S&P cuts Countrywide debt on third quarter loss

NEW YORK (Reuters) - Standard & Poor's on Friday cut its ratings on Countrywide Financial Corp CFC.N and said it may cut them again citing the mortgage lender's "sizeable" third-quarter loss.

S&P cut Countrywide one notch to "BBB-plus," the third lowest investment grade, from "A-minus."

Countrywide posted a $1.2 billion third-quarter loss on Friday, but projected a return to profit this quarter as it slashes jobs and regains its footing.

Higher reported credit-related expenses exceeded the level of net loan charge-offs the lender took in the quarter, "indicating further likely weakening of mortgage credit quality and the potential for higher credit losses in 2008," S&P said in a statement.

"The weakened state of the housing markets--combined with deteriorating credit performance within the prime home equity lines of credit (HELOCs) portfolio--will further dampen profitability for the remainder of this year and could persist," S&P added.

Twenty five percent of Countrywide's total loan portfolio consists of prime HELOCs, S&P said. "This is the portfolio exhibiting the sharpest increase in nonperforming assets and credit losses," it said.

A lower volume of loan production also will limit a rebound to the profitability of prior quarters, S&P said. The rating agency will review whether it will cut them again when Countrywide reports its fourth quarter earnings.