Countrywide Lay-off Spree

The fallout from the mortgage lending crisis is not just the foreclosures that have all those people losing their homes. It's all those employees  losing their jobs.

There have been a lot of layoff aftershocks in the wake of the subprime meltdown - HomeBanc laid off 1,100 a few weeks back, IndyMac is cutting 1,000 jobs - but Countrywide's announcement that they're letting 12,000 people go is an aftershock's aftershock. (A few weeks back, they'd announced a more modest cut of 1,400 jobs, but that enough was apparently not enough.)

Well, you can certainly argue that 12,000 fewer loan officers making questionable loans is not the worst thing that can happen to the economy. Especially if they were practitioners of the Countrywide Way described in a NY Times article The Countrywide Lending Spree a few weeks back. (Link requires registration, I think.)

Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.

This despite the assurances that their sales folks were trained to give customers: that they would find them "best loan possible." I'm guessing they neglected to qualify that statement by adding that it was the best loan possible for Countrywide.

Of course, every company's computer systems and incentive pay structures should "be intended to wring maximum profits", shouldn't they? Nothing wrong with that, is there?

It's just the nagging, niggling little notion that Countrywide was really doing something that is, if not illegal, then a bit shady - like steering people toward more expensive loans. Not to mention being outright exploitative in taking advantage of poor schnooks. (Okay, in a lot - most? all? - of those cases, it was no doubt poor schnooks suffering from the dual maladies of greed and economic illiteracy. A powerful combo!)

Twenty-five percent of Countrywide  sub-prime loans are in default:

Many of these loans had interest rates that recently reset from low teaser levels to double digits; others carry prohibitive prepayment penalties that have made refinancing impossibly expensive, even before this month’s upheaval in the mortgage markets.

Then there's this nice bit:

Other documents from the subprime unit also show that Countrywide was willing to underwrite loans that left little disposable income for borrowers’ food, clothing and other living expenses. A different manual states that loans could be written for borrowers even if, in a family of four, they had just $1,000 in disposable income after paying their mortgage bill. A loan to a single borrower could be made even if the person had just $550 left each month to live on, the manual said.

Obviously, anyone willing to take this deal is - there is no other word for it - an idiot.

And obviously any company willing to make this deal is - there is no other word for it - immoral.

As the shakeout continues, we'll see just how much of our economy is a subprime mortgaged house of cards.

For now there are 12,000 more pink-slips on their way; 12,000 more people who may well have a hard time making their next mortgage payment, compounding the misery all the way around.