NEW YORK (Reuters) - Countrywide Financial Corp, the largest U.S. mortgage lender, said on Friday it plans to cut 10,000 to 12,000 jobs to cope with weak housing demand, rising foreclosures and tightening credit markets.
The cuts, which amount to as much as 20 percent of the lender’s work force, will be completed over the next three months and include reductions already made, Countrywide said.
They constitute the largest work force reduction announced this year in the U.S. mortgage industry, which has lost more than 50,000 jobs after loan delinquencies rose, home price appreciation stalled, and investors stopped buying many kinds of home loans.
“This current cycle is certainly the most severe in the contemporary history of our industry,” Countrywide Chief Executive Angelo Mozilo said in a letter to employees.
Countrywide, based in Calabasas, California, announced the cuts hours after the Labor Department said U.S. non-farm payrolls fell by 4,000 in August, the first decline in four years. That prompted calls for the Federal Reserve to cut interest rates before credit market turmoil drives the economy into recession.
The company said its job cuts would be mainly in mortgage production and general and administrative support. Banking, insurance and loan servicing operations would likely not be materially affected, it said.
“You need to right-size the ship,” said Peter Kovalski, who helps invest more than $12 billion at Purchase, New York-based Alpine Woods Capital Investors, which owns Countrywide shares. “They’re doing the right thing to quickly downsize. Things are going to get worse before they get better.”
Shares of Countrywide rose 19 cents to $18.40 in after-hours trading. They had fallen 27 cents during regular Friday trading, leaving the stock down 57 percent this year.
Countrywide made $245.1 billion of home loans from January to June, according to the Inside Mortgage Finance newsletter.
But as markets tightened, it focused on making smaller and safer, but less profitable, loans. It expects total market loan volume next year to fall 25 percent from 2007 levels.
“During the past two years the growth in home price appreciation has stopped dead in its tracks and in many areas of the country it has turned in the wrong direction,” Mozilo said in his letter to employees.
“There have also been significant increases in delinquencies and foreclosures among far too many borrowers. More recently the secondary market for jumbo and non-agency conforming loans has become nearly illiquid,” he said.
The cuts mark an abrupt reversal from January to July, when Countrywide added more than 6,900 jobs as smaller rivals cut back or quit the industry.
Mozilo, who co-founded Countrywide in 1969, had long portrayed himself as a survivor of any market downturn, saying Countrywide would add market share as weaker rivals fell away.
But its strains became acute last month when the company unexpectedly tapped an entire $11.5 billion bank credit line because it could not sell debt to fund operations.
A week later, Bank of America Corp threw the company a lifeline, buying $2 billion of preferred stock that can be converted into ownership of roughly one-sixth of the company.
Bank of America spokesman Scott Silvestri declined to discuss Countrywide’s job cuts. “We have a passive investment in the company,” he said.
Countrywide spokeswoman Jumana Bauwens did not have information on how much of a charge Countrywide might take for the job cuts, or when it would occur.
Executives at Countrywide were unavailable for interviews.
Despite the cuts, Kovalski said he still sees Countrywide as a survivor of the industry turmoil.
“They are the largest player, and now they have the backing of Bank of America,” he said.
Additional reporting by Christian Plumb and Dan Wilchins