Countrywide Sees Effects of Tighter Lending Standards on Subprime Market Loan Defaults

Countrywide Financial, one of the country’s biggest mortgage lenders, reported Thursday that their foreclosure rates saw a steady climb, but that the rate of mortgage delinquencies actually slowed slightly, which could be a good sign for the efforts of state legislatures and local foreclosure prevention agencies attempting to remedy the crisis in the subprime market.

But while delinquencies fell, they are still nearly 3.5% higher now than they were in February of 2007. The other cause behind this trend could be the fact that Countrywide has recently tightened their lending policies, and become more hesitant in providing loans than they have been in the past. Facing pressure from the Federal Reserve and many critics who chastised the lending industry for creating the subprime market disaster by being way too liberal with the handing out of loans, Countrywide felt the need to have more restrictive standards when it came to who they would award loans to. While subprime market loans attempt to provide loans to people who otherwise would not be able to attain them due to low income or bad credit, these are the same people who would be most likely to default on the high monthly mortgage payments associated with subprime market ARMs. This has resulted in the huge waves of foreclosures we have been seeing.

It’s also resulted in big losses for Countrywide. More defaults have lead to less revenue, and oftentimes Countrywide even loses money when subprime market homes go to foreclosure sale.

These new lending standards and this first statistical sign of their effects could become larger as time moves forward, and could have a growing effect on the subprime market as a whole.

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