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Sub-prime chaos claims 500 jobs at Countrywide

Capital One shuts down its troubled 'jumbo' loan unit, but Washington Mutual reaches out to high-risk borrowers.

August 21, 2007|E. Scott Reckard | Times Staff Writer

The mortgage meltdown continued Monday as Countrywide Financial Corp. said it eliminated about 500 jobs in its sub-prime units and a big issuer of "jumbo" loans decided to shut down altogether.

Before the layoffs Friday, Calabasas-based Countrywide, the No. 1 home lender, had been aggressively hiring top mortgage workers whose jobs had been vaporized by the sub-prime market's decimation. The company said it retained a workforce of more than 60,000 and was still looking to make new hires.

Countrywide provided few details about the job cuts except to say they involved its Full Spectrum Lending unit, which works directly with high-risk customers, and a wholesale unit that makes loans to the same types of borrowers through a network of independent brokers.

Countrywide shares fell $1.62, or 7.6%, to $19.81.

Meanwhile, credit card giant Capital One Financial Corp. said it was closing its struggling GreenPoint Mortgage unit, which made jumbo loans -- those for more than $417,000 -- and so-called alt-A loans to home buyers who didn't fully document their income or assets.

Capital One said it would close GreenPoint's 31 locations and eliminate 1,900 jobs immediately. In a statement, the McLean, Va., company predicted it would be hard to make a profit under GreenPoint's business model -- making and selling nontraditional loans -- "for the foreseeable future."

Taking a contrarian approach is Washington Mutual Inc. The nation's No. 3 mortgage lender plans to step into the void created by companies such as Countrywide and GreenPoint that can no longer find buyers for sub-prime, alt-A or jumbo mortgages, which Fannie Mae and Freddie Mac, the huge, government-sponsored mortgage finance firms, aren't permitted to buy.

Because the Seattle-based banking company has positioned itself to be able to keep more of such loans in its investment portfolio rather than sell them, it can ignore Wall Street's currently negative view of the mortgage market, Washington Mutual Chairman Kerry Killinger said. In an interview Friday, Killinger said those loans could now be made on highly profitable terms because so few lenders were willing to make them.

In related developments Monday:

Securities class-action law firm Lerach Coughlin Stoia Geller Rudman & Robbins sued Countrywide in federal court, alleging that it issued false statements about its business and inflated its stock price while insiders sold $440 million in Countrywide shares. The company didn't respond to requests for comment.

Countrywide Bank took out full-page ads in the Los Angeles Times and other newspapers declaring it was financially sound and at no risk of failure. The intent was to stem withdrawals that began last week after Countrywide Financial said foreclosures had soared and a Wall Street analysts raised the prospect of bankruptcy if market conditions worsened.

Mortgage insurer PMI Group Inc., a big mortgage insurer, said it was seeing increased demand for insurance on loans for more than 95% of a property's value. Low-down-payment loans, especially to sub-prime borrowers, were among the mortgages that fueled a final frenzy of borrowing last year before the credit markets soured.


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