Why Countrywide Is Cutting Ad Spending

Here is some very interesting data posted by Paul Kedrosky over at Infectious Greed which shows that Countrywide’s (CFC) online ad spending fell off a cliff in January. Yet, it wasn’t just Countrywide that cut back, financial servicers advertising was off by 17% on a month-to-month basis. The Prince isn’t surprised by this since anything that isn’t necessary for the company to survive is going to be cut aggressively, with ad buys falling in this category. Experian (EXPGY) dramatically increased its spending month-to-month. I wonder what the story is behind that.

Nonetheless, Paul does provide us with another interesting indicator of the pain going on in the financial services industry. However, that isn’t the whole story. An alert reader commented that the queue for refinancing (just about the only mortgage originations going on these days) has been full for CFC and other lenders recently. Take a look at this chart the commenter links to from MBAA. Also, check out this post by Paper Economy: A US Real Estate Bubble Blog on the MBA Application Survey. Has some pretty interesting facts about current mortgage industry dynamics.

This huge spike in refinancing is mainly due to the fact that the stimulus package raised the limit on the size of mortgages that can be bought by the GSEs. However, we also have to believe that more homeowners who are distressed and not distressed are just refinancing to take advantage of interest rates that have been recently aggressively cut. Maybe CFC is just so busy doing refinancings that it didn’t think it could handle much more demand for refinancings given its current origination capacity (i.e. number of loan officers, availability to funds at the FHLB, etc.).

So CFC may be making a conscious decision to cut back on online advertising until it needs to stimulate demand or try to grab share again. It’s an interesting theory but The Prince doesn’t buy it. CFC is fighting for its survival as an enterprise and revamping its business model. All non-essentials like online advertising are going to go.

Comments

[Fin:]

Heh Prince, great article, it read really well. The only problem is that virtually nothing in the article was true.

First your article states that lenders have cut back on advertising because they are currently experiencing unprecidented refinancing demand, and they do not have the capacity to handle that demand.

Second you attribute the current demand and refiance boom to the stimulus package which will raise loan limits for GSE's.

Third you state that CFC is fighting for its survival and that their online advertising has to go.

Well Prince, hate to burst your bubble, or get you a clue, but please be advised of the following:

First, the current mini-refiance boom you refer to was last month's news. Interest rates dropped sharply during the first three weeks of January, and then rose sharply since January 23rd. Mortgage rates on conforming loans (GSE's) have risen about 75 basis points since that time. Jumbo mortgages have risen even more since the market liquidity of these securities is still significantly impaired. As a result of significantly higher interest rates the current refinancing demand has all but dried up. For this reason alone, lenders including CFC have appropirately cut back on advertising costs.

Second your article stated that the sudden demand for refinancing is mainly due to the stimulus package which raised the loan limits for conforming loans (GSE's). Nice one Prince, but unfortunately, beyond ridiculous, even for you! The mini-refiance boom was during the first three weeks of January, and the stimulus package had not been signed by the President at that time! Furthermore the higher loan limits have yet to be implemented to date. In fact it is very unclear exactly how and when these loan limits will be implemented.

Third, your article implied that CFC and other lenders do not have sufficient capacity to handle the current boom. There is a current bust (see above) and these lenders have more relative capacity now (capacity relative to mortgage demand) than ever before. They are literally frothing at the mouth for these loans and will jump at the chance to advertise whenever market conditions are favorable. Your assetion that CFC is not advertising because BofA is prohibiting it, is once again, totally ridiculous. CFC is looking to maximize their employee (sales staff) retention, and mortgage volume even if profitability temporarily suffers. Furthermore this type of advertising is very cost effective when market conditions are right. BofA will no doubt insist that CFC change their business model (i.e take away local execution and perhaps their wholesale channel) but to imply that a mundane operational item such as advertising falls into this cateogary is...well Prince...ya did it again buddy !!!

Anyway Prince, another great article, keep up the good work. Entertainment value.....priceless !

2008 Feb 24 12:52 PM

[H2O:]

Kristol: ‘I Recommend The Politics Of Fear’
This morning on Fox News Sunday, New York Times columnist Bill Kristol
recommended that Sen. Hillary Clinton (D-NY) employ the “politics of fear”
to attack Sen. Barack Obama (D-IL):

KRISTOL: [Obama’s] riding a wave of euphoria. She [Clinton] needs to puncture
it. The way you puncture euphoria is reality, or to be more blunt, fear. I
recommend to Senator Clinton the politics of fear.

Actually - The American People is already seeing the reality - Of the policy
of Fear !!!!

The reality - The IRAQ war was based on lying fear .....

The reality - There jobs are being lost based on lying fear .....

The reality - There losing there house's - On lying fee based pricing fear .....

The American People have faced there lying based fear - and Have rose-up -
to confront that fear - and those lying fear based lyers - and the fear based
lying they are !!!!

There is a interesting thing about - creating fear - and keeping people - on
a Adrenaline rush - sooner or latter - it will turn to anger - a anger - That
can not be with-held - and must be released .....

So rich-greedy ask yourself a simple question ?????

Are you really willing to face - 175 million angry Americans ?????

America is not a dictatorship - and The American People will take back - There
country - For Americans - By Americans - Of Americans !!!!!

The sleeping Giant - Has once again been - Awoken .....

2008 Feb 24 02:35 PM

[User 139355:]

I am a Sales Manager with CFC and I am busier writing purchase loans than I have been in several years. I write mostly rehab loans and most of the properties are REO's. Rates are headed back up and refinances are not as attractive as they were a couple of weeks ago.

2008 Feb 25 07:53 PM