Countrywide Financial has dire warning
Associated PressThe giant lender says debt mess may worsen.
Published August 11, 2007
LOS ANGELES - Shares of Countrywide Financial Corp. slipped more than 2 percent Friday after the nation's largest mortgage lender said in a regulatory filing that "unprecedented disruptions" in debt markets could continue or worsen.
The stock fell 80 cents, or 2.79 percent, to close at $27.86. Shares opened the day by plunging more than 17 percent in premarket trading.
Shares of Washington Mutual Inc. also dropped more than 2 percent after the bank said in a filing with the Securities and Exchange Commission late Thursday that disruptions in the mortgage market could affect its liquidity.
Its shares dropped 81 cents, or 2.20 percent, to close at $35.95.
Both Countrywide and Washington Mutual have been active players in the Tampa Bay area market.
In an SEC filing late Thursday, Countrywide said it has adequate funding liquidity but added "the situation is rapidly evolving and the impact on the company is unknown."
The filings by both companies came as liquidity - loans available to borrowers including banks, companies and home buyers - dries up around the world. Central banks in Europe, Japan and the United States have been infusing their markets with cash as stocks plummet internationally.
Countrywide packages many of its home loans into bonds and sells them to investors. But the market for those bonds has shriveled because of deteriorating credit quality and a stagnant housing market.
Rather than sell the bonds inexpensively, Countrywide said it was keeping more home loans in its own portfolio. The lender is also becoming pickier about which borrowers to lend to.
In addition, Countrywide said credit quality among its prime borrowers - clients with solid credit ratings - has drastically worsened. At the end of June, 3.7 percent of Countrywide's prime home-equity borrowers were not up to date with their payments, compared with 1.5 percent at the end of the second quarter last year.
In a sign of its difficulty selling loans, Countrywide said in the Thursday filing it had transferred $1.9-billion in mortgages from the "loans held for sale" category to the "held for investment" classification.
"The problem is you can't find a home for loans with investors right now, so as a result they're having to hold more loans," said Frederick Cannon, an analyst with Keefe, Bruyette & Woods Inc. "In my view, Countrywide has a strong balance sheet and can get through this."
Washington Mutual, based in Seattle, said in its filing that deposits decreased by $12.57-billion for the six months ending June 30, compared with an increase of $11.39-billion for the comparable period last year.
The company is now expending billions in financing costs, a business that previously generated cash for the bank, according to the filing.
At the same time, its lenders are apparently demanding repayments.
For the six months ended in June, it made $42.9-billion in repayments on advances from Federal Home Loan Banks, up from $28.37-billion for the comparable period last year.