Major Rumblings About Possible Countrywide Bankruptcy

I just received a press release from the Weiss Research, Inc. stating that Countrywide is on the brink of bankruptcy. While this may not be news to some of those involved in the real estate industry, it is huge news to the rest of the world. http://www.weissgroupinc.com/

If Countrywide declares bankruptcy, your tax and insurance escrow accounts may be compromised. Theoretically, since the escrows are held by Countrywide, they could get caught up in bankruptcy proceedings and may not be available when the necessary tax and insurance payments are due...causing you big headaches.

“Countrywide is at ground zero of the mortgage crisis,” commented Weiss. “It exhausted many of its extraordinary financing options last year and is ill-prepared for the rising mortgage defaults and home foreclosures that are widely expected this year. Already, the credit quality of Countrywide’s mortgage servicing portfolio has deteriorated, with 7.2% of the mortgages it’s servicing delinquent in December, up sharply from 6.5% in November and 4.6% a year earlier.”

"Weiss’ conclusion: “With the mortgage market and economy continuing to slide, it’s likely Countrywide will suffer intolerable losses. Thus, in the absence of extraordinary intervention, we believe it could be difficult for Countrywide to avoid failure, with a potentially severe impact on consumers.”

"If Countrywide files for bankruptcy, this trend will accelerate. Credit score requirements will rise. Borrowers will be forced to put up larger down payments. Investor loans and stated income financing will get much harder to find. So-called “80-20” mortgage schemes, where a borrower gets an 80% first mortgage and a 20% second loan to avoid private mortgage insurance, will also become much harder to arrange. Second-lien lenders that fund the “20” piece of those deals are already getting hammered with losses."

The above excerpts show the signifigant impact of this probable event.