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Mortgage lender taps credit line
Move indicative of depth of lending crisis

LOS ANGELES - Countrywide Financial Corp., the nation's largest mortgage lender, said Thursday it had borrowed $11.5 billion from a group of 40 banks to fund loans in a move that shows just how deep the lending crisis has become.

Countrywide made the move amid a credit crunch that has driven a number of its smaller peers to bankruptcy.

Countrywide shares fell $5.14, or more than 24 percent, to $16.15 in afternoon trading. The stock has lost more than half its value since January.

'Countrywide has taken decisive steps which we believe will address the challenges arising in this environment and enable the company to meet its funding needs and continue growing its franchise,' Countrywide President and Chief Operating Officer David Sambol said in a statement.

The credit worries have grown as the secondary market for mortgages all but disappeared in recent weeks. Investors have worried about the value of loans and rising delinquencies and defaults.

Mortgage lenders rely on the secondary markets to borrow money to make more loans. The problems started as subprime mortgages - loans given to customers with poor credit history - started going delinquent and defaulting at faster rates.

The problems have spread to the broader mortgage market, making investors nervous about almost all types of loans that cannot be purchased by Fannie Mae or Freddie Mac.

Such 'conforming' loans are considered safer because Fannie and Freddie are government-sponsored entities. Countrywide said some 90 percent of the loans it originates from now on will be conforming loans or will meet its internal bank criteria.

The move to beef up its portfolio of conforming loans could erode Countrywide's earnings prospects, because such loans 'suffer thin margins barely covering overhead costs,' Goldman Sachs analyst James Fotheringham said in a research note Thursday.

'Credit costs are set to increase even further than we had anticipated as riskier loans are added to an already troubled portfolio,' he wrote.

By adjusting its product mix to originate Fannie and Freddie-approved loans almost exclusively, Countrywide will be cutting out most subprime, alt-A and jumbo loan products.

Alt-A mortgages are given to customers who either have minor credit problems or who cannot provide full income documentation required to get a traditional prime loan.

Jumbo loans are mortgages for more than $417,000, the cap at which Fannie and Freddie will purchase loans. Jumbo loans typically are given to customers with excellent credit history.

On Wednesday, Merrill Lynch & Co. downgraded Countrywide to 'Sell,' just days after calling it a 'Buy,' attributing the change to the rapid deterioration of the credit market.

Friedman, Billings, Ramsey Group Inc. said Thursday a continued liquidity crunch for more than three months could send Countrywide into bankruptcy.

Asian stocks plunged overnight and European markets fell sharply Thursday as U.S. credit worries continue to spread to other countries.

Credit rating agency Moody's Investors Service downgraded Countrywide's senior debt rating to 'Baa3' from 'A3,' citing Countrywide's funding problems.