MORTGAGES - Countrywide cuts heighten loan crisis - The lender plans as many as 12,000 layoffs. CEO Mozilo says the downturn is the most severe in recent history.
Home loan colossus Countrywide Financial Corp. announced Friday that it would slash as many as 12,000 jobs, or nearly 20% of its workforce, saying the downturn in the housing market and the credit crunch related to sub-prime loans have created the worst conditions ever seen by the modern mortgage industry.
The announcement by Calabasas-based Countrywide came hours after a smaller rival in the mortgage business, Pasadena-based savings and loan IndyMac Bancorp Inc., warned that it probably would record its first loss since 1998 in the third quarter. IndyMac said it would cut 1,000 jobs, 10% of its total.
Countrywide, the No. 1 home lender, funded $284.2 billion in mortgages this year through July 31, up from $255.8 billion in the same period in 2006, but said it expected lending to decline 25% next year.
With defaults on its riskier loans soaring in recent months, Countrywide reiterated a pledge to shift its business toward "plain vanilla" mortgages that can be sold to government-sponsored loan buyers Fannie Mae and Freddie Mac -- loans that historically have had narrow profit margins for lenders.
With those pressures on its revenue, major cost cutting was unavoidable, Countrywide Chairman and Chief Executive Angelo Mozilo said in a letter to employees Friday.
"Unfortunately, the only way to accomplish this is to make significant reductions in our workforce," Mozilo said. "In fact, this current cycle is certainly the most severe in the contemporary history of our industry."
In recent weeks, Countrywide had announced 1,400 layoffs. Mozilo said Friday that those cuts were included in the 10,000 to 12,000 expected cuts among Countrywide's more than 61,000 employees.
The company's banking, insurance and loan servicing operations will see few reductions, with the bulk of the job cuts affecting loan officers, processors and other employees of divisions that generate loans, Mozilo said. Though Countrywide provided few additional details, Southern California will clearly suffer because the company employs about 15,000 people in Calabasas and elsewhere in the region.
"They're a significant employer" in the West San Fernando Valley and Ventura County, said Nancy Sidhu, vice president and senior economist with the Los Angeles County Economic Development Corp. "The anxiety factor has to be rising for residents of the area."
