Lender's fundings fall, may be probed

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NEW YORK (AP) — Countrywide Financial Corp. said yesterday its mortgage fundings for September fell 44 percent from the same period a year ago, and the mortgage lender is now facing a potential federal investigation over the timing of stock sales by its chief executive.

Countrywide, the nation's largest mortgage lender, said total mortgage fundings last month fell to $21.2 billion from $38.1 billion a year ago.

The steep decline in volume comes as the Calabasas, Calif.-based company makes a shift to originate traditional, conforming loans instead of more risky, nontraditional loans like subprime mortgages. Countrywide previously packaged the majority of its loans as securities and sold them to investors in the secondary market.

During the past few months, rising delinquency and default rates have caused demand for these securities to all but dry up, especially subprime loans. The collapse of the secondary market, coupled with the deteriorating housing market, has led to a steep drop in mortgage origination volume nationwide.

Housing foreclosures nearly doubled last month, according to real estate information firm RealtyTrac Inc.

A total of 223,538 foreclosure filings were reported in September, up from 112,210 during September 2006.

Conforming loans — which now account for about 90 percent of Countrywide's volume — are considered safer because government-sponsored Fannie Mae and Freddie Mac are willing to purchase them, and typically these loans are less likely to default.

The reduction in nonconforming loans was not much of a surprise, but the speed at which Countrywide shifted its production to fit Fannie and Freddie guidelines was faster than anticipated, Friedman, Billings, Ramsey & Co. analyst Paul Miller said.

To cope with the weakening market, Countrywide cut 4,935 jobs in September as part of plans to reduce its work force by 12,000 jobs, or about 20 percent.

A larger reduction may be required, Mr. Miller said. Nonconforming loans previously represented about 40 percent of origination volume. With that production nearly gone, job cuts may need to be between 30 percent and 40 percent, Mr. Miller said.

Countrywide's shares have fallen nearly 56 percent since January, and the company may now be facing an investigation from the Securities and Exchange Commission into the timing of stock sales made by Chief Executive Angelo Mozilo.

North Carolina state Treasurer Richard Moore, in a letter to SEC Chairman Christopher Cox, claims that Mr. Mozilo "apparently manipulated his trading plans to cash in" as the subprime crisis was heating up.

Mr. Moore cited reports that Mr. Mozilo was unloading 4.9 million Countrywide shares worth more than $138 million between November 2006 and August 2007.

On Friday, Countrywide announced Mr. Mozilo plans to sell more shares under a prearranged trading plan that began Monday and ends today.

SEC spokesman John Nester declined to comment and would not say whether the agency was examining or planned to examine Mr. Mozilo's stock trades. Countrywide did not immediately return a call seeking comment yesterday.

In the meantime, Mr. Miller expects Countrywide's production to remain well below last year's figures, but stabilize in the coming months. As of Sept. 30, Countrywide had $42 billion in its mortgage pipeline — loans in progress that it has yet to fund. Last year, Countrywide had $65 billion in its pipeline.

Shares of Countrywide fell 18 cents to $18.62 in afternoon trading.