In perhaps the strongest sign yet of just how difficult operating in the current mortgage market has become, Countrywide said this morning that it has borrowed $11.5 billion from a group of 40 banks and that it will speed up the move of its production operations into its thrift segment, Countrywide Bank, FSB. From the press release:
“As we have previously discussed, secondary market demand for non-agency mortgage-backed securities has been disrupted in recent weeks,” said David Sambol, President and Chief Operating Officer. “Along with reduced liquidity in the secondary market, funding liquidity for the mortgage industry has also become constrained. “For many years, Countrywide’s liquidity management framework has focused on maintaining a diverse, multi-layered assortment of financing alternatives,” said Sambol. “A primary component of this framework is a committed, unsecured credit facility of $11.5 billion provided by a syndicate of 40 of the world’s largest banks. In response to widely-reported market conditions, Countrywide has elected to draw upon this entire facility to supplement its funding liquidity position. Over 70 percent of this facility has an existing term greater than four years and the remainder has a term of at least 364 days.”
The fact that Countrywide tapped all of the credit available via this facility is telling. But that’s not all — Countrywide also said it’s essentially abandoning the subprime, Alt-A and jumbo loan markets, focusing only on those loans that can be sold to the GSEs. The company said it has “materially tightened” underwriting standards for loan products that are not eligible for sale to the GSEs. When the nation’s largest lender essentially stops making subprime and even jumbo loans, trust me, borrowers will feel it. Countrywide’s stock was battered yesterday after a Merrill Lynch analyst moved his rating to “sell” and suggested that bankruptcy might be possible for the nation’s largest lender. The stock had dropped an additional 13.4 percent to $18.35 as of when this post was published. Fitch got in on the action this morning, too, downgrading Countrywide’s long-term issuer default rating to “BBB+” from “A” — still investment grade, but certainly something that will increase the cost of credit. I posted in early August about Countrywide’s move to adopt a thrift charter, something that now appears to be the company’s strategy to surviving the current downturn — and something that other lenders, many of whom are now out of business, didn’t do. Other thrift lenders, including IndyMac, have pointed to their depository business as one primary reason they’ll be able to weather the storm — Countrywide’s clearly thinking similarly.