Mortgage lenders feel the pain
-->Uncategorized August 10th, 2007
CNBC reports:
Shares of two of the largest U.S. providers of home loans fell sharply Friday after they disclosed that difficult mortgage market conditions are likely to hurt their operations in the near term.
Separately, the fallout from the U.S. subprime crisis claimed another victim as mortgage lender HomeBanc filed for Chapter 11 bankruptcy protection.
Countrywide Financial shares were recently trading down $2.90, or 10.12%, at $25.76, as investors reacted to comments the lender made in a filing with the U.S. Securities and Exchange Commission late Thursday.
In addition, the cost to protect Countrywide bonds from default rose about 150 basis points to around 380 basis points, which means it costs $380,000 annually to insure $10 million of debt for five years.
The company, which is the largest U.S. mortgage lender, said it faces “unprecedented disruptions” in the debt market and secondary market for mortgages. It said these “could have an adverse impact on the company’s earnings and financial condition, particularly in the short-term.”
Meanwhile, Washington Mutual said difficult mortgage market conditions are likely to hurt its operations in the near term.Washington Mutual, the largest U.S. savings and loan, said liquidity in the market for less-than-prime home loans and securities backed by the loans has “diminished significantly.” It said that while this persists, its ability to raise liquidity by selling home loans will be “adversely affected.”
The lenders offered their assessments in quarterly reports filed with the SEC.
Many U.S. mortgage lenders have struggled as housing price appreciation slowed, borrowing costs rose, defaults soared and investors grew wary of holding all but the safest home loans. Dozens of weaker lenders have been sold, quit the industry, or gone bankrupt this year.
Calabasas, California-based Countrywide last month posted a 33% decline in second-quarter profit and slashed its full-year earnings outlook. It said delinquencies had risen, especially among people who took out home equity loans.
In its quarterly report, Countrywide said payments were at least 30 days late on 20.15% of “nonprime” loans it serviced, up from 16.67% three months earlier and 14.41% a year earlier. The rate on “prime” home equity loans rose to 3.7% from 2.96% in March and 1.51% in June 2006.
For all loans, the delinquency rate rose to 4.98% from 4.29% in March, and 3.92% in June 2006.
Countrywide said it believes it has “adequate” near-term funding liquidity to combat the market environment, but that the situation “is rapidly evolving and the potential impact on the company is unknown.”
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