The SeekingAlpha - Stock Market Opinion & Analysis blog posted the transcript from a conference call with Countrywide Financial executives on the company's 2nd Quarter 2007 earnings. [Countrywide Financial Corporation (CFC)]
Angelo Mozilo - Chairman & CEO suggested, "If you have not done so already, please download the second-quarter supplemental presentation from our website. John McMurray has prepared a detailed slide deck to walk you through the credit trends and Countrywide's credit costs for this quarter."
- Countrywide Reports 2007 Second Quarter Results
- click to hear audio webcast replay
- click to download slide presentation
Here are some notable quotes from the transcript:
Angelo Mozilo - click here On Housing Inventories:
"But as I do reflect on it, and I do a lot, that nobody saw this coming. S&P and Moody's didn't see it coming, but they simply just downgrade bonds, they don't take hits. Bear Stearns certainly didn't see it coming. Merrill Lynch didn't see it coming. Nobody saw this coming."
"So it was the deterioration in real estate values that was the base cause of all of this. We had none of these problems as real estate values were going up. So it is an oversimplification, admittedly, but clearly the deterioration in real estate values as a result of the affordability issue and an oversupply."
"So I think one turning point is the supply of housing. Because I think once that turns around, the psychology of the country changes. Because now the borrowers, potential buyers simply say, look, I will just wait, because I will be able to buy the house cheaper tomorrow than I can today. That psychology has to change; and the only thing that is going to change it is supply."
Angelo Mozilo - click here On Underwriting:
"I say also the traditional underwriting standards, which John McMurray alluded to, were altered to use more technology and more credit scoring as a judgmental factor in whether a loan could qualify or not, versus the traditional documentation. And you had on top of that, which again John related to, was speculation. So I just want to share those thoughts with you."
Angelo Mozilo - click here On Appraisals:
I think that is an oversimplification. We didn't rely upon home price appreciation. We relied upon an appraisal of current value as a lender. You can't forecast as a lender, which way values are going to be going, up or down. You at least traditionally and historically use appraisals, with certain protocols to establish what the value is; so you can determine what kind of loan-to-value you want to establish based upon the quality of the credit of the borrower.
So we did not make these loans based upon value is going to go up forever, because we know they are not going to go up forever. But you don't know what they are going to do, whether they are going to stabilize, go down; if they do go down, how far? It is just unpredictable.
So in our business, you're limited to what you believe the value to be based upon a professional appraiser valuing a piece of property at that time.
Angelo Mozilo - click here On Declining Market Value:
"On Ken, I would also comment that when you made the comment about the traditional prime and don't expect that kind of delinquency, I do think it is -- be important to observe what happens going forward, because we are experiencing home price depreciation almost like never before, with the exception of the Great Depression. So I think using standards or frames of reference on prime and the performance of prime in other environments may not be a fair comparison in light of what is happening to real estate values".
John McMurray - Senior Managing Director & Chief Risk Officer on the Future of Housing:
Question: "So given Angelo's comments about the housing downturn extending into 2008, maybe 2009, I'm trying -- and given the fact that housing data over the last three months has been pretty much a train wreck -- how do we reconcile? How do I feel comfortable that there is not further residual write-downs coming?"
Answer: "Well, we believe we have a -- well, not we believe; we have a housing price forecast embedded in the valuation that is more severe than anything that we have seen in the past. I hesitate to give any comfort, because the future is uncertain. So it is possible that it will have to be revisited. We hope that is not the case."
Angelo Mozilo - "Okay, I just wanted to make a clarification. I know the press is on the line and get you out of that statement that. I am not saying that house prices are going to decline from 2009.
Going back to my battleship analogy, I think it is going to take all of 2007, all of 2008, to get this whole negative process, house prices, increased delinquencies and foreclosures to slow down; and the balance of 2008 to get that battleship stopped and 2009 to get it going in the right direction.
Thanks to Seeking Alpha for the complete transcript: Click Here
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