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Countrywide Hit by Credit Market Woes

Countrywide Financial Corp. and other mortgage companies are facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing.


"While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."

Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.

In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million.

That means that they are provisioning 20% of the mortages, i.e. that they are already counting these as losses. Actual losses will only be known later, as borrowers make payments or not - if the losses are lwoer than expected, the company will be able to book a profit by taking back these provisions; if worse, at least a portion of the losses will have been covered already. This is a way to spread losses over time - but it does mean that this quarter's accounts ARE impacted.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Aug 10th, 2007 at 03:48:08 AM EST

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