Countrywide Delinquencies Skyrocket…and the Worst is Yet to Come

According to a Countrywide press release issued on October 26, 2007, things aren’t looking so rosy for the country’s largest mortgage lender. The figures tell the story:

                    COUNTRYWIDE FINANCIAL CORPORATION
                          LOAN SERVICING SECTOR
                    SERVICING PORTFOLIO DELINQUENCIES
                               (Unaudited)

Servicing Portfolio
 Delinquencies (1)                          Quarters Ended
                             September 30,     June 30,     September 30,
                                  2007           2007           2006
                             Total  90+ day  Total  90+ day Total  90+ day

Conventional 1st liens        4.41%   1.44%   3.35%  1.02%   2.57%  0.56%
Government 1st liens         13.50%   4.72%  12.39%  4.39%  13.42%  4.78%
Prime home equity loans
 (including FRS)              5.76%   2.70%   4.56%  2.15%   2.52%  0.98%
Subprime loans               29.08%  12.63%  23.71%  9.45%  18.32%  6.19%
  Total servicing portfolio   7.12%   2.67%   5.73%  2.02%   4.55%  1.31%

Pay particular attention to the numbers under “subprime loans:” 29.08%–almost thirty percent–of Countrywide’s subprime mortgages are currently in default. This means that of its approximately $116.3 billion in subprime loans, nearly $34 billion are in default, an increase of about 8% from 3 months ago, and up 63% from a year ago.

And things are just getting worse. Countrywide expects over $16 billions in adjustable rate loans to increase significantly during 2008.

So what did the market do when this dreadful news was announced? Why Countrywide shares jumped by 25%.