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Lender reports rising defaults

Countrywide home foreclosures and delinquencies surge to five-year highs in July. Mortgage stocks tumble.

August 15, 2007|E. Scott Reckard | Times Staff Writer

In a grim report that helped send mortgage stocks reeling, No. 1 home lender Countrywide Financial Corp. said Tuesday that foreclosures and delinquencies jumped in July to the highest levels in more than five years.

The company's monthly report also shows that its volume of new loans to people with poor credit has sharply contracted despite the disappearance since last year of scores of smaller rivals that specialized in sub-prime mortgages.

A spokesman for Calabasas-based Countrywide said Tuesday that layoffs were possible. The company's stock sank 8%.

Countrywide said mortgages in foreclosure surged in July to 0.79% of the loans it serviced from 0.48% a year earlier and 0.74% in June.

Delinquent loans accounted for 5.1% of the mortgages on which Countrywide collects payments, up from 4.11% a year earlier and 4.98% in June.

The levels of delinquencies and foreclosures were the highest in more than five years. Countrywide didn't file detailed monthly reports before 2002. As defaults have risen this year, investors have become increasingly leery of securities backed by sub-prime mortgages, while bank regulators have tightened restrictions on such loans.

That has forced Countrywide and other mortgage lenders to raise lending standards, making loans difficult or impossible to get for many would-be borrowers and cutting into loan volume.

Countrywide said its sub-prime lending in July totaled $1.8 billion, down 46% from $3.35 billion in July 2006. The company made 14% fewer home loans in July than in June. Daily mortgage applications fell 15%.

Except for government-sponsored mortgage buyers Fannie Mae and Freddie Mac, which purchase mainly loans to customers with good credit, the secondary market for home loans "is just not working," Piper Jaffray analyst Robert Napoli said in a note to clients.

By concentrating on loans that Fannie and Freddie will buy and by taking advantage of turmoil in the industry, Napoli said, Countrywide could significantly boost its market share.

Countrywide "loses a competitor or two virtually every day" and "has the liquidity to work its way through the current environment," he said, "but it is still not an easy time."

Although it has added more than 1,100 workers in recent months by hiring employees who lost jobs at other lenders, Countrywide spokesman Rick Simon said pressures on its business, particularly the sub-prime sector, could lead to layoffs.

"It's going to have to be considered," he said.

Countrywide shares fell $2.15, or 8.1%, to $24.46, bringing their loss this year to 42%.

Other mortgage stocks also tumbled Tuesday on bad news of their own and in reaction to Countrywide's difficulties:

Accredited Home Lenders Holding Co. of San Diego, a once well-regarded sub-prime lender, fell 32 cents to $5.50. The stock is down 38% in two days on news that a buyout firm wants out of a deal to acquire Accredited.

Impac Mortgage Holdings of Irvine, whose shares are down more than 85% this year, reported a second-quarter loss of $152.5 million compared with a $26.4-million profit a year earlier. Its shares fell 45 cents to $1.20.

Thornburg Mortgage Inc. of Santa Fe, N.M., sank $6.67, or 47%, to $7.61, after postponing a dividend. The stock rebounded after hours to $9.48, when the lender said it had no plans to seek bankruptcy protection.

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scott.reckard@latimes.com

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