Shares of Countrywide Financial Corp. slipped more than 2 percent Friday after the nation’s largest mortgage lender said in a regulatory filing that “unprecedented disruptions” in debt markets could continue or worsen.
The stock fell 80 cents, or 2.79 percent, to close at $27.86. Shares opened the day by plunging more than 17 percent in premarket trading.
Shares of Washington Mutual Inc. also dropped more than 2 percent after the bank said in a filing with the Securities and Exchange Commission late Thursday that disruptions in the mortgage market could affect its liquidity.
Its shares dropped 81 cents, or 2.20 percent, to close at $35.95 on a day when stocks were mostly lower.
In an SEC filing late Thursday, Countrywide said it has adequate funding liquidity but added “the situation is rapidly evolving and the impact on the company is unknown.”
The filings by both companies came as liquidity — loans available to borrowers including banks, companies and home buyers — dries up around the world. Central banks in Europe, Japan and the U.S. have been infusing their markets with cash as stocks plummet internationally.
Countrywide packages many of its home loans into bonds and sells them to investors. But the market for those bonds has shriveled because of deteriorating credit quality and a stagnant housing market.
Rather than sell the bonds inexpensively, Countrywide said it was keeping more home loans in its own portfolio. The lender is also becoming pickier about which borrowers to lend to.
In addition, Countrywide said credit quality among its prime borrowers — clients with solid credit ratings — has drastically worsened. At the end of June, 3.7 percent of Countrywide’s prime home equity borrowers were not up to date with their payments, compared with 1.5 percent at the end of the second quarter last year.
The percentage of prime home equity loans pending foreclosure was also up 0.12 percent from 0.08 percent in the year-ago period.
In all, 4.9 percent of the company’s loans were delinquent at the end of June, up from 3.9 percent a year ago.
During a conference call last month, Countrywide Financial, based in Calabasas, Calif., assured investors it has access to more than $46 billion in cash and was not in financial distress.
But in a sign of its difficulty selling loans, Countrywide said in the filing it had transferred $1.9 billion in mortgages from the “loans held for sale” category to the “held for investment” classification.
The company marked down $1 billion in nonprime loans held for sale by $200 million, to $800 million, according to the filing.
“The problem is you can’t find a home for loans with investors right now, so as a result they’re having to hold more loans,” said Frederick Cannon, an analyst with Keefe, Bruyette & Woods Inc. “In my view, Countrywide has a strong balance sheet and can get through this.”
J.P.Morgan Securities analyst George A. Sacco Jr. said Thursday’s filing was not a new view from Countrywide’s management team. The outlook reiterates the company’s assessments during the recent conference call, he said.
Washington Mutual, based in Seattle, said in its filing that deposits decreased by $12.57 billion for the six months ending June 30, compared to an increase of $11.39 billion for the comparable period last year.
The company is now expending billions in financing costs, a business that previously generated cash for the bank, according to the filing.
Net cash the company uses in financing activities zoomed to $34.24 billion for the six-month period. In the comparable period, financing generated $5.13 billion.
At the same time, its lenders are apparently demanding repayments.
For the six months ended in June, it made $42.9 billion in repayments on advances from Federal Home Loan Banks, up from $28.37 billion for the comparable period.
Lehman Brothers analyst Bruce Harting said in a research note Friday that he expects Washington Mutual’s losses from its pool of riskier loans to be offset by the traditional loans in its portfolio.
While all mortgage lenders are facing stress because of the credit crunch, the worst off are those that have been dependent on financing from Wall Street.
“That business model appears to be coming unwound pretty quickly,” Cannon said. “In our view, we believe that the institutions with depository funding are going to get through this.”
Harting echoed that, concluding savings and loans may have the edge if the mortgage debt woes continue.
He noted that in the 1980s, such institutions were able to survive, even as their loan portfolios suffered losses, because they were primarily funded by federally insured deposits.
“Look for (savings and loans) to actually have opportunities to cherry pick higher quality lending opportunities in the event the liquidity crisis wears on,” Harting wrote.