Two weeks ago when I went into the local CFC office, one of the gals had the nerve to say, "we aren't really marketing this anymore".
Pay-Option Loans Explode At Countrywide
thehousingbubble2.blogspot.com
From Countrywide Financial 10-Q report. Page 30, "Pay-option loans have increased from approximately 3% of our loan production during the quarter ended June 30, 2004, to approximately 21% of our production during the quarter ended June 30, 2005. These loans, which provide borrowers with the option to make fully-amortizing, interest-only, or 'negative-amortizing' payments, provide our Production Sector with greater pricing margins."
From page 39, we find in the postfolio, pay-option loans in the 2nd quarter of 2005 at $15.01 billion versus $4.47 billion at the end of 2004, an increase of 235%. Here's the shocker. Pay-option loans with accumulated negative amortization finished June at $2.87 billion versus $32.8 million on December 31, 2004. That's an increase of 8,650%.
The firm sold 74% of these loans, so the vast majority are on the market. Presumably, the number that are negatively amortizing is comparable.
Again from page 30. "When the monthly payments for pay-option loans eventually increase, borrowers may be less likely to pay the increased amounts and, therefore, more likely to default on the loan, than a borrower using a normal amortizing loan. Our exposure to this higher credit risk is increased by any negative amortization that has accrued with respect to such loan. In other words, because of the lower initial amortization requirements of these loans, pay-option loans may increase the credit risk inherent in our loans held for investment. We also face increased operational risk in our loan servicing activities relating to these loans."
One wonders if the board or management have time to read these SEC filings considering all the insider selling the last few days. |
