Countrywide Financial Corp. is warning investors that its strategy to weather the disruption in secondary mortgage markets — by funding loans through its banking subsidiary — could be jeopardized if the company’s credit ratings are downgraded to junk status.

Countrywide last month reported $1.2 billion in third-quarter losses, as rising delinquencies and foreclosures made investors reluctant to finance the company’s debt or buy securities backed by its loans (see Inman News story).

The three major ratings agencies — Moody’s Investors Service, Standard & Poor’s and Fitch Ratings — have already downgraded Countrywide’s debt ratings to just above junk status. Further downgrades could leave Countrywide unable to borrow money in corporate debt markets and hamper its ability to use its bank subsidiary to fund loans, the company warned.

“To retain access to the public debt markets it is critical for us to maintain investment-grade credit ratings,” the company said Friday in a Securities and Exchange Commission filing. “While we retain our investment grade ratings, all three rating agencies have placed our ratings on some form of negative outlook.”

If Countrywide’s credit ratings drop below investment grade, “our access to the public corporate debt markets could be severely limited,” the company said.

The cutoff for investment grade is BBB- (or Baa3 from Moody’s Investors Service), which is equal to the company’s lowest current rating.

Countrywide officials said downgrades could also limit their ability to place custodial accounts on deposit with their bank subsidiary, Countrywide Bank.

Lenders establish custodial accounts to hold borrowers’ mortgage payments. Countrywide said up to $5.5 billion of custodial deposits “may be subject to placement with another bank if our credit ratings were reduced below investment grade.”

In addition, “a reduction in our ratings below investment grade would have a negative effect on our ability to retain our commercial deposits,” the company said.

Countrywide Bank is currently using $51.1 billion of its $64 billion maximum borrowing capacity, and has nearly reached its limit on Federal Home Loan Bank advances.

Countrywide survived a liquidity crisis in August, when investors stopped buying the short-term commercial paper debt that it and other mortgage lenders depended on to finance loans.

After drawing down an $11.5 billion line of credit with 40 banks and allowing Bank of America to take a minority stake in the company, Countrywide restricted new originations to loans eligible for repurchase by Fannie Mae and Freddie Mac or those it could hold as investments.

Countrywide said public debt markets “are no longer a practical source of short-term inventory financing” but that “future access to the public corporate debt markets remains an important potential source of financing to us when market conditions permit.”

The Calabasas, Calif.-based lender said that maintaining its current investment-grade ratings requires that the company have “high levels of liquidity, including access to alternative sources of funding such as deposits and committed lines of credit provided by highly rated banks.”

Countrywide officials said they have procured additional sources of liquidity, including $9.2 billion of cash and cash equivalents in the bank as of Sept. 30.

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