Countrywide taps $11.5 b credit line from banks

NEW YORK: Countrywide Financial Corp, the biggest US mortgage lender, tapped an entire $11.5 billion bank line as the global credit crunch curbed access to short-term financing. Countrywide turned to the backup 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 Calabasas, California- based lender. Australia’s Rams Home Loans Group and Canada’s Coventree also sought emergency funding on 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 on 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 US 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. US homebuilders started work on the fewest houses in a decade in July, the commerce department said on 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 $18.11 from $21.29 on Wednesday. The 15% 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 for four years or longer. Starting on 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 perceived risk of owning Countrywide’s bonds soared after the announcement, according to credit-default swap traders who bet on the company’s ability to repay its debt.

Countrywide five-year credit swaps climbed to 1,000 basis points, a 400- basis-point jump, according to broker Phoenix Partners Group in New York. An increase suggests deteriorating investor confidence. Moody’s Investors Service cut Countrywide’s credit rating to the lowest investment-grade level, Baa3, citing the ‘significant’ decline in the company’s access to debt markets.