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QUESTIONS & ANSWERS

For consumers, there's little reason to worry

August 17, 2007|David Lazarus | Times Staff Writer

Financial turmoil at Countrywide Financial Corp., the country's biggest mortgage lender, might have many people wondering whether their home loans are in trouble. And what about funds deposited in Countrywide's affiliated savings and loan operation, Countrywide Bank?

From a consumer's perspective, experts say, there currently isn't much reason to lose sleep. Different people, though, face different levels of risk.

What if I have my mortgage with Countrywide?

You're probably fine. Even if Countrywide were to go belly up, which most analysts say is unlikely, the company's loan portfolio would be sold to another lender.

It's common, in fact, for a lender to sell loans to other lenders or to Wall Street firms in the normal course of business.

In almost all cases, the terms of the mortgage contract will not change if the loan changes hands.

"You'd just be sending payments to a different address," said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. "That's the only thing that would be different."

Turbulence in the sub-prime lending market notwithstanding, Countrywide remains on solid financial footing, he said. "They're going to weather this storm."

That's fine for those who already have mortgages. What if my application with Countrywide is pending?

If you have a strong credit rating and represent a good risk for lenders, you'll have no problem, experts say.

Just as Countrywide's loan portfolio would find a new home in the event of a financial meltdown, the firm's more attractive lending prospects would similarly make their way to other institutions.

"If it's a good loan, there is no shortage of people who'd want to originate that loan," Hobbs said.

Riskier applications, such as those for the sub-prime loans that have hammered lenders and roiled stock markets worldwide, might not find safe harbor. But that's more a factor of credit tightening across the board, not any particular company's difficulties.

Yes, but Countrywide also runs an S&L. I've seen "It's a Wonderful Life." What if my money's in there?

Chances are, you won't have to sell out to Mr. Potter for pennies on the dollar.

Countrywide switched in March from having a federally chartered bank to having an S&L. That's primarily because S&Ls focus more on mortgage activities -- Countrywide's bread and butter -- and because of more streamlined regulations. Countrywide's S&L is basically in sound financial shape.

"The issues here do not really involve the depository institution," said Kevin Petrasic, spokesman for the Office of Thrift Supervision, the thrift industry's federal regulator.

Nevertheless, he noted that deposits in Countrywide's S&L are insured by the Federal Deposit Insurance Corp., which covers $100,000 per account and as much as $1 million in several accounts for families -- if you arrange everything just so.

If the S&L should fail, customers are guaranteed to recover at least $100,000 in deposits. And the bulk of uninsured funds also would probably be recovered if federal authorities were to liquidate the bank's assets, Petrasic said.

How long would it take to get my money back?

"If it's insured, you'll get it pretty quickly," Petrasic said. That could be as soon as a day, or much longer for uninsured amounts.

OK, but I have a certificate of deposit from Countrywide's S&L. What about that?

Same deal. CDs (money, not music) are treated for federal insurance purposes just like any other deposit.

So what's the bottom line?

Financial heavyweights that invested in sub-prime loans are getting burned pretty badly, so caveat emptor.

Consumers, you'll want to be vigilant and pay attention to any letters that arrive from strange financial institutions. You never know who could end up with your loan should Countrywide have to sell it.

But if you're trying to choose between that Countrywide CD and cramming cash under your mattress, the CD's probably still the better bet.

--

david.lazarus@latimes.com

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