COUNTRYWIDE WOES MOUNT By ZACHERY KOUWE
November 24, 2007 -- Investors in Countrywide Financial, the nation's largest mortgage lender, have been taken on a wild ride over the last month.
This week, Countrywide was forced to publicly deny rumors that it was on the verge of bankruptcy as its stock sank to a low of $8.21 before recovering slightly.
Further adding to its troubles, Edward Jones analyst Patrick Schumann cut his rating on the company, citing potential cash shortages if government-backed Fannie Mae and Freddie Mac curb their purchases of Countrywide's mortgages.
It's a far cry from late October, when Countrywide CEO Angelo Mozilo said he expected the fourth quarter to be profitable - comments that drove the stock up to $17.11 the next day.
But over the last few weeks, investors have begun to believe that Mozilo's pledge could be tough to achieve as Countrywide's mortgage originations fall and the available capital to fund new mortgages shrinks.
"There is a reasonable possibility of a dividend cut," Schumann said. "If this dislocation proves to be longer in duration, or if conditions materially worsen, we believe that could further pressure Countrywide's financial position."
The mortgage giant's stock is now trading at nearly half the $18 conversion price for the $2 billion of preferred stock that Bank of America bought back in August. Shares closed at $9.65 yesterday.
Countrywide is facing mounting foreclosures and loan delinquencies from borrowers who were hoping to refinance before their low-interest teaser rates soared. The company has said that nearly 24 percent of the $118 billion in its subprime servicing portfolio is in some stage of delinquency. That equals about $27 billion.
The company said this week that it had ample liquidity to continue funding new mortgages through next year and said it had $35.4 billion in "highly-reliable liquidity" as of the end of October.
But some analysts say that may not be enough if homeowners continue to default on their mortgages and the secondary market remains closed to the company.
Countrywide has become a poster child for the housing crisis and having lost nearly $25 billion in market value over the last nine months. Countrywide has already laid off about 12,000 employees and some insiders expect that to rise to 20,000 as mortgage originations plummet.
Sources close to Countrywide said Mozilo has been urged by advisers to eliminate the company's dividend, which could save about $350 million a year.