Fox-Pitt analyst Howard Shapiro downgraded Countrywide Financial (CFC) to “In Line from “Outperform” today, noting that the government-sponsored entities who buy many of the top lender’s loans could clamp up.
Freddie Mac, who reported a $2 billion loss earlier this morning, warned that it may have to curtail growth or reduce the size of its retained portfolio if it is unable to raise sufficient capital through other methods.
That could spell trouble for the top U.S. mortgage lender, who relies on the mortgage financier to purchase many of the loans it originates.
Countrywide, like most other lenders still standing, recently shifted its focus to the origination of conforming loans which can be purchased by Fannie and Freddie, assuming the loans would have no difficulty being sold.
But constraints related to Freddie Mac not being able to purchase mortgages will likely reduce loan origination volume at Countrywide, limit credit further, and cause home prices to dip even lower, Shapiro wrote.
Countrywide has already seen its year-over-year loan origination volume plummet from $42.3 billion in October 2006 to $22.37 billion last month, and a recent switch to government-backed loans (FHA loans, VA loans) may not be as sound as originally thought, leading to greater liquidity concerns.
Yesterday, Moody’s Investor Service affirmed its ratings on Countrywide but said it still has a negative outlook on the company.
Shares of Countrywide were down $1.88, or 17.79%, to $8.69, their lowest trade in more than five years.
Update: Countrywide released a statement this afternoon in an effort to reassure rattled investors.
Here’s an excerpt: “Countrywide Bank … has sufficient liquidity available to meet its projected operating and growth needs and has accumulated significant contingent liquidity in response to evolving market conditions,” the company said.