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Countrywide Buys Assets as HomeBanc, Impac Halt Loans (Update3)
By Elizabeth Hester


Sign for Countrywide branch office in Boston, MA
Aug. 7 (Bloomberg) -- Countrywide Financial Corp. and CIT Group Inc. said they'll be able to ride out the mortgage industry's credit crunch as two more rivals halted loans and MGIC Investment Corp. said subprime losses may kill its merger with Radian Group Inc.

HomeBanc Corp. said it's selling assets to Countrywide after bankers cut off credit and left it unable to fund loans. Impac Mortgage Holdings Inc., based in Irvine, California, stopped making ``Alt-A'' loans and fired staff. MGIC, the nation's biggest home-loan insurer, said it's not obliged to buy No. 3 Radian because the value of their jointly owned mortgage unit may have tumbled from $1 billion to zero in a month's time.

Bankers have cut off credit to home lenders as overdue payments rose to the highest level since 2002, according to the Mortgage Bankers Association. Markets where mortgages are bought and sold are almost frozen, leaving lenders short on funds to stay open. CIT and Countrywide have rushed to assure investors they have plenty of cash, and Countrywide said it's shopping for bargains.

``The consolidation will drive the business completely to the largest players,'' said Brenda White, managing director at Deloitte & Touche Corporate Finance LLC in New York, who consults on acquisitions. ``It has to be a player that has a deep pocket to survive this market.''

Vanishing Lenders

More than 70 mortgage companies have shut operations or sought buyers since the start of 2006, according to data compiled by Bloomberg. A dozen of them have declared bankruptcy, including yesterday's filing by American Home Mortgage Investment Corp. Aegis Mortgage Corp., a Houston-based company that stopped lending yesterday, announced today it will shut down lending operations.

Countrywide's stock rose 60 cents, or 2.2 percent, to $27.35 and CIT fell for the 15th straight session, losing 78 cents or 2.3 percent to $33.60 in 4:18 p.m. New York Stock Exchange composite trading. Impac, which sold for $22 in June 2005, dropped 28 percent to $1.22 and HomeBanc shares, down 98 percent this year, traded at 7 cents each.

Falling prices for mortgage assets may have wiped out the value of New York-based Credit-Based Asset Servicing and Securitization LLC, the joint venture owned by MGIC and Radian.

MGIC said in a statement its management is ``reviewing other developments that may affect MGIC's obligation to close'' on its pending takeover of Radian, which is disputing MGIC's assessment. Shares of Milwaukee-based MGIC rose 4.7 percent while Philadelphia-based Radian fell 11 percent.

HomeBanc's Halt

HomeBanc couldn't borrow to finance mortgages as of Aug. 6 and doesn't expect to fund any pending or future loans, the company's statement said. It plans to sell assets from the retail mortgage unit including five branches to Countrywide, with a ``significant'' number of people keeping their jobs.

A day earlier, San Francisco-based Luminent Mortgage Capital Inc. said bankers were cutting back on credit and that markets where mortgages and related securities are sold to investors had ``seized up.'' Luminent suspended its dividend, canceled an earnings call and said it was searching for new sources of cash. The shares fell 75 percent to $1.08 today.

Luminent, which invests in mortgages and doesn't originate them, said today it hadn't experienced losses on subprime mortgages and reiterated it's an investor in mortgage assets, not an originator.

Impac said it will suspend making Alt-A loans, an alternative for A-rated borrowers who fall just short of standards for regular prime mortgages. The company didn't say how many employees had lost their jobs. So far, Impac has met all margin calls and a sale of $1 billion of loans is scheduled to close in the next 30 days, said a company statement.

Merger in Peril

Shares of Thornburg Mortgage Inc., a Sante Fe, New Mexico- based lender, fell 7.9 percent after they were downgraded to ``sell'' by analysts at Deutsche Bank AG.

``Thornburg could face margin calls similar to other mortgage companies,'' said analysts Stephen Laws and Tim Wengerd.

CIT, the biggest independent U.S. commercial finance company, disclosed plans last month to leave the mortgage business after bigger-than-expected losses. With its stock down almost 40 percent this year, New York-based CIT today said it has access to a cash cushion of about $15 billion and ``a number of inquiries from possible buyers'' for the mortgage unit.

Countrywide has twice assured investors it has enough cash to cope with a credit crunch, and executives have said the lender may benefit as the industry's capacity shrinks. The Calabasas, California-based company said yesterday it had access to $186.5 billion at midyear.

Consolidation Play

``Countrywide is continuing to leverage the opportunities that are arising from the consolidating market,'' said President David Sambol in a statement. Buying HomeBanc assets ``illustrates the low-cost, low-risk transaction strategy we are undertaking in this environment.''

Credit-default swaps on Countrywide plunged the most in at least five years during the day, according to traders. Credit- default swaps are used to speculate on the company's ability to repay its debt. A decrease signals improvement in investor confidence.

``In markets like this, people look for conviction, and Countrywide is going to do well,'' said David Lykken, president of Austin, Texas-based mortgage consulting firm MBSD LLC. Lykken predicted Countrywide may capture as much as 34 percent of the market as other lenders pull out.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net .

Last Updated: August 7, 2007 17:25 EDT
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