Countrywide taps billions
The troubled mortgage lender, its stock falling, borrowed so it could keep making loans.
LOS ANGELES - The credit mess forced Countrywide Financial Corp., the nation's largest mortgage lender, to borrow $11.5 billion yesterday, shocking financial markets already reeling from a growing credit crunch and threatening to make home loans harder to get.
Countrywide said it borrowed the cash from a group of 40 banks so it could keep making home loans.
The announcement sent its stock tumbling and prompted one credit-rating agency to downgrade its rating to near junk bond status.
Countrywide, the largest mortgage lender by volume, accounted for more than 13 percent of the loan-servicing market as of June 30, according to Inside Mortgage Finance, a mortgage-industry publication.
The credit crunch has driven a number of its smaller peers to bankruptcy.
Equity analyst Friedman Billings Ramsey Group Inc. said a continued liquidity crunch for more than three months could send Countrywide into bankruptcy.
Other analysts said the credit situation would have far-reaching consequences.
"We're in this situation where one of the biggest home lenders in the country is in significant financial difficulty and is being forced to take fairly extraordinary action to maintain its financial viability," said Tony Hughes, managing director of credit risk for Moody's Economy.com, of West Chester, Pa.
The Goldman Sachs Group Inc. analyst James Fotheringham said "it would not be in this country's best interest to have its largest mortgage lender cease operations." He did not elaborate. Fotheringham said in a research note that the country had yet to see the worst of the mortgage credit crunch.
Some analysts said Countrywide had bought time with its huge loan.
John Kriz, a managing director of Moody's real estate finance team, said he believed Countrywide now had enough liquidity to meet debt obligations through 2008.
Countrywide president and chief operating officer David Sambol said in a statement that the company had "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."
Homeowners who make their monthly mortgage payments to Countrywide should not be affected by the company's troubles, experts said.
Despite the company's assurances, its stock tumbled $2.34 to close at $18.95. The stock has lost more than half its value since January.
Credit-rating agency Moody's Investors Service downgraded Countrywide's senior debt rating to "Baa3" from "A3," citing Countrywide's funding problems.
A ratings downgrade essentially makes it more expensive for a company to borrow money. Countrywide could be further downgraded if it continues to face liquidity problems, Moody's said in a statement.
The new rating is Moody's lowest investment-grade mark. Any downgrade would take Countrywide into "junk" status, which would keep many large institutional investors from owning its debt.
The nation's credit worries have grown as the secondary market for mortgages all but disappeared in recent weeks. Investors have worried about the value of loans and rising delinquencies and defaults.
Mortgage lenders rely on the secondary markets to borrow money to make more loans.