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Long Apples, Boxes, and Orange Jumpsuits

Written By Brian Hicks

Posted December 14, 2007


So how does the head of one of the biggest parts of the mortgage industry feel about housing these days?

Well, in short, not real good.

Freddie Mac CEO Richard F. Syron now predicts home prices will ultimately bottom out at an average of 10 percent below their peaks.

But it could be worse.

In fact, Syron said if home prices decline by 30 percent, as one noted economist has said could happen, "We’re all going long apples and boxes to sell them in."

Apples and boxes? Ouch. That’s an image not seen around here since the Great Depression.

But even if it never actually gets close to something like the ghost of Tom Joad, I’d also be looking to go long on orange jumpsuits.

That’s because from Charles Ponzi on down to Ken Lay and Bernie Ebbers, every single fit of bubble producing fraud and speculation that we’ve ever experienced has eventually put a whole host of greedy people behind bars.

Right or wrong, it’s just the way that it always plays out–and I mean always.

Greed and subpoenas go hand in hand–just like bread and butter.

That’s why guys like Angelo Mozilo can’t be sleeping much these days.

First there’s the SEC poking around his very timely and massive insider sales and now there’s a much bigger investigation going on into the how exactly his company, Countrywide Financial, managed to lend so much money to so many people that obviously couldn’t make the payments.

From the Associated Press by Alex Viega entitled: Ill., Calif. investigating Countrywide

"Attorneys general in California and Illinois are investigating the lending practices of Countrywide Financial Corp., the nation’s largest mortgage lender.

The Illinois attorney general launched a probe into the lender’s business practices and may expand the investigation to examine how homeowners were approved for mortgages with payments they were unable to afford.

"We’re looking at why people who appear to us to not be able to afford the loans they’re in are in these loans and how Countrywide contributed to that," said Deborah Hagan, chief of the attorney general’s consumer protection division, on Thursday.

A California probe is also under way, a state official familiar with the attorney general’s investigation into mortgage lending practices said late Thursday on condition of anonymity, citing the confidential nature of the investigation.

In a statement, the Calabasas-based company said it was cooperating with Illinois’ investigation and declined further comment. A spokesman didn’t immediately return an after-hours call inquiring about the California probe.

The company told the Los Angeles Times it had received subpoenas from both states’ attorneys general and that it was cooperating with the investigations."

Meanwhile the threat of an orange jumpsuit is only part of Mr. Mozilo’s problems. Business is also tumbling.

The No. 1 U.S. mortgage lender said on Thursday mortgage loan funding tumbled 40 percent to $23 billion in November, as late payments continue to escalate.

The bulk of that decline came from the a sharp drop off in the lender’s originations of subprime and adjustable-rate mortgages.

Subprime mortgage funding fell to $17 million in November from $3.06 billion a year earlier when lending standards were lax , while adjustable rate products shrunk to $3.33 billion from $14.3 billion.

So spend it while you got it Angelo. Who knows what tomorrow may bring.

But here’s a guess that it involves perp walks and jumpsuits for a lot folks-especially if it does come to apples and boxes.