And the ‘Hits’ Just Keep On Coming!
Countrywide. Citigroup. Washington Mutual and Merrill Lynch. All well known names in the world of finance, and all are now feeling the pinch due to an unstable real estate mortgage market and the lasting impacts the subprime mortgage crisis is having on their bottom lines.
For Countrywide, the second quarter of the year was a real let down with the company drawing from an $11.5 billion credit facility to help keep it afloat, followed by announced workforce cutbacks shortly thereafter.
Now with the first week of October behind us, Citigroup, Washington Mutual (WaMu as it likes to be known) and Merrill Lynch announced their organizations would be taking major hits in the pocketbook for the third quarter of 2007.
Citigroup came out with a press statement last week projecting that the company will suffer a 60 percent decline in third quarter income between 2006 and 2007. The statement also explains the company’s need to write down more than $3 billion in various financial instruments including subprime mortgage-backed securities, highly leveraged financial commitments and fixed income credit trading.
As for Merrill Lynch, a release distributed Friday by the company said it also expects to report a loss for the third quarter. Earnings were adversely impacted by collateralized debt obligations (CDOs as they are called), and subprime mortgages, resulting in more than $5 billion in write-downs, with the company projecting a net loss of up to 50 cents a diluted share.
In its release, WaMu announced an expected 75 percent decline in quarterly net income compared to third quarter 2006. Ongoing weakness in the housing market, along with held-for-sale mortgages, net losses in the company’s trading securities portfolio and losses on investment grade mortgage-backed securities were cited as key contributors to the projected loss for the quarter.
Given that these financial institutions all had vested interests of some sort in the subprime fiasco, these losses should come as no surprise. Still, the federal government and the mortgage industry are now left with the mess and are in the midst of cleaning it up, which will take years.
However, in the end, these losses will balance out against profits generated by the institutions’ other lines of business and the companies will all survive just fine. Tightened lending guidelines are already in place at the national and state level, so future borrowers should be more well qualified and capable to maintain the standard of living they want to enjoy by buying a house they can actually afford.
As for distressed homeowners facing foreclosure into the foreseeable future, these types of problems on the lender’s side of the transaction are probably going to make it more difficult for them to refinance or restructure their financial situation in order to save their homes. The situation might adversely impact investors as well, making it more difficult to obtain the financing they need in order to help out those distressed homeowners looking for a way out of foreclosure without ruining their credit.
RealtyTrac will continue to follow the financial mess the subprime mortgage crisis has left behind, and to explain its potential impact on distressed homeowners, investors, real estate professionals and would-be home buyers looking to find bargain real estate in this current market.