Faltering Mortgage Markets See Countrywide, IndyMac Plummet

August 3, 2007

Today, August 3, 2007, Bloomberg reported that Countrywide Financial Corp.’s stock fell to 2004 levels and IndyMac Bancorp Inc. shares hit a four-year low as demand from investors who buy home loans dried up.

Rising defaults by borrowers with the worst credit histories have spread to people with more reliable records. That’s making investment banks that repackage home loans into bonds reluctant to buy, threatening profits of residential lenders. Mortgages backed by federally chartered agencies such as Fannie Mae are the only bright spot, said KBW Inc. analyst Bose George in New York.

“The rest of the mortgage market is going through a liquidity crisis,” George said. “People just don’t want the credit risk for mortgages right now.”

Among other home lenders, NovaStar Financial Inc. fell 11 percent and Impac Mortgage Holdings Inc. lost 26 percent. NovaStar’s shares continued falling after regular trading ended when Reuters reported the Kansas City, Missouri-based mortgage company has suspended funding some loans.

CIT Group Inc., which said last month it’s getting out of the home-lending business, dropped 4.9 percent. Fremont General Corp., which agreed to stop making subprime home loans earlier this year, lost 17 percent.

Accredited Home Lenders Holding Co., which said yesterday it may go bankrupt, rose 31 percent. The company said late yesterday it still expects to complete a $15.10-a-share sale to buyout firm Lone Star Funds. Lone Star Funds is the same company that purchased debt buying company B-Line LLC earlier this year.

IndyMac CEO Michael Perry noted in a recent e-mail that the market for mortgage bonds has become “very panicked and illiquid,” IndyMac Chief Executive Officer Michael Perry wrote in an e-mail earlier this week.

Bids for subprime home loans, rated as the most likely to default, became scarce in March as overdue payments were heading for their highest level since 2002. Now buyers are shunning Alt-A loans, an alternative for people with A-rated credit who don’t meet all the standards for prime loans. The category includes low-documentation mortgages.

Moody’s Investors Service labeled some varieties of Alt-A mortgages this week as no better than subprime. The ratings company said it will change how it grades related securities after failing to predict how far delinquencies would rise.

American Home Mortgage Investment Corp., which specialized in Alt-A lending, became the second-biggest residential lender to fail this year when it announced yesterday it was halting most operations. It is widely anticipated that American will march into bankruptcy court within the next few days.

Source: Bloomberg.

Posted in Mortgage Meltdown