Countrywide Joins The Mortgage Lending Storm

As the list of mortgage lenders who have failed, are failing, or are remaining very quiet about their status continues to grow the addition of each new name has reached the level of "so what else is new?" This week, however, there was a development that is certainly worth mentioning.

After nearly a week of rumors, Countrywide Financial Corporation confirmed that it has "supplemented its funding liquidity position by drawing on an $11.5 billion credit facility," and has accelerated it plans to "migrate its mortgage production operations into Countrywide Bank, FSB."

In other words, apparently no one is safe in this gathering mortgage lending storm.

Countrywide is the nation's largest mortgage lender. Its stock fell more than 24 percent to $16.15 in trading on Thursday but by mid-morning Friday had recovered to $21.25. Many analysts and credit rating agencies including Merrill Lynch and Moody's have downgraded the stock and the company's debt rating in the last few days. Downgrades by credit agencies such as Moody's which moved Countrywide from an A3 rating to a Baa3 make it more expensive for a company to borrow which may compound Countrywide's problems. Any further reduction of the Moody rating would take the company's debt into "junk" territory which would preclude many large investors from owning its debt.

The Associated Press quoted Friedman, Billings, Ramsey Group Inc. as saying that a continued liquidity crunch for more than three months could send Countrywide into bankruptcy.

In a press release issued by Countrywide, President and Chief Operating Office David Sambol said "Countrywide has taken decisive steps which we believe will address the challenges arising in this environment and enable the Company to meet its funding needs and continue growing its franchise. Importantly, in addition to the significant liquidity which we have accessed from our bank lines, the Company's primary strategy going forward is to fund its production through Countrywide Bank, FSB. We are already originating in excess of 70 percent of our total origination volume through the Bank, and expect to accelerate our strategy so that nearly all of our volume will be originated in our Bank by the end of September.

"Furthermore, as a result of lessened liquidity for loans which are not eligible for delivery to the GSEs, Countrywide has materially tightened its underwriting standards for such loans, and, we now expect that 90 percent of the loans we originate will be GSE-eligible or will meet our Bank's investment criteria."