on a loan that’s paid off quickly. The terms can also apply to a large payment, even if the loan isn’t paid off in full.
Part of the predatory lending practices that were cracked down on were the ones where the lender would convince a borrower to take out a new loan even if they’d owe a lot in pre-payment penalties (up to 10% of the loan in some cases). Each state has their own pre-payment penalty guidelines that regulate how much a lender can charge and how long they can keep it in effect.
Other predatory lending practices were getting a borrower to take a new loan when the terms were worse than their original terms. Lenders must prove that their loan benefits a borrower, but this could be as easy as providing cash out on the loan.
I used to work at Countrywide, lo these many years ago. They used to be a nice place. Started getting evil about the time I bailed out.
Worst case scenario, CFC goes belly up and your loan will be sold to someone else. Best case, they go belly up and they forget to collect on your mortgage! Ha ha.
If they are bugging you with phone calls tell them “DO NOT CALL ME ANY LONGER. PUT ME ON YOUR “DO NOT CALL LIST” AND DO NOT CALL AGAIN!” By law they may not continue to telemarket to people who request otherwise.
Clearly they’re calling because they are trying to generate mortage business where the market is dead. Mortgage originations is a cyclical business – boom and bust.
For all the damage that Countrywide and WAMU have caused homeowners, others who are not in financial straits can take advantage of current conditions to profit from these two companies.
Countrywide, in spite of Bernancke’s rate cut, and in an effort to raise money to continue financing its mortgage business, is currently offering the highest yield on a one year CD in the country, 5.65%. It’s FDIC insured, of course, so there’s no need to worry about whether Countrywide goes under.
WAMU, at its current depressed price, has a 6.3% yield on its stock. This, of course, is not insured, but along with the yield, it offers the possibility for capital appreciation. I would not buy it for short term gains, but, to me, it looks good for the long term.
check out GIMPEL’S GALLERIES
Hank Roberts says
They’re Tories, basically: “… that aristocracy, whose heraldry is written in the same ledger of a broken bank, that chronicles the wholesale robbery of the widow and the orphan ….” — Benedict Arnold, as he was first losing his illusions.