September 7, 2007
From Rumor To Reality: Up To 12,000 Layoffs At Countrywide
It was two days ago that “ex SF-er” commented: “Rumor alert: Countrywide may be laying off 6,000 to 10,000 employees.”
And it was but less than two hours ago that Countrywide announced possible workforce cuts of between 10,000 and 12,000 people over the next three months. The culprit, a sharp drop in expected demand: “New mortgages probably will drop 25 percent in 2008 from this year's levels, the Calabasas, California-based company said in a statement today.”
And no, perhaps not entirely unexpected.
∙ What Happens When It’s Time To Fund? We’ll Have To Wait And See [SocketSite]
∙ Countrywide May Cut Staff by 12,000 as Demand Wanes [Bloomberg]
∙ U.S. Economy: Employment Unexpectedly Drops in August [Bloomberg]
First Published: September 7, 2007 4:05 PM
Comments from "Plugged In" Readers
Kind of hard to make money on mortgages when you have to guarantee them for the first year and you can see as a lender the price of housing going down, and you have to sell 20% of your pool at a huge loss.
Here's an article that will make your eyes pop out, and it's happening 20 miles away in Fairfield. Presumably, the bank had an appraisal done for $600K and 4 months later had to sell for $400K:
""The house was purchased in may for $599,000," said Kihn. "We put an offer in for $385,000."
That's $200,000 less than the original purchase price, but the bank agreed to the sale, and threw in extras.
"They did closing costs, all the pest work, and repair damage on the house," said Kihn. "
Posted by: tipster at September 7, 2007 6:48 PM
The question I have is if this should come as a shock? The perception is that regardless of industry, in down turns, people get laid off. We only need to look locally at Silicon Valley for proof (even if you're not in high tech).
"Binge and purge" was a catch phrase I heard in the valley as companies laid off and then rehired later. I fail to see how this will be any different...
Posted by: Can't think of cool name at September 7, 2007 10:05 PM
Tipster, I know some will continue to say that it is "different" in "the city", but the article you posted is amazing! It is rather interesting to also note that those who used to post that the market was "booming" seem to have FINALLY become silent. I knew things were getting crazy in this market when some of my tenants (I am a landlord) with incomes less than mine were buying houses and condos for more than double what I paid for mine. Of course they were just "throwing away" money on rent I guess.
Posted by: Adam Smith at September 8, 2007 6:35 AM
Tipster's article is an example of the logical starting point of a "correction" in the market. I heard on NPR Thursday that Stockton now has the highest foreclosure rate in the country. This distinction used to belong to some communities outside of Denver, which represented the affordable housing option for buyers priced out of the Denver Metro market. When the market started to slow down in Denver, it was these communities that saw their values fall first, with the demand for the outlying developments drying up as housing closer to Denver became affordable again. With the drop in value, these outlying homeowners found it impossible to refinance their sub prime mortgages. An article in the Denver Post earlier this year featured one lady who lived on a street with 7 foreclosed houses. Needless to say, her place wasn't worth anywhere near what she had paid. Stockton, and to a lesser extent Fairfield and Tracy, will likely start to see the same problem.
Posted by: Mile High Reader at September 8, 2007 8:14 AM
"Tipster's article is an example of the logical starting point of a "correction" in the market"
I could not agree more! The same thing has already come to pass in Southern California. The first homes to crash were out in Riverside County but now I am seeing homes sitting despite major reductions in parts of Beverly Hills and other Westside neighborhoods. It will be interesting to see how long San Francisco can hold out, but I still believe that properties in better neighborhoods such as the Russian Hill listing above will always keep their value.
Posted by: anon2 at September 8, 2007 9:44 AM
Yes, the problem is now in our backyard. It's one thing to snicker over Stockton's 35% drops, but it spreads like a virus. Now that it's in Fairfield, people who might want to buy in Pleasant Hill (just north of Walnut Creek) will think long and hard about paying full price to live there when things are 40% off in Fairfield. So it spreads. And it will continue to spread.
And the problems in Fairfield are just starting. And the mortgage resets, not an issue for SF, ARE an issue in Pleasant Hill, putting further downward pressure on that area. In the meantime, a lack of funding for greater fools (once the people are gone who rushed in mid August to lock in rates and loans under lock and shop programs) puts pressure in areas everywhere.
Those pressures have historically been modest compared to job losses and recessions. But now that's starting too. And how could it not? The entire economy has been built in the last 5 years on ever increasing houses that we sell to one another. The new owner then buys even more stuff to fill the house. That's all collapsing and the false economy that rose up to support it has to collapse too. It had to at some point.
As jobs are lost, and recession ensues, people HAVE to sell and rate increases CAN'T be sucked up (if your wife loses her job when your rate resets, you sell because you have no choice, you can't merely cut spending). Ben can lower interest rates all he wants: it just puts a band aid over an amputation. 20% of the economy has been fake and that has to unravel.
Rate cut or no, the investors woke up and they have decided they aren't going to loan any more money. And they would prefer to get 60% back rather than 40% back, so they are showing no mercy in foreclosing so they can sell the home now and try to recoup before it gets much worse. Ben can cut rates all he wants, it will only slow the problem down. Japan cut rates to 0. They went through 10 years of misery and housing still fell by 50%.
30 years ago, Paul Volker decided to wean the country from its reliance on inflation, and after a very painful period, he wrung it out of our system. Everyone thought inflation was great because it forced people to spend money in artificially high amounts to avoid rising prices. It was very similar to the housing bubble of today. It distorted the market in undesirable ways that initially seemed benign. Once removed, real prosperity ensued. Weaning the economy from its reliance on bubbles would produce similar results, but after 9/11,it wasn't the right time to do it.
Reread the article on the front page of yesterday's wall street journal. There you'll see one of the fed governors saying the unthinkable, something to the effect of: investors can expect to, and will, experience the result of their investment mistakes. I had to reread it several times to be sure I wasn't reading it wrong.
They are going to let this unravel. They aren't going to drop interest rates to zero. They may not hold them steady, but they are going to allow the problems to unravel. I think they've decided their legacy will be to stop bubbles by making this one unbelievably painful.
They have communicated that to the bankers and the bankers are shutting down their operations in anticipation. Countrywide was just the last of the major holdouts. Two months ago they were taking on those laid off from other mortgage bankers(!) It looks like they finally got the message: the fed isn't going to stop this.
Posted by: tipster at September 8, 2007 9:57 AM
My rumor was vindicated!!! (not sure if to be happy or sad... many very good people lost their jobs today, many families in stress... and this is just the beginning)
The economic data coming out is belatedly showing a possible dreaded RECESSION. (4,000 jobs LOST last month by the BLS survey, even after the overly optimistic "birth death" adjustments)
this gives the Fed ammunition to drop the Fed Funds Rate.
I can't predict if the rate cut will/should come in September or October, but the data is clearing the way for a cut.
the problem: a cut in the Fed Funds rate will likely NOT reduce mortgage rates much, as many mortgages are not tied to the Fed Funds Rate. They are tied to LIBOR (which is independent of the Fed) or the 10 year Treasury (which has also lost good correlation with the Fed Funds Rate since 2003)
so we (IMO) will get a rate cut this year, but it won't save the mortgage market.
IMO it would take significant governmental or Federal Reserve intervention in order to "save" the housing market, if it is even possible. It would have to be on the scale of FDR's "New Deal" combined with the S&L bailout of the late 1980's. who can predict what the govt will do?
Posted by: ex SF-er at September 8, 2007 4:51 PM
Interesting, but nice homes in nice neighborhoods in SF are going to be last (and least) to decline in a downturn and first to pickup in the upturn. People can predict all the doom and gloom they want, but nothing has happened yet to such types of properties here.
Posted by: anon at September 8, 2007 7:48 PM
Interesting to see LIBOR creeping up - maybe offering the notion that banks in Britain don't trust each other and what one another may have on their books. The 30-day LIBOR has jumped from 5.32% to about 5.80% over the last few weeks - wouldn't it be strange for the Fed to lower the Fed Funds target in this environment? Does the value of the dollar weigh heavier than the notion that our unemployment rate may go up in the future from 4.6% to something beyond 5%? I still think the Fed is going to hold the target at 5.25% - the non-farm payroll numbers for government jobs looked weird, frankly. Maybe a blip caused my many state governments not signing off on a budget in time for their new fiscal years? Anyway.... interesting times continue .... just like earthquake disasters, the folks who are prepared for the blow-ups suffer the least.
Posted by: Jamie at September 8, 2007 10:21 PM
Anon 7:48PM (and too many others) stubbornly think that our precious city - or at least Pac Heights - are immune. The surrounding areas will give back most of their gains over the past fews years (reverting back to mean growth) while San Francisco gets to keep all of its gains. This is absurd. If the location differential between SF and say Fairfield used to be 3X (for a comparable house), is it now going to be 6X? The CAR's own economist called for sellers to get serious about REDUCING their prices.
Prices are coming down everywhere - stay tuned.
Posted by: anon 8:51AM at September 9, 2007 8:58 AM
As someone who owns in Pacific Heights - Cow Hollow area I would like to agree with Anon at 8:51am. I have seen prices come down in this neighborhood in 1991 and the other thing recent buyers should keep in mind is that many owners in this part of the city have owned for many years so we can afford to sell for less than what others have paid to be here and at least in my case would still be able to make 4x what I paid. My neighbor paid 224k for his house in the early 80's so if he sold it now for 2.5m vs. 3.1, he would still be fine. What will happen to recent buyers is anther story.
Posted by: Anon at September 9, 2007 10:00 AM
Signs of the times (literally). I saw six, open home clapboard signs, repetitively clustered on several inersections, in the most exclusive part of Piedmont. It seems that I could not make a turn without seeing these signs. It would appear that, the mass of realtors, and their clients, now, lead lives of obvious desperation.
Posted by: Al at September 9, 2007 11:03 PM
The people on this website are so entertaining with their 'economic analysis'. It seems that everyone here operates at one of two speeds: dour misery or breathless optimism.
Threads like these reinforce my belief that humans are not rational economic machines.
Posted by: Jordan at September 10, 2007 8:46 AM
Jordan - humans are definitely not rational. There's an entire school of thought called behavioral finance dedicated to exploiting the predictably bad decisions most people make based on greed first, fear second. But I digress.
IMO I don't see how we avoid a recession at this point. Our economy thrives on people buying stuff they don't need with money they don't have (as tipster points out). Guess what? California is roughly 13% of the nation's population and GDP. If California has a recession, it's highly likely the US has one.
Oh, and if you think the Bay Area will be immune...guess again. According to this Sacramento Bee article, 90% of the investors going belly-up in SacTown are from the Bay Area.
Posted by: Dude at September 10, 2007 9:42 AM
Check out the comments on that Sacbee article!
" I've given up all hope for home values in Sacramento. Nothing short of Oil errupting from the ground will save the RE market now. I never thought I'd become a Doom and Gloomer but it takes some serious blinders to see it any other way. "
Interesting link, thanks Dude. Would the Central Valley crash really have an impact on us in the city?
Posted by: anonandon at September 10, 2007 3:32 PM
How could it not?
Bloomberg had a great article today quoting real estate economists at Berkeley. They're saying (no surprise here) that cities like SF and NYC will not be immune, and are expecting price declines to start anytime. Can't find a link but I'll send it in to the editor later. Interesting reading.
Posted by: Dude at September 10, 2007 4:56 PM
Anyone see today's news from CFC? They've already gone through the $2 billion bailout in the Bank of America costume and need ANOTHER bailout. Yikes.
[Editor’s Note: Countrywide Shares Fall on Report Lender Needs Cash]
Posted by: [Dude] at September 11, 2007 10:30 AM
Dude - Actually the Bloomberg article says that "No place will be immune" and expects San Francisco prices to fall(gasp) 5-10% from last year.
Posted by: anon at September 11, 2007 11:16 AM
and not at all unexpected ... Countrywide employees decide to sue ...
Employees Sue Countrywide, Alleging Loss of Millions of Dollars in 401k Plan
LOS ANGELES (AP) -- Some Countrywide Financial Corp. employees have sued the mortgage lender, claiming they suffered heavy losses in their 401k retirement accounts after the company failed to warn them about the depth of its financial troubles.
The lawsuit, filed Tuesday in U.S. District Court in Santa Ana, seeks class-action status and names as defendants Countrywide Chairman and Chief Executive Angelo Mozilo and benefits committee members in charge of the retirement plan, according to attorney Steve Berman, who is representing the plaintiffs.
Posted by: badlydrawnbear at September 12, 2007 12:48 PM
If you had a crystal ball and could shadow the going ons before the final ball drops at companies like Countrywide - you'd have to think Country Wide is going the same direction. I wouldn;t be surprised if they fell prey to a takeover. If it looks like a duck and quacks like a duck - it may just be a duck.
Posted by: Michael L. at September 26, 2007 4:31 PM
I was a Colorado Countrywide/KB Home Loans Employee and part of the workforce reduction layoff. I have a lot to say. I was the only employee out of 23 employees, that did not receive any bonus payouts.
I had more tenure than anyone and trained my upper management. I was promoted twice and never received anything close to what the management was making, as new employees. They received bonuses of $114,00.00 for end of year and 40 to 50,000 qrtly bonuses. I was laid off Oct 11th and they hired someone else in my place. They said they couldn't keep me unless they had 1000 loans.
They hired someone with 400+ loans in the pipe. They did fraudulent loans and made everyone pull the numbers, in order to receive their upper management bonuses. I was promoted twice and yet only receive 1 merit increase in 3.5 years.
I was given letters of reference and promised the highest of references to any potential employers and I learned 3 1/2 months after looking for work, that the mgrs. were instructed to give no references for any employee.
Needless to say, I stopped using that reference letter. It isn't worth the paper it was written on! I witnessed 95% of all loans to be unworthy borrowers and the loans still had to be done, no matter what incentives had to be given, to acheive those high dollar goals.
Posted by: Penny Rackley at April 19, 2008 12:14 AM