Countrywide Worried by Tendency to Choose Lowest Payment Option.(Countrywide Home Loans Inc.)

BLAINE, WA -- Seventy-five percent of his payment option borrowers choose the one with the cheapest mortgage payment, Countrywide Home Loans' chairman and chief executive said here. And that worries him enough that Countrywide has written a letter to each of them.

Angelo Mozilo, addressing the Pacific Northwest Mortgage Lenders Conference, said the high incidence of borrowers choosing the negative-amortization option of a PO - the cheapest option - has him wondering, "What happens when we reset? We do a lot of that product."

In fact, the industry veteran is so concerned that he has had Countrywide send out a letter to eight million borrowers advising them what their reset payments would be if they had to reprice them now. Monthly payments tripled for some of those hypothetical cases, he said.

Mr. Mozilo, who has been in the mortgage lending business for 53 years, shook his head visibly when thinking about why upscale borrowers with 750 FICO scores would choose payments that actually add to their indebtedness. He postulated that many of them are in an age bracket, about 35 to 37 years old, that has never experienced a financial downturn yet. They may be counting on rising real estate values to offset those higher loan amounts.

Mr. Mozilo said he hopes these borrowers "can refi out of that product." He added, "It could be OK but I'm concerned about it." And he noted that many borrowers opt out of those neg-am features during the second year of the loan.

The senior executive said that the recent spate of industry consolidations (he mentioned World Savings, GMAC-RFC and Washington Mutual closing its correspondent channel) will continue for the next 12-24 months. Commercial banks will be especially hard hit, he said. And some familiar names will exit the ...