Countrywide taps $11.5 bln credit, shares fall 11 pct
NEW YORK (Reuters) - Countrywide Financial Corp. CFC.N, the largest U.S. mortgage lender, said on Thursday it drew down an entire $11.5 billion bank credit line as a global credit crisis limits its access to short-term cash.
The drawdown should help Countrywide conduct daily operations but shows how liquidity strains have spread beyond subprime lenders to companies that mainly offer higher-quality loans, driving several into bankruptcy.
All three major U.S. credit rating agencies downgraded Countrywide debt, and at least two analysts have raised the specter of bankruptcy for the lender.
"The fact Countrywide did this shows how disrupted capital markets have become," said Christopher Wolfe, managing director at Fitch Ratings, which cut Countrywide's debt ratings. "It may force Countrywide to reduce lending and migrate toward safer loans, and affect earnings from (mortgage) originations."
Countrywide shares fell as much 29.6 percent before paring losses amid a rally among financial services stocks, including mortgage rivals that might benefit if Countrywide struggles. The shares closed down $2.34, or 11 percent, at $18.95, their lowest level since September 2003.
Representatives of Countrywide did not return several requests for comment.
TIGHTER STANDARDS
Countrywide said it has tightened its lending standards so most new home loans will qualify for purchase and guarantee by mortgage companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N). Such loans are considered among the least likely to default.
"When you're in a pit, the first thing to do is to stop digging," said James Ellman, a portfolio manager at Seacliff Capital, a San Francisco hedge fund.
The lender also plans to originate nearly all home loans in its Countrywide Bank unit by September 30. This will let it tap new sources of financing such as deposits and federal home loan banks to finance operations, and rely less on capital markets.
"Demand for non-agency mortgage-backed securities has been disrupted," Chief Operating Officer David Sambol said in a statement. "Liquidity for the mortgage industry has also become constrained."
Countrywide said the $11.5 billion line came from 40 banks, and that more than 70 percent had a term of greater than four years, while the remainder had a term of at least 364 days.
In a late Thursday regulatory filing, it said about $7.2 billion of the borrowings have maturity dates no later than May 2008, while $4.3 billion matures in 2011. It did not immediately return a call to clarify how it calculated the 70 percent figure, in light of the maturity dates.
The company reported $186.5 billion of liquidity as of June 30.
Shares rose for Countrywide's largest mortgage rivals, gaining 5.5 percent at Wells Fargo & Co (WFC.N), 4.3 percent at Citigroup Inc (C.N), 5.7 percent at JPMorgan Chase & Co (JPM.N), 3.4 percent at Bank of America Corp (BAC.N) and 9.2 percent at Washington Mutual Inc WM.N. Continued...
