Often cast as having epitomized the lax lending standards that buried millions of Americans in unaffordable loans, Countrywide, the nation's largest mortgage lender, was on the ropes when Bank of America agreed to buy it six months ago. ...I think Bank of America is overly-optimistic regarding future housing prices. Personally I expect that, on a national level, real housing prices will fall about 30%, which means nominal prices would fall less. I expect bubble markets like California, Florida, and the DC metro area will fall much more.
On a weeklong California trip that included a Town Hall Los Angeles luncheon address Wednesday, Lewis acknowledged that loan losses at Countrywide were at the high end of estimates that Bank of America projected in January.
But he said Bank of America paid so little for the lender that once the books on the deal were closed, the Countrywide operation would immediately show a profit — with the potential for huge growth in income when the mortgage industry recovers. ...
"Given our view of things, we do not expect to cut [our] dividend nor do we expect to have to raise capital," he said, even though many other financial firms have taken both of those steps.
But he added that Wall Street clearly didn't believe him on those issues, given how far Bank of America's stock has fallen in recent months. It fell $1.48 to $22.06 on Wednesday, and is down 46% year to date.
As for the housing market, Lewis said Bank of America's latest forecast called for a further 15% decline in home prices nationwide, with the decline going into at least the first quarter of next year.
In the case of California, Florida and other markets that had the biggest booms, a further 20% decline is more realistic, he said.
I also expect that the decline will take much longer than just until the first quarter of 2009. However, I expect that the rate of decline is currently at its peak and price declines will gradually slow in the future.
As for the Countrywide Financial purchase, I believe that in the long run it will help Bank of America become the dominate player in the U.S. mortgage market.
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I certainly would not put the DC metro area in the same league as the big 4, CA, FL, Phoenix & Las Vegas. The amount of flipping and junk loans are 2-3 times as bad as it ever got here. Of all the bubblers, Case Shiller has DC as one of only 3 cities in the US that is still at 200% of year 2000 prices, and its burn down has been only about 1/2 as steep as the big 4 (mostly because we have rising rents and job gains, while they are negative on both fronts).
ReplyDeleteIn fact, DC's burn down is slow enough that the Case Shiller futures market now thinks DC prices will remain the highest out of any of the national bubble markets when this thing ends.
Dont get me wrong this is and was a DC bubble, and the biggest this area has ever seen, but its not (according to Case Shiller) in the same league as some of the company you noted. I do think places like Mannas probably belong in that category, but the rest of the DC area, not so much.