Countrywide Shares Plummet 15%

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Countrywide Financial Corp. borrowed $11.5 billion from a coalition of 40 banks in order to be able to fund more loans, a move many see as a sign the nation’s largest lender is in financial trouble.

Shares in Countrywide opened Thursday down 16 percent, putting shares down 37 percent for the week.

“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,” the Calabasas-based lender’s Chief Operating Officer David Sambol said in a statement.

The credit worries have grown as investors have soured on all but the safest mortgages, such as those guaranteed by Fannie Mae and Freddie Mac, as a vehicle for investments due to sky rocketing defaults while at the same time the cost of borrowing for mortgage companies has risen.

Private mortgage lenders rely heavily on the ability to sell the loans they originate to investment banks and others, allowing the lenders to make more loans. Today’s problems started as subprime mortgages — loans given to customers with poor credit or unverified income — started going delinquent and defaulting, making them substantially less valuable and incurring huge lossses for the investors that hold them.

These investors are now starting to demand that companies such as Countrywide employ much stricter lending standards, such as higher FICO scores and substantial down payments, which makes it much more difficult for potential homebuyers to obtain loans. Combined with the difficulty Countrywide is having borrowing money and the waning demand on Wall Street for mortgages in general, Friedman, Billings, Ramsey Group Inc. and an analyst from Merrill Lynch & Co. this week both said that if the cycle continues it might send Countrywide spiraling into bankruptcy.

Credit rating agency Moody’s Investors Service downgraded Countrywide’s senior debt rating to Baa3 on Thursday, citing Countrywide’s funding problems making it much more expensive for the company to borrow money.

The downgrade by Moody’s takes Countrywide to its lowest investment-grade mark — any further downgrade would take Countrywide into “junk” status, which would prevent most large institutional investors from owning the company’s debt.


Countrywide shares fell $3.28, or 15.5 percent, to $18.01 in early trading Thursday on the New York Stock Exchange.

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