More Trouble at Countrywide
Continued trouble at Countrywide due to a recent run on their retail bank by depositors; this situation (if it gets out of hand) could serve to derail Countrywide’s plans to only fund loans through its retail bank unit. The real interesting thing here is that the main run on the bank occurred the same day as the Fed’s rate cut, showing that what excites “Wall Street” is often meaningless to Main Street. More than anything, it’s an indicator of how scared the general populace is of anything connected to real estate, quite the reversal from 18 months ago when the attitude was that “you can’t go wrong with real estate”.
Whilst the jury is still out on Countrywide’s long-term survival, I think it’s safe to say that we’re likely to see some casualties of the mortgage contagion that are more due to fear, than the actual viability of the business.
If for nothing else than its significant Alt-A exposure, (especially when a significant % of Alt-A loans have false information), Indy Mac bank has go to on everyone’s watch list with respect to a lender bankruptcy (or near collapse). Countrywide is a stronger company than Indy Mac and if CFC’s bankruptcy risk appears to have been only slightly alleviated, than Indy Mac should be considered at risk as well.
Finally, the Countrywide situation begs the question: “If a mortgage lender with 20% of the US mortgage market goes bankrupt, what does that mean for the US economy as a whole?” In my opinion it means that a recession is very likely (at the very least), I won’t speculate beyond that for now.
Disclosure: The Author doesn’t currently own positions in Countrywide or Indy Mac; but may open positions in the future. If the author opens positions in companies he’s either blogged or written articles about, he’ll always wait three trading days after the blog or article was published.
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