Shares of Countrywide Financial Corp., the nation’s largest mortgage lender, plunged Tuesday after the company denied rumors that it was planning to file for bankruptcy protection.
The stock fell $2.13, or more than 28 percent, to $5.51 in afternoon trading after sinking to a 52-week low of $5.05.
In a prepared statement earlier in the day, the company said there was “no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company.”
In morning trading, Countrywide stock dipped as low as $5.76 before the New York Stock Exchange temporarily halted trading in advance of the company’s statement. The decline sent stocks overall lower.
When trading resumed, the shares rebounded somewhat before tumbling again.
The stock was shaken by a report in The New York Times that said court records show the lender fabricated documents related to a bankruptcy case of a borrower in Pennsylvania.
Other Countrywide actions in borrowers’ bankruptcy cases have come under scrutiny in the past.
The U.S. Trustee launched an inquiry last fall to investigate whether the lender’s claims against two South Florida borrowers seeking bankruptcy protection violated bankruptcy laws.
Investors have been particularly anxious about Countrywide in recent days. Its stock is well below its 52-week high of $45.26.
Countrywide, like many in the mortgage industry, has suffered as more customers have defaulted on home loans, particularly on those made to borrowers with questionable repayment histories.
The Calabasas, Calif.-based company reported a $1.2 billion loss in the third quarter of last year, but management forecast a profitable fourth quarter and 2008.
Wall Street analysts are skeptical the company will be able to deliver on its projection, amid ongoing home-price declines, an expected new wave of mortgage defaults this year, and lingering problems with credit markets.