Countrywide, one of the largest mortgage lenders in the U.S. announced yesterday that it would be offering free refinancing for 50,000 of it’s customers facing increased rates and payments due to Adjustable Rate Mortgages (ARMs). Additionally, they’re also offering rate reductions for another 30,000 customers that don’t qualify for refinancing. Overall, it would seem that Countrywide is doing a ‘Good Thing®‘. But there are a number of sides to this issue.

Countrywide Helps Out

Countrywide is the first mortgage company to make any concrete concessions because of the housing bubble. They are taking pity on some of their (ahem) less worldly customers that have gotten themselves into a bad situation by mortgaging themselves to the hilt to buy the McMansion of their dreams.

Good: Countrywide realizes that these customers are either going to sell their houses, or just let them go back to Countrywide. And since Countrywide isn’t in the business of owning houses, it’s in Countrywide’s best interest to help these people out. It also doesn’t hurt their PR as a company.

Bad: By bailing these people out of a bad situation, it’s more than possible that many of these people will go forward without learning anything from their ‘near miss’ with bankruptcy. Having to face your problems and work through them is a great learning experience that these folks will be missing.

Housing Industry Shows Better Numbers

By bailing these people out, and forestalling foreclosure and possibly bankruptcy for these customers, the housing industry numbers will be positively skewed from where they would be if Countrywide took no action. The number of house repossessions, bankruptcies, and other financial indicators will show as lower than they could have been (should have been?).

Good: These numbers WILL be less because of the bailout. Less people will have to have their house repossessed. Less repossessions mean less people out of their homes, and more revenue to Countrywide. Good for the customer, good for the company.

Bad: These skewed numbers might cause other homeowners, banks, lenders, mortgage brokers and other financial companies to believe that the housing bubble is not as bad as it really is. They ‘might’ decide to sit out a little longer, waiting for the turnaround in the market. This can cause the housing bubble to extend longer than it would if everyone just got on with the home pricing/acquisition adjustment that is needed, and worked past it. By delaying buyers and sellers from entering the market, for any reason, the market adjustment will drag out much longer.

Conclusion

I can’t fault Countrywide for this move, and in fact it’s a pretty gutsy thing to do on their part overall. Admitting that you have a lot of customers that have overextended themselves doesn’t reflect well on you as a business that’s supposed to ‘take care’ of your customers. But being willing to do what it takes to make things (more) right is a step in the right direction.

I don’t think Countrywide is doing this out of altruism though. They’re a business and businesses are there to make money. It’s a smart move to preserve some of their revenue streams rather than having to deal with tens of thousands of repossessed properties. Good business can be good for both sides of the issue.

What needs to happen in the future is Americans need to take a more realistic view of what they want vs. what they can afford. Living beyond your means will come back to bite you somehow no matter what.

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