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August 17, 2007
Bank Panic Hits Countrywide
Rick Moran
The largest mortgage lender in the country, Countrywide Financial, is experiencing something that hasn't been seen since at least the Savings and Loan scandals of the early 80's and perhaps not since the depression; a panic by customers that is causing a run on its deposits: Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.
Countrywide Financial Corp., the biggest home-loan company in the nation, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren't alarmed by the volume of withdrawals from the bank. The mortgage lender said it would further tighten its loan standards and make fewer large mortgages.
Those moves could make it harder to get a home loan and further depress the housing market in California and other states.
The rush to withdraw money -- by depositors that included a former Los Angeles Kings star hockey player and an executive of a rival home-loan company -- came a day after fears arose that Countrywide Financial could file for bankruptcy protection because of a worsening credit crunch stemming from the sub-prime mortgage meltdown. The whispers on the street yesterday was that Countrywide would need an immediate infusion of cash in order to stave off bankruptcy. They got it in the form of $11.5 billion line of credit they are drawing from a consortium of 40 banks. They will have to pony up additional points on the loan, however, and this will curtail their ability to lend to all but the safest customers.
It is expected that this will depress the real estate market even further in California and the US.
And in a related news, the National Association of Realtors announced that home values fell for the fourth straight quarter while the government said that housing starts and permits hit a 10 year low.
Any way you look at it - even with the Fed's cut in the discount rate - there doesn't appear to be any relief in sight from the collapse of the housing market. Inevitably, the ripple effect on the economy will also start being felt.
Fasten your seat belts, please. It is going to get bumpy...
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