Mortgage Market Woes: Countrywide Stumbles

by Amy Lillard

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

The roster of companies succumbing to serious financial problems keeps growing.

Countrywide Financial Corp., the nation's largest mortgage lender and the originator of 17 percent of the mortgages in the U.S., is having trouble raising the capital needed to continue operations. Last week, the company tapped into an $11.5 billion line of credit issued by a group of banks in order to shore up liquidity.

The past few months have seen a whirlwind series of troubling events in the mortgage realm, and Countrywide is no exception. The company's predicament came about quickly and has shocked many industry analysts.

Founded in 1969, Countrywide has gained a reputation for efficient and smart lending. They expanded over the years into banking and insurance. This diversification made many industry experts feel secure in the company's future during the market's downfall. But last month, the pinch began.

Countrywide makes money offering prime mortgages. But looking closer reveals that Countrywide relies heavily on short-term financing to fund new mortgages and conduct company operations (including paying salaries). With the mortgage market in trouble, and an increasing credit crunch developing, the company is having problems borrowing the money they need for this short-term financing.

The impact of Countrywide's announcement this week immediately hit the stock market. The company's stock price began the year at $42 a share. On Thursday, it finished at $20. Investors and analysts are growing increasingly worried and skeptical about the company's future.

If the company ultimately goes under, some analysts predict, the effects could be catastrophic. The existing anxiety across the country and the world's markets could be ramped up with the demise of the biggest mortgage lender in the U.S.

For these reasons, and more, many industry experts and watchers are watching Countrywide anxiously as a sign of what's to come in the wider mortgage industry, and the greater economy.