The Countrywide Financial Crisis: Some Updates

Countrywide has long been the 800 pound gorilla in the mortgage origination market.  In a year that has seen the implosion of mortgage lenders that were over-exposed to the sub-prime market, Countrywide has been able to convey the perception that it’s exposure was limited and that it would smoothly navigate these turbulant waters.  Unfortunately, that perception has all but vanished.  With a languishing stock price that has seen Countrywide go from an all time high in February 2007 to about 15% of its former value, rumors of Countrywide insolvency have abounded.

Today, warehouse lender Southwest Securities FSB issued a statement to the effect that it would no longer do business with Countrywide.  Since the advent of securitization, mortgage lenders have relied heavily upon warehouse lenders to provide short term loans to provide liquidity between the time that individual mortgage loans are closed to the time that the loans are packed into pools of assets and sold to investors.  Without this liquidity, Countrywide is unable to provide funds for home purchasing by its customers. 

 In addition, rumors of an outright acquisition of Countrywide by Bank of America began gaining speed today, as announced by the Wall Street Journal.  It is being reported that the two companies are “in advanced talks.”

UPDATE JANUARY 11, 2008: An official announcement has been made that Bank of America will be acquiring Countrywide for $4 billion USD.