Archives: 2007 August

The National Association of Homebuilders (NAHB) is an organization that should know a thing or two about the housing market. The following is part of the contents of the NAHB’s most recent newsletter.

Please note the part where they state that the politicians need to addresses the seriousness of the housing situation rather than proclaim that the American economy remains strong. The NAHB thinks differently. They are forecasting the strong possibility of a full blown recession by the end of this year.

“More tightening of mortgage credit for prospective home buyers just in the past month has further weakened housing market conditions and has increased chances that the housing downturn could draw the nation’s economy into a full-fledged recession toward the end of this year, participants in an Aug. 28 NAHB teleconference on the credit crunch warned.

In a national survey of builders just completed by the association, 62% reported that tighter mortgage lending standards had taken a toll on their home sales during the past month, said Jerry Howard, NAHB’s executive vice president and CEO. That was up dramatically from a 33% response when the same question was asked in March, he said.

The survey showed that among the hardest hit by the credit crunch are builders in the West, where 71% said they were losing sales, and big builders, 88% of whom said they were losing business because of the lending clampdown.

Capital One Financial Corp. closed its GreenPoint Mortgage unit, letting 1,900 employees go, as the worst U.S. housing slump in 16 years kills demand for home loans.

Capital One bought GreenPoint Mortgage less than a year ago in a $13.2 billion deal that was the biggest acquisition to date for Chief Executive Officer Richard Fairbank. Today, the McLean, Virginia-based bank cut its 2007 earnings forecast to $5 a share from $7.15, triggering charges of about $860 million, or $2.15 per share.

Capital One decided to “cut our losses now and get out,” said Thomas Brown, chief executive officer at Second Curve Capital LLC in New York, which owned 1 million shares of Capital One on June 30. “The company had been getting a lot of questions about that business.”

Capital One acquired GreenPoint’s parent, North Fork Bancorp, at the tail end of a five-year boom in home sales. The real estate market nationwide has contracted and investors have shunned mortgage-backed securities since defaults on loans to home buyers with poor credit rose to a record earlier this year. According to Bloomberg more than 90 mortgage companies have closed operations or sought buyers since the start of 2006,

GreenPoint specialized on “Alt-A” lending, an alternative for people with decent credit records who don’t quite meet the standards for prime mortgages. Investors who buy Alt-A loans stopped bidding this year as concern about rising defaults grew, pushing lenders including American Home Mortgage Investment Corp. and HomeBanc Corp. into bankruptcy this month.

Countrywide, the largest U.S. home-mortgage lender in terms of loan volume, announced last Thursday that it borrowed $11.5 billion under a line of credit from 40 banks.

Today Countrywide Financial Corp. has begun laying off employees involved in originating loans. Countrywide cites the need to reduce costs as part of its effort to weather a credit crunch,

The layoffs occurred in the company’s Full Spectrum Lending unit, which handles many home mortgages in a category known as Alt-A, or mortgages between prime and subprime that often involve borrowers who don’t document their income. Such borrowers typically don’t qualify for a conforming mortgage, the type that can be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.

Countrywide in all divisions employs about 61,000 people. It had a sales force of about 6,800 in Full Spectrum out of a total loan-origination sales force of about 18,000 as of June 30, according to a Securities and Exchange Commission filing.

Only two weeks ago, Countrywide said it was hiring more loan officers from rivals forced to close down. But the company now is expected to reduce sharply its lending and costs because investor anxiety over rising defaults has made it almost impossible for lenders to sell many types of loans now deemed too risky. That is likely to lead to a steep drop in short term earnings analysts say.