Countrywide Financial Corp., the country’s largest home lender, laid off about 60 workers in the Denver Technology Center on the same day that a Merrill Lynch & Co. analyst raised the possibility it might be forced to seek bankruptcy protection.
“Countrywide has reduced approximately 60 positions in its Denver Wholesale Lending Division’s subprime operations area, in order to align the company’s workforce with the recent changes in the mortgage market,” the company confirmed in a statement Wednesday.
The Denver workers processed subprime loans, which are made to borrowers with credit scores too low to qualify for better terms.
Subprime loans, which accounted for about 4 percent of the company’s loan volume in the second quarter, have fallen out of favor with investors because of rising defaults.
Countrywide continues to operate other units processing more conventional loans in Denver. Layoffs related to the subprime business affected one other city.
Countrywide is struggling to raise the short-term money it needs from commercial-debt markets to fund its daily operations, according to media reports.
“Effective insolvency” would result if creditors force Countrywide to sell assets at depressed prices or investors lose confidence in its ability to raise cash, Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note Wednesday.
Shareholders shouldn’t “understate the importance of liquidity,” Bruce wrote.
“If liquidations occur in a weak market, then it is possible for CFC to go bankrupt,” said Bruce, who downgraded Countrywide to “sell” from “buy.”
Countrywide’s shares have lost almost half their value this year on concern that a credit crunch in the mortgage industry will erode profit.
Countrywide stock dropped $3.17 to $21.29 on Wednesday, a 13 percent decline.
Last week, Countrywide said it had access to about $187 billion in credit. Chief executive Angelo Mozilo assured investors that the company has enough cash to cope with the market turmoil and said it may even benefit as competitors are forced out of business.
“Any talk of bankruptcy is grossly exaggerated,” said Edwin Walczak, who manages $600 million at Vontobel Asset Management in New York and owns 182 million Countrywide shares.
Walczak said he has been buying Countrywide shares amid the turmoil in part because most of Countrywide’s new mortgages qualify to be bought by Fannie Mae and Freddie Mac, so they are “easily securitized.”
Countrywide is based in Calabasas, Calif.
Bloomberg News contributed to this report.
Borrowers beware
Countrywide Financial, the nation’s largest home lender, is struggling to raise the money it needs to keep lending. Shares fell 13 percent Wednesday following a Merrill Lynch report suggesting that the lender may be forced to cease operations.
On the outside chance that Countrywide closes its doors, borrowers with loans serviced by the company would likely have their accounts transferred to another company, a common practice in the mortgage business.
Borrowers refinancing or obtaining new mortgages, however, could find themselves without their loans. When other lenders have closed, borrowers have been left without the money they need to complete a purchase, leaving some stranded at the closing table.
