Wednesday, January 9, 2008

Trouble still brewing at Countrywide


In a previous post, I blogged about the recent troubles of Countrywide. Well, the company made the news again for the wrong reasons.
CNN reports that [shares] "of Countrywide Financial Corp. plummeted Tuesday after a New York Times report said the mortgage lender fabricated bankruptcy documents and a Lehman Brothers analyst said the company is unlikely to return to prior profitability levels.
Shares of Countrywide fell $1.47, or 19.2 percent, to $6.17 in afternoon trading. Earlier in the session, shares bottomed out at $5.76 - their lowest since early 2000 - after speculation the company was planning to file for bankruptcy itself. Countrywide later denied the rumors.
Countrywide shares have already lost about 26 percent of their value since the beginning of the year. Since the beginning of 2007, shares of Countrywide have plummeted about 84 percent.
According to the New York Times article, Countrywide "recreated" letters claiming a borrower owed the company $4,700, even though the borrower was under bankruptcy protection.
"It is not Countrywide's policy to create or 'fabricate' any documents as evidence that they were sent if they had not been," Countrywide said in a statement sent to the Times prior to the story's publication that was e-mailed to CNNMoney.com.
Instead, Countrywide said the letters were printed with dates that listed when payment adjustments were made to the borrower's escrow account
The case is one of 300 bankruptcy cases in western Pennsylvania where Countrywide's practices are being scrutinized.
The nation's largest mortgage lender has been trying to cope with a worsening housing market and rising delinquencies and defaults, especially among subprime mortgages given to customers with poor credit history.
Countrywide posted $1.2 billion in losses in the third quarter of 2007 because of the weakening mortgage market. Countrywide set aside $934 million during that quarter to cover rising defaults among loans.
The company denied earlier speculation that it was planning to file for bankruptcy protection...
Lehman Brothers analyst Bruce Harting cut his fourth-quarter earnings estimate for Countrywide to 20 cents per share from 36 cents per share.
"While Countrywide's transition to originating mostly GSE conforming mortgages has reduced balance sheet risk caused by its non-conforming originations, the dramatic decline in Countrywide's earnings power this transition has caused has kept Countrywide's creditors nervous about the company's liquidity," Harting wrote in a research note.
Harting said Countrywide will face additional pressure because the weakness in the overall housing market has depressed total volume as well."

So how strong is Countrywide's foundation? There's an ill wind blowing from this company...

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