Countrywide says loan volume falls

yahoo news ^ | 9-14-06

[Hydroshock]

NEW YORK (Reuters) - Countrywide Financial Corp. (NYSE:CFC - news), the largest U.S. mortgage lender, said on Thursday it funded $40 billion of mortgage loans in August, a decrease of 24 percent from the same month last year.

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Rising interest rates have cut into consumer demand for refinancing mortgages and buying new homes, cooling a housing market that has been red hot for half a decade.

But last month's lending volume was an increase from July, when Countrywide funded $36 billion of loans.

Mortgage loans for consumers buying homes fell to $19 billion in August from $25 billion in August 2005.

So far this year, Countrywide has funded $296 billion of mortgages, down 4 percent from $309 billion last year.

[Always Right]

This is obviously a good thing, since fewer people are getting those risky ARM loans, right?

[Fan of Fiat]

[Fan of Fiat]

So far this year, Countrywide has funded $296 billion of mortgages, down 4 percent from $309 billion last year.

Wow, now that's a crash if I've ever seen one.

[WashingtonSource]

ARMs are riskier, but the real problems come from Interest Only ARMs and Option ARMs, which allow for negative amortization.

[Fan of Fiat]

Why is an interest only ARM riskier than a standard ARM?

[Moonman62]

But last month's lending volume was an increase from July, when Countrywide funded $36 billion of loans.

They went from $36 billion in July to $40 billion in August. Month to month, their loan volume went up.

[Hydroshock]

They are talking year to year.

[Petronski]

Face it: your "doom is nigh" posting program has become a laughingstock.

[RebelBanker]

Good answer!

There are a couple of FReepers who sound like DU'ers the way they post articles talking down the economy. The dinosaur media have been bad-mouthing the economy for five years to try to hurt the President and the Republican Party.

[Moonman62]

Supposedly it doesn't build equity as fast, but in the first few years of a loan, equity doesn't build much anyway, even with a fixed rate mortgage.

[stylin19a]

..it funded $40 billion of mortgage loans in August, a decrease of 24 percent from the same month last year.....

But last month's lending volume was an increase from July, when Countrywide funded $36 billion of loans.

So, why doesn't the headline read "Mortgage Loans funded in August increase 11% over July" ?

Pinging ping lists

sky is falling upwards - ping !
no money left - ping!
still can't get it right - ping !
house sitting empty - ping !

[Moonman62]

I know, that's that only way they could come up with a gloomy headline. But that's no excuse to ignore the fact that the loan volume went up month to month. Interest rates are coming down.

[RebelBanker]

An interest only loan depends on the property gaining in value for the owner to be able to recover his investment (after selling costs). If the value declines, the loan could easily be greater than the value - a condition known as "under water." If the owner is paying down principal on the loan, he is building equity in the property which can keep the loan to value OK.

[Fan of Fiat]

That was the point I was going to make when I got an answer...

For an interest only loan at 6.5% vs. a standard ARM at 6.0%, after 12 months, you only have $3,700 less equity.

Since prices are up year over year, if you own the house longer than 12 months, you have enough equity that the difference isn't significant.

Bottom line, increased risk with an I/O loan is negligible.

[RebelBanker]

May I please "borrow" this?

There are a couple of FReepers who insist on posting negative spin articles on the economy who deserve to have it on their threads.

[Fan of Fiat]

How about a "Broken Record Ping List"

[riverdawg]

"... the real problems come from Interest Only ARMs and Option ARMs, which allow for negative amortization."

I don't see how an interest-only ARM, by itself, leads to negative amortization. True, you're not building equity through your monthly payment. But if one's concern is *falling* housing prices, in such an environment the "equity-payment" component of a conventionally amortized loan is lost anyway ("thrown into a fire," as a colleague of mine likes to say). With an interest-only mortgage in a declining market, you simply have to think of the interest payments plus the fall in value as the total cost of the service flow your dwelling provides.

[riverdawg]

"If the value declines, the loan could easily be greater than the value ..."

This could be true whether or not you are making "equity payments" along the way. If housing prices are falling, you are losing the same amount of "equity" (housing wealth) whether you choose to take the loss in small, monthly lumps (with a conventionally amortized loan) or at the end (with an interest-only loan) when you have to sell the house for less than you paid.

[Montana4Jesus]

As long as the individual borrower is in an appreciating market an I/O Arm is not riskier. Unfortunately there are a lot of people who listen to the talking heads on Saturday morning and think that they know something about the mortgage industry. I have worked in the secondary market mortgage industry for 15 years and can tell you that the benefits far out way the costs. Option Arms on the other hand do have some serious down sides if they are not handle properly, however can also be a powerful tool in money management if the borrower is investment savvy and in an appreciating market.