Countrywide Financial Corp. remains determined to become the “dominant mortgage lender in the U.S.” and is in the process of hiring “several hundred loan officers from companies who recently went out of business,” company executives said in a memo to employees.
The memo, from Chief Executive Officer Angelo Mozilo and Chief Operating Officer David Sambol, was aimed at reassuring employees that the company can weather the storm in the secondary mortgage market by moving its mortgage business into Countrywide Bank “as quickly as possible.”
Countrywide’s stock has been on a wild rollercoaster ride this week, after investment analysts who follow the company said a liquidity crisis threatened the company’s ability to continue making loans. Investors are reluctant to loan money to many mortgage lenders or buy securities backed by their loans on the secondary market.
A Merrill Lynch & Co. analyst warned that Countrywide could go bankrupt if the liquidity crisis continues and the company was forced to sell off its assets at reduced prices.
That pronouncement, and similar reports by other analysts, sent Countrywide’s stock plunging from around $24 at the close of trading Tuesday to just above $15 at one point Thursday. By the end of the day, the stock had rebounded above $20 on news that Countrywide had drawn down an $11.5 billion credit line with 40 banks.
Countrywide and other stocks got another boost today after the Federal Reserve slashed the discount rate — the rate charged on direct loans to banks — from 6.25 percent to 5.75 percent. The move, which was temporary, will reduce the cost of borrowing for Countrywide and other mortgage lenders, as the Fed accepts mortgages as collateral for discount window loans.
The National Association of Home Builders was among groups welcoming the Fed’s move, saying it would help ease mortgage market liquidity concerns. The NAHB urged to Fed to continue monitoring market conditions and consider a cut in the federal funds rate before a scheduled Sept. 18 meeting.
A Banc of America Securities analyst today upgraded Countrywide’s stock from sell to neutral, saying the lender’s drawdown of its $11.5 billion line of credit should buy the company time while the turmoil in the secondary market for mortgage loans subsides.
But tapping the line of credit also prompted ratings agencies to cut their ratings on Countrywide’s senior debt to the lower end of the investment grade scale, which could make it more expensive for the lender to borrow additional funds.
In a memo e-mailed to employees, Countrywide executives said the company “fully anticipated” the lowered ratings on its debt, and that the “negative implications” of lower ratings are “significantly less” under Countrywide’s plan to move its mortgage funding to the company’s bank division.
Countrywide announced Thursday that its strategy to survive the liquidity crunch is to move all of its mortgage loan production from Countrywide Home Loans Inc. to Countrywide Bank by the end of September. Already, 70 percent of total origination volume is now funded by the bank, the company said.
“Our bank has approximately $100 billion in assets and a deposit franchise that will provide very reliable and stable funding for our mortgage business,” Countrywide executives said in the memo. “Importantly, we do not expect this transition to materially change the way we operate, our key strategies, or our desire and intent to continue to be the dominant mortgage lender in the U.S.”
Countrywide, the memo continued, has recently completed its acquisition of several small mortgage companies, and “is in the process of hiring several hundred loan officers from companies who recently went out of business. These are the type of market share growth opportunities that we believe will continue to present themselves in the coming months.”
A Countrywide spokesperson confirmed the memo was sent to all employees Thursday but had no other comment.
Countrywide spent an estimated $34.8 million on Internet advertising in July, making it the fourth-biggest advertiser on the Web, according to a report by Nielsen//NetRatings based on data from AdRelevance. The top spender, with an estimated $46.3 million in outlays, was the mortgage lead generator Low Rate Source.
According the company’s most recent quarterly report to investors, Countrywide Bank converted its charter from a national bank to a federal savings bank on March 12. As a result, Countrywide Financial became a savings and loan holding company, no longer subject to specific statutory capital requirements imposed on bank holding companies.
Countrywide Bank remains “well capitalized” and in compliance with the requirements of the Office of Thrift Supervision, the company said.
As a member of the Federal Home Loan Bank of Atlanta, Countrywide Bank can tap into the Federal Home Loan Bank system to fund loans. During the first six months of the year, Countrywide obtained $25.8 billion in advances from the FHLB, pledging $56.6 billion of mortgage loans to secure its outstanding FHLB advances and enable future advances.
Although Countrywide says moving all of its mortgage loan funding to its bank division won’t change the way it operates, the company has announced tightened underwriting standards with a goal that 90 percent of the loans it originates will be eligible for repurchase by Fannie Mae and Freddie Mac, or meet its banking division’s investment criteria.
Most of the loans Fannie and Freddie purchases or guarantees are within the $417,000 conforming loan limit, and require higher down payments and credit scores than many of the loans made by Countrywide Home Loans in the past. That’s led to speculation that Countrywide will discontinue or curtail the funding of some loans, such as riskier jumbo mortgages.
“The jumbo loans are funded by investors on Wall Street; investors have lost their appetite for mortgage-backed securities,” said Peter Ogilvie, president of the California Association of Mortgage Brokers (CAMB). “In lots of cases, even with jumbo loans made to people with very high credit ratings and low loan-to-value ratios, the mortgage market is simply not interested.”
Countrywide’s problems are symptomatic of what’s going on with other lenders, who “are pulling back on a lot of their activities to survive,” Ogilvie said.
The result is that it’s harder to find a lender willing to make a jumbo loan, and more difficult to qualify. Those who do can expect to pay higher interest rates, Ogilvie said.
Ogilvie said CAMB continues to lobby federal lawmakers to raise the conforming loan limit in California, as has been done for Alaska and Hawaii, to acknowledge the state’s higher cost of housing.
The vice president of First Residential Mortgage, Ogilvie said he expects the problems in the secondary mortgage market to sort themselves out “In a few weeks at the latest.”
“There will be people coming back into the market looking for profit opportunities, and some of those people will be looking for billion-dollar bundles of mortgages,” Ogilvie said.