Jeff Haynes/AFP/Getty Images
Construction workers build a new home in Naperville, Ill., last month amid troubles in the U.S. mortgage industry. Shares in Countrywide Financial, the nation's largest mortgage lender, fell $2.34, or 11 percent, to $18.95 on Thursday, reaching their lowest level since September 2003.
Construction workers build a new home in Naperville, Ill., last month amid troubles in the U.S. mortgage industry. Shares in Countrywide Financial, the nation's largest mortgage lender, fell $2.34, or 11 percent, to $18.95 on Thursday, reaching their lowest level since September 2003. Jeff Haynes/AFP/Getty Images
Countrywide Financial Corp. — the nation's largest mortgage lender — has tapped into an $11.5 billion line of credit issued by a group of banks to bolster its liquidity.
Like the entire mortgage industry these days, the company — which originates 17 percent of the mortgages in the United States — is having trouble raising the capital it needs to operate.
And increasingly, observers worry about whether Countrywide can survive the turmoil in the credit markets.
The company's troubles evolved very rapidly, says analyst Fred Cannon of Keefe Bruyette and Woods.
"[I]f you had talked to most investors as recently as a month ago, this situation and the challenges they face would be very difficult to fathom," Cannon says.
But such is the state of the mortgage business right now that even Countrywide appears to be in peril. Countrywide was founded in 1969 in southern California, and Cannon says that over the years, it has gained a reputation as one of the most efficient and best-run mortgage lenders around.
Over the years, Countrywide also has diversified into banking and insurance — and that's one reason why many analysts predicted it would survive the carnage in the mortgage business.
But last month, the company's chief executive, Angelo Mozilo, told investors in a webcast that even Countrywide was starting to feel pinched.
It's not that Countrywide isn't profitable: It still makes money offering conventional mortgages, and it receives a huge amount of money each month from outstanding loan payments.
But Guy Cecala, publisher of Inside Mortgage Finance, says Countrywide relies heavily on short-term financing to fund new mortgages and pay salaries. And with the mortgage business in so much trouble, the company is having problems borrowing money.
"That is the entire issue. If funding were no longer an issue, they'd be back to normal, and nobody would be questioning them at all," Cecala says.
Countrywide has tried to reassure investors that it can keep operating, and its ads continue to blanket cable TV channels.
But investors have grown increasingly skeptical about Countrywide's future. The company's stock price started the year at $42 a share; it finished at $20 Thursday. Cecala says that if the credit crisis continues for another week, it's not clear Countrywide can survive.
And Cecala says that's a big problem for the economy.
If Countrywide fails, Cecala says, it would spark a worldwide panic about the state of the U.S. mortgage market.
"If we're having a panic now, what worse signal could you send than having the largest mortgage lender go under, particularly if they account for almost one in five of all mortgages made?" Cecala says.
It's also hard to imagine how such a big bankruptcy could be carried out. It would mean selling off and disposing of a huge number of assets, and other lenders would have to step in to service Countrywide's large loan portfolio.
And, Cecala says, it's not even clear other lenders have the capacity to do so. There has never been a mortgage lender as big as Countrywide — and for the economy, the prospect of it failing is chilling.