August 28,2007

 

To Countrywide Brokers,

This is unquestionably one of the most challenging times in the annals of mortgage lending. As such, this communication is the first of a series that will outline how Countrywide , America's
Wholesale Lender is navigating through this challenging market. Additionally, it is my desire that these ongoing communications will share some perspective that will help you to adapt and
prosper in the current mortgage lending environment.

Countrywide in the News
First, I would like to take a moment to address some recent developments that have strengthened our ability to serve both you and your borrowers.

 

Bank of America Investment in Countrywide

 

On August 22, Bank of America invested $2 billion in Countrywide in the form of non-voting, convertible preferred securities. It is important to note that this is an investment in, and not an acquisition of Countrywide. Bank of America does not have representation on Countrywide's board or a management role in the company. The investment is a true vote of confidence in Countrywide from the largest retail banking franchise in the nation. It strengthens our balance sheet and benefits all of Countrywide's constituents including our Business Partners.

 

Additional Funding Liquidity - We have recently drawn upon credit facilities provided by a syndicate of 40 of the world's largest banks, which provided an infusion of $11.5 billion to supplement Countrywide's liquidity.

 

Mortgage Business Migration

 

We recently announced that we have accelerated our long-held plans to migrate our mortgage business into Countrywide Bank which has over $100 billion in assets. We are executing this migration as quickly as possible and do not expect it to materially change the way we operate, our key strategies, or our continuing goal to be the dominant lender in the wholesale channel.
Now that I've outlined the steps taken to strengthen Countrywide's franchise, let's turn our
attention to the current market environment.

 

Secondary Market Driving Change

 

 

Further complicating an already tough real estate and lending environment is one

of the weakest secondary markets in history. The result is that there is limited demand for mortgages or mortgage-backed bonds other than what is commonly referred to as
the "agency" execution (Fannie Mae and Freddie Mac). Despite this disruption in the
secondary market, substantial lenders like Countrywide, with access to a bank balance
sheet, are well positioned to succeed.

 

In an effort to address the above challenges, Countrywide, along with the rest of the industry, has been revising product guidelines and pricing policy on an ongoing basis.
It is likely that these areas will continue to change so I urge you to check cwbc.com frequently to ensure that you have our most updated guideline and pricing information.

 

 

Channel Dynamics
Another challenge facing the wholesale lending channel is that the mortgage industry has shifted toward a retail bias. Why? There are many factors. However, one of the major causes
is that loans originated and processed on a retail basis generally perform better than third
party originations where an intermediary originates and processes the loan on behalf of the
lender. While this bias may seem daunting to your business, it is a challenge that can be
overcome with a simple formula - everyone involved in the wholesale lending channel must
work to improve the performance of third party originated loans. By consistently elevating
borrower and loan quality, we can, over time, bring the market back to parity. Your best
source for ensuring loan quality is to work closely with your Account Representative and
branch or fulfillment center to assist in properly documenting all loan submissions consistent
with lending guidelines and loan approval conditions.

 

In addition, it is imperative that you adopt (or continue) the proven "best practice" of
presenting your borrowers with a full array of product and pricing options. Your focus
should be on allowing them to make truly informed decisions that best meet their financing
needs and ability to re-pay. This practice will not only ensure a long term relationship with your customer but is part and parcel of ensuring high quality loans and good performance.

 

 

Our Ongoing Commitment to the Channel
As stated in the opening of this communication, all of us who earn our living in the wholesale lending arena are facing challenging times; times that require us to work together to achieve a common goal - successfully evolving the wholesale lending channel.

 

Our focus at Countrywide remains constant - working with and supporting only those brokers who can adapt and evolve their business model and who can originate quality loans consistent
with our strengthened lending standards. None of us should ever contemplate doing a loan we
wouldn't be willing to fund with our own money.

 

When navigating the current waters, keep in mind that, for over 23 years, Countrywide, America's Wholesale Lender has been fervently committed to the wholesale channel and to the success of our Business Partners. We maintain a strong leadership position and focus on achieving a dominant status among wholesale lenders.

 

Thank you for your time and attention to these important matters.

 

Todd A. Dal Porto
Senior Managing Director &; President
Countrywide, America's Wholesale Lender

 

*******************************************************************************

 

Some salient points in this letter. It points out that a disproportionate share of the the loans going into default came from 3rd party originators. There were certainly a great number of mortgage brokers who would originate a loan to anyone with a pulse and a FICO score 620 or higher but they have, as a rule, gone by the wayside.

 

Most of the large lenders are shifting away from the wholesale brokers to focus on retail sales; they have greater influence on employees than independent brokers and the hope is that they will only be originating loans within guidelines and not try to get so-called "liar loans" funded.

 

With that said, I personally believe that independent mortgage brokers are a critical component in the real estate industry providing a slew of options that may not be available from a captive broker. My personal go-to guy when I am concerned about a deal getting through is an independent broker and he has yet to let me down. I also enjoy strong business relationships with loan officers from the majors - every deal is different and my clients deserve to have choices when deciding which program is best for them.

 

If you are currently involved in a real estate transaction on either the buy or sell side, stay focused on the lender and the loan. It is still very volatile and there are deals that are falling apart at the last minute because people are not keeping their eyes on the ball and communicating with the lender on a daily/weekly basis. Conforming and even Non-Conforming (with large down payments, strong FICO's and reserves) are going through without a lot of drama.

 

100% financing (Good Luck) and deals with less than 20% down should be monitored closely throughout the escrow process.

 

I received and email this morning asking why, as a Realtor, I was spending so much time talking about mortgages. My answer was without mortgages we have no sales. If your Realtor isn't talking about mortgages right now you may want to ask why not.