Countrywide Financial Corp., the biggest U.S. mortgage lender, borrowed the entire $11.5 billion available in a bank credit line as the global financial crisis curbed access to short-term financing.
Countrywide turned to the emergency loan, which it said was provided by a group of 40 banks, a day after Merrill Lynch & Co. raised the prospect of bankruptcy for the lender, based in Calabasas, Calif. Australia's Rams Home Loans Group Ltd. and Canada's Coventree Inc. also sought emergency funding Thursday.
"When a company draws on its bank lines, it just basically gives off the impression that it has run out of options," said Christopher Wolfe, managing director at Fitch Ratings, which Thursday dropped Countrywide to BBB+, its third-lowest investment-grade rating. "Typically these bank lines are there but not really meant to be used."
The U.S. housing slump forced rival lenders New Century Financial Corp. and American Home Mortgage Investment Corp. to file for bankruptcy protection earlier this year. They joined about 70 companies with links to the mortgage market that have had to close or put themselves up for sale since the start of last year. U.S. homebuilders started work on the fewest houses in a decade in July, the Commerce Department said Thursday.
Countrywide, which has lost more than half its value on the New York Stock Exchange this year, fell for a sixth consecutive day, to $16.73 at 12:27 p.m. from $21.29 yesterday. The 21 percent drop was the biggest since the stock-market crash of 1987.
Countrywide's loan is part of an "assortment of financing alternatives" put in place to supplement cash in turbulent markets, the company said in a statement. It can keep the funds for at least a year, and about two-thirds of the funds can be kept for four years or longer.
Starting Thursday, most of Countrywide's loans will be written to conform to standards that qualify them for purchase by the government-sponsored agencies Fannie Mae and Freddie Mac, the company said.
"Demand for non-agency, mortgage-backed securities has been disrupted in recent weeks," David Sambol, president and chief operating officer, said in the statement. "Liquidity for the mortgage industry has also become constrained."
Countrywide plans to complete by the end of September a plan to make almost all mortgages through Countrywide Bank, which has access to cheaper funding from the Federal Home Loan Bank System.
The company appears to be readying itself for a "nuclear winter" in the U.S. credit markets, Piper Jaffray Cos. analyst Robert Napoli wrote Thursday in a report. "With the combination of the additional capital and the focus on government-sponsored entities and bank-eligible loans, Countrywide is likely to have positioned itself to withstand a prolonged credit crunch."
Private lender to stop funding new mortgages
First Magnus Financial Corp., the second-largest privately held U.S. mortgage lender, will stop funding new mortgages, according to a recorded message on a customer-service line.
"In light of the collapse of the secondary mortgage market, First Magnus will not fund any mortgage loans after Wednesday, Aug. 15," the message said.
First Magnus was the 16th-largest U.S. home lender in the first half of this year, making $17.1 billion in loans, according to newsletter Inside Mortgage Finance. Katie Myers, a spokeswoman for the company, which is based in Tucson, Ariz., didn't immediately return a voice-mail message.