Countrywide May Fire as Many as 12,000 as Mortgage Demand Wanes

By Elizabeth Hester and Jody Shenn

Sept. 8 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage company, plans to cut its workforce by 10,000 to 12,000 in the largest round of firings since the industry's contraction began last year.

New U.S. home loans probably will drop 25 percent in 2008 from this year's levels, forcing the company to eliminate as much as 20 percent of its staff, Calabasas, California-based Countrywide said in a statement yesterday.

More than 15,000 jobs have been lost this week amid the worst U.S. housing slump in 16 years. IndyMac Bancorp, the second-biggest mortgage company, National City Corp. and Lehman Brothers Holdings Inc. cut staff. At least 100 mortgage companies have sought buyers or halted lending since the start of 2006, and foreclosures in the second quarter rose to a record, according to the Mortgage Bankers Association in Washington.

Countrywide's managers ``are taking the steps they need to take in light of the much lower origination volume,'' said Blake Howells, who helps manage $2.6 billion at Portland-based Becker Capital Management Inc. including Countrywide shares. ``The company had been actually criticized in the analyst community for growing their headcount.''

Angelo Mozilo, 68, the company's co-founder and chief executive officer, said in an interview he has ``no regrets'' about adding staff in recent years. ``We adjust to the environment we're in,'' he said. ``There was great opportunity for Countrywide to invest in a growing market.''

Shares Fall

The company's stock fell 27 cents, or 1.5 percent, to $18.21 in Friday's New York Stock Exchange composite trading. Countrywide shares have lost 57 percent this year.

Mortgage lenders have run short on cash as home sales slowed, more borrowers paid late and investors avoided mortgage bonds that don't have implied government guarantees. That prompted banks, securities firms and commercial-paper markets that finance mortgage companies to shut off credit.

Countrywide, which handled all types of mortgages, tapped $11.5 billion of emergency financing last month. A $2 billion investment from Bank of America Corp. on Aug. 22 helped ease concern that the lender might file for bankruptcy protection.

``It was impossible to anticipate the credit crisis we've seen on a worldwide basis,'' Mozilo said.

Concern about credit quality spread from the mortgage market to securities such as collateralized debt obligations tied to home loans, and later to short-term commercial paper. Central banks in Europe and the U.S. Federal Reserve have added more than $400 billion to money markets since Aug. 9 to encourage bank lending.

Guidelines Revised

Countrywide revised guidelines to ensure all loans are good enough to sell to investors or hold in its investment portfolio. Almost the entire residential lending business will be moved into the company's federally chartered thrift by the end of this month to reduce costs and improve liquidity.

Bill Ruberry, a spokesman for the U.S. Office of Thrift Supervision, which regulates Countrywide, declined to comment on the announcement. The company took out full-page ads in newspapers last month to stem withdrawals from Countrywide Bank FSB and reassure depositors that the thrift was sound.

``We have plenty of liquidity,'' Mozilo said. ``We're in very good shape.''

National City, Ohio's biggest bank, disclosed 1,300 job cuts, while Lehman Brothers, the biggest underwriter of U.S. mortgage bonds, said it's firing 850 people. Two weeks earlier, Lehman said it will close a subprime unit and dismiss 1,200.

Falling Payrolls

The mortgage industry's decline may have contributed to a drop of 4,000 U.S. jobs in August, reported yesterday by the U.S. Department of Labor. It was the first payroll decline in four years. Mozilo has predicted a recession unless home sales and prices rebound.

Countrywide is firing people because it's struggling to sell mortgages to investors, said Sean Egan, managing director of Egan-Jones Ratings Co. That's likely to continue next year, he said.

``It's probably not going to be the last cut,'' Egan said.

Brent Cunningham, a Countrywide security guard at the Calabasas headquarters, said yesterday no reporters were allowed on the property. Two Los Angeles County sheriff's cars were parked in front of the doorway.

Countrywide's statement said fewer jobs may be lost if markets improve. Mozilo said he's still adding salespeople.

``Events could change, though it's remote, to make things better than we anticipate,'' Mozilo said. ``Hopefully at the end of the day we won't have to cut as many as we've proposed. There's a potential for a refinance boom if rates come down.''