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
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
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."