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Mortgage credit crunch roils markets

Countrywide, WaMu warn money for loans is drying up

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The flight of investors away from securities backed by mortgage loans is affecting major lenders like Countrywide Financial and Washington Mutual, and sending shocks through financial markets despite efforts by central banks to ease the liquidity crunch by making billions in short-term loans available. An announcement by the French bank BNP Paribas on Thursday that it was suspending three funds invested in securities backed by U.S. subprime loans sparked a stock sell-off and flight to safe investments like Treasurys. In an effort to calm investors and prevent a liquidity crisis, the European Central Bank made $130 billion in overnight loans available to banks Thursday, followed by an $83 billion cash infusion Friday. Central banks in Japan, Hong Kong, Australia and Canada made similar moves. In the U.S., the Federal Reserve provided $24 billion in temporary reserves Thursday and $35 billion Friday at the 5.25 percent federal funds rate. Market forces had reportedly pushed the rate to...