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Countrywide Financial Corporation (CFC)
Countrywide Hammered After Loan Delinquencies Jump
Shares of Countrywide slumped during morning trading on Wednesday, following an announcement that the already beleaguered lender was facing a sharp increase in delinquent payments from its mortgage holders. The news could have been worse, but not by much. The stock had already fallen by nearly 30% on Tuesday, but the additional 15% slump today has to leave a lot of buy-and-hold strategists wondering how to get out. The company announced that delinquency rates were at 1.04% in December, a record and well above the 0.65% that the company had previously experienced. With the company teetering on the abyss, what could investors possibly hope for in terms of a turnaround?
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Despite all the speculation over the company's future it is still selling loans: $24bn worth of loans in December alone (up 1% from November). The total for the fourth quarter was $69bn, though this is a far cry from its heyday. The fact that the company still is bringing in money, albeit in a tight credit market and amid a lot of speculation, is probably one of the few reasons that it hasn't completely gone under. That and the hope that a cash infusion is on the horizon. After all, how could the government allow one of the largest mortgage companies to just collapse.
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Investor confidence in Countrywide has moved in a virtual lockstep with the fate of mortgages in general. Back in the spring, when news of a mortgage downturn and rumbles of a problem in the credit market first started gaining momentum, the overall sentiment toward Countrywide was that the company could make it out of any mess alive. By July that feeling had almost completely evaporated, as news of subprime mortgage defaults and the evaporation of cheap credit (the company once boasted the availability of a $50bn cushion) sent stocks reeling by more than 50% in two months. Once American Home Mortgage, one of the largest retail mortgage lenders, filed for Chapter 11 the proverbial game was up. Bonds issued by Countrywide quickly fell multiple levels to near-junk status. The company cut nearly 11,000 employees.
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These days, Countrywide is a far cry from its past moniker of the "23,000% stock", dubbed by Fortune in 2003 due to the company's incredible return on its stock. Investors over the past month have been told that the company could go bankrupt, that the company was doing better, and once again back to the prevailing bankruptcy mutterings. Despite billions of dollars worth of cash infusions made by the Federal Reserve, the likelihood of a return to "normalcy", at least in terms of cheap credit, are not likely to return for at least a year, if that. With real estate analysts pushing back their recovery horizon, the percentage of new and existing homes sitting on the market sitting uncomfortably high, and homeowners losing several percentage points of equity it is a hard sell to think that normalcy is on anyone's agenda.
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Company executives have to be wondering, "how did it come to this?", though some shareholders have speculated that the issue was certainly not new news. A class-action lawsuit has been launched against Angelo Mozilo, the company's founder, who has sold more than $400m worth of Countrywide stock over the past two decades, making nearly $290m of that since 2005.
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