Countrywide Says
`Unprecedented' Disruptions May Hurt Profit

STEVE DICKSON / Bloomberg 9aug2007

Countrywide Financial Corp., the biggest U.S. mortgage lender, said ``unprecedented disruptions'' in the U.S. home-loan market may crimp its ability to lend and erode profit.

The company may be forced to retain more of the loans it makes to homeowners rather than selling them to investors, Calabasas, California-based Countrywide said today in a filing with the U.S. Securities and Exchange Commission. It also said it may have difficulty obtaining financing from its creditors.

``The secondary market and funding liquidity situation is rapidly evolving, and the potential impact on the company is unknown,'' Countrywide said. ``These conditions may continue or worsen in the future.''

Countrywide last month cut its 2007 earnings forecast after net income tumbled 33 percent as a growing number of borrowers fell behind on home-equity loan payments. At least 70 mortgage companies have halted operations or sought buyers since the start of 2006, according to Bloomberg data.

Shares of Countrywide, which have lost a third of their value this year, fell to $25 in late trading from $28.66 at the close today on the New York Stock Exchange.

source: 9aug2007

Bear Stearns, Countrywide Debt Protection Costs Up

Reuters 9aug2007

NEW YORK —  The cost to insure the debt of Bear Stearns Cos., along with that of other U.S. brokers, investment banks and mortgage lender Countrywide Financial Corp., rose on Thursday on renewed concerns that weakness in subprime mortgages were spreading.

Benchmark credit derivative indexes, known as the CDX series, were also wider on Thursday. The investment-grade credit derivative index was around 6 basis points wider at 66 basis points while the High Volatility index, which includes mainly "BBB"-rated credits, was around 6 basis points wider at 156 basis points.

"Most all risky assets are struggling: Equities are down, broker-dealer spreads are wider, and the entire CDX complex is selling off," said Edward Marrinan, head of high-grade strategy at JPMorgan in New York.

"This weakness was evident right at the outset of this morning's trading after BNP's announcement that they halted withdrawals from several of their investment funds after having difficulty in accurately valuing certain mortgage-related exposures," he said.

France's biggest publicly traded bank, BNP Paribas, froze 1.6 billion euros ($2.2 billion) worth of funds on Thursday, citing the U.S. subprime mortgage sector woes that have rattled financial markets worldwide.

"This news, in turn, reignited people's fears that subprime mortgage risk is still significant and maybe more widespread than earlier believed," Marrinan said.

"The rally of the last several days seemed to be triggered by the view that maybe subprime was not the 'black hole' many had earlier thought," he added.

The cost to insure BNP's debt with credit default swaps rose by around 4 basis points to 24 basis points, or $24,000 per year for five years to insure $10 million in debt.

In the U.S. market, Bear Stearns credit default swap spreads, which have been badly beaten in the past few weeks, were around 30 basis points wider at 140 basis points, or $140,000 per year for five years to insure $10 million in debt. Countrywide's default swaps rose around 40 basis points to 220 basis points, an analyst said.

Other U.S. broker's spreads were also wider, according to data from CMA DataVision.

Default swaps for Merrill Lynch and Goldman Sachs were each around 10 basis points wider at about 79 and 80 basis points, respectively, according to CMA. Morgan Stanley's swap spreads were around 13 basis points wider at about 83 basis points.

The cost to insure the debt of mortgage lender Residential Capital LLC also jumped by around 55 basis points to about 555 basis points.

source: 9aug2007

Countrywide Hit by Credit Market Woes

JAMES R. HAGERTY / Wall Street Journal August 9, 2007 8:23 p.m.

Countrywide Financial Corp. and other mortgage companies are facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing.

The statement was a supplement to the standard "risk factors" listed in Countrywide's 2006 annual report.

The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather than selling them. The company also has been shoring up its finances. "While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."

Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.

In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.

source: 9aug2007

Countrywide, WaMu Say
Pressured by Mortgage Market

JONATHAN STEMPEL / Reuters 9aug2007

Two of the largest U.S. providers of home loans, Countrywide Financial Corp and Washington Mutual Inc, on Thursday said difficult mortgage market conditions are likely to hurt operations in the near term.

Countrywide, the largest mortgage lender, said it faces "unprecedented disruptions" in the debt market and secondary market for mortgages. It said these "could have an adverse impact on the company's earnings and financial condition, particularly in the short-term."

Washington Mutual, the largest U.S. savings and loan, said liquidity in the market for less-than-prime home loans and securities backed by the loans has "diminished significantly." It said that while this persists, its ability to raise liquidity by selling home loans will be "adversely affected."

The lenders offered their assessments in quarterly reports filed with the U.S. Securities and Exchange Commission.

Many U.S. mortgage lenders have struggled as housing price appreciation slowed, borrowing costs rose, defaults soared and investors grew wary of holding all but the safest home loans. Dozens of weaker lenders have been sold, quit the industry, or gone bankrupt this year.

Calabasas, California-based Countrywide last month posted a 33 percent decline in second-quarter profit and slashed its full-year earnings outlook. It said delinquencies had risen, especially among people who took out home equity loans.

In its quarterly report, Countrywide said payments were at least 30 days late on 20.15 percent of "nonprime" loans it serviced, up from 16.67 percent three months earlier and 14.41 percent a year earlier. The rate on "prime" home equity loans rose to 3.70 percent from 2.96 percent in March and 1.51 percent in June 2006.

For all loans, the delinquency rate rose to 4.98 percent from 4.29 percent in March, and 3.92 percent in June 2006.

Countrywide said it believes it has "adequate" near-term funding liquidity to combat the market environment, but that the situation "is rapidly evolving and the potential impact on the company is unknown."

It repeated, though, that it expects to benefit as weaker rivals merge or quit the industry. On Tuesday, Countrywide agreed to buy five loan branches from HomeBanc Corp, an Atlanta lender that is exiting the mortgage business.

Seattle-based Washington Mutual said the disruption in the subprime secondary mortgage market in the first half has "spread into markets for all other nonconforming residential mortgages." It said it has been "impacted," but remains "well-capitalized and its capital position is diversified."

Washington Mutual's home loans unit lost $37 million in the second quarter as loan volume fell 24 percent. The thrift has subprime home loan volume by more than two-thirds, and tightened lending standards.

Countrywide shares closed down 45 cents, or 1.6 percent, at $28.66 on Thursday, and have fallen 32 percent this year. Washington Mutual shares closed down 79 cents, or 2.1 percent, at $36.76, and have fallen 19 percent this year.

source: 9aug2007