By David Mildenberg
Jan. 9 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage lender, fell in New York trading to the lowest since 1996 as foreclosures and late payments rose to the most in five years.
Foreclosures doubled to 1.44 percent of unpaid principal in December from 0.7 percent a year earlier at the unit that handles billing and processing, Countrywide said in a statement today. Overdue loans increased to 7.2 percent from 4.6 percent.
Countrywide dropped 6.4 percent today after losing more than a quarter of its market value yesterday, when the company denied speculations it will file for bankruptcy. The stock lost 79 percent last year in what Chief Executive Officer Angelo Mozilo, 69, has called the worst housing market since the Great Depression.
``There is no liquidity returning to the market and everyone is just frantic,'' said consultant David Olson of Wholesale Access Mortgage Research in Columbia, Maryland, a former market research director at Freddie Mac. Some of Countrywide's mortgages that offered the most flexible terms ``are performing horribly, which is why they can't survive.''
Countrywide's decline to $5.12 in 4:18 p.m. New York Stock Exchange composite trading led shares of other mortgage companies lower. IndyMac Bancorp Inc., the second-biggest independent mortgage company, lost 17 percent, and Washington Mutual Inc., the biggest U.S. savings and loan, fell 3.1 percent.
Investors controlling 134.4 million Countrywide shares were betting on a decline as of Dec. 31, according to data compiled by Bloomberg. The so-called short interest is about 4.7 times the company's average daily trading and about 23 percent of the shares available to the public.
Credit-default swaps on Countrywide moved deeper into distressed levels for a second day. Sellers were demanding 29.5 percent upfront and 5 percent a year for contracts protecting Countrywide bondholders from default for five years, according to broker Phoenix Partners Group in New York. That compares with 28 percent upfront and 5 percent a year at the close of trading yesterday. A rising price indicates more skepticism about a company's ability to pay its debts.
Countrywide once traded as high as $45.26 last January, a record, and its market value hit about $27 billion, 10 times more than today's level. The workforce peaked at 61,586 in July before declining 18 percent to 50,600 at the end of 2007. Monthly loans, which set a record at $53 billion in August 2005, have averaged about half that amount for the past four months.
Speculation about bankruptcy surfaced last year after investors balked at buying Countrywide's short-term debt and concern about rising defaults brought markets where the company sold its mortgages to a standstill. The lender tapped emergency credit lines and got a bailout from Bank of America Corp.
Bank of America invested $2 billion in Countrywide in August, buying preferred shares that are convertible at $18 into common stock and pay a 7.25 percent dividend. If Bank of America converted all of the original stake to Countrywide's stock at the current price, the bank might face a loss of more than $1.3 billion, or about 70 percent, excluding dividends and the value of the conversion rights.
Countrywide probably is seeking more capital to shore up its credit ratings, said Tom Atteberry, a money manager in Los Angeles at First Pacific Advisors LLC, in an interview yesterday. Mozilo said in October his company expects to be profitable in the fourth quarter and in 2008. Fourth-quarter results are scheduled to be announced Jan. 29.
``The housing trends in 2008 will look a lot like 2007, so Countrywide will remain under a lot of stress,'' Atteberry said. ``What they are left with is a pretty low-margin business.''
Mortgages funded rose 1 percent from November, and fell 45 percent from year-earlier levels, according to the Countrywide statement. New loans in December totaled $24 billion.
The company charges fees to owners of the mortgages in its $1.5 trillion servicing portfolio for sending out bills to homeowners, collecting payments and managing records. Borrowers aren't prepaying their loans as quickly, the company said, which means the stream of fees will last longer. This increased the value of the servicing rights, Countrywide said.
Countrywide made $6 million in subprime loans in December, down from $3.7 billion a year earlier, reflecting its tighter standards for lending and the inability to sell the loans to investors in the secondary market.
While the change ``has reduced balance sheet risk caused by its non-conforming originations, the dramatic decline in Countrywide's earnings power this transition has caused has kept CFC's creditors nervous about the company's liquidity,'' Lehman Brothers Holdings Inc. analyst Bruce Harting said in a report yesterday.
A telephone call to Countrywide's media office wasn't immediately returned.
Countrywide's own bank attracted a net $2.3 billion in deposits in December, ending the year at $61 billion. The bank is boosting interest rates to help attract deposits that can be used to fund new mortgages, while borrowing more than $50 billion from the Federal Home Loan Bank system.