[NYTr] Booming Depression - More woes for Countrywide: Schumer Wants Probe of Cash Advances

[All the News That Doesn't Fit]

Bloomberg - Nov 26, 2007
http://www.bloomberg.com/apps/news?pid=20601087

Countrywide Falls as Schumer Seeks Probe of Advances

By Alison Vekshin

Countrywide Financial Corp. fell more than 10 percent in New York Stock
Exchange trading after U.S. Senator Charles Schumer urged the regulator
of the Federal Home Loan Bank system to probe cash advances to the
largest U.S. mortgage lender.

Schumer said he was alarmed by the volume of advances the system's
Atlanta bank has made to Countrywide considering ``the rapid
deterioration'' in the credit quality of some of the Calabasas,
California-based company's mortgages. Schumer expressed his concerns in
a letter sent today to Federal Housing Finance Board Chairman Ronald
Rosenfeld.

The Atlanta bank has made $51.1 billion in advances to Countrywide as of
Sept. 30, representing 37 percent of the bank's total outstanding
advances, Schumer wrote, citing U.S. Securities and Exchange Commission
filings.

``The loans being pledged by Countrywide to secure these advances may
pose a risk to the safety and soundness of the'' 12 home loan banks,
wrote Schumer, a New York Democrat.

Countrywide fell $1.01, or 11 percent, to $8.64 in New York Stock
Exchange composite trading today. The stock has fallen 80 percent this
year.

Schumer has repeatedly criticized Countrywide in recent months for its
lending practices, calling a news conference in August to ask the
company to stop paying higher commissions to brokers who steer
borrowers to high-cost loans.

Surge in Foreclosures

His letter reflects growing concern in Congress over the recent turmoil
in mortgage and credit markets, spurred by the plunging value of bonds
backed by home loans. Schumer, chairman of the congressional Joint
Economic Committee, led a hearing this month where he urged Federal
Reserve Chairman Ben S. Bernanke to confront the surge in mortgage
foreclosures to head off an economic crisis.

Daris Meeks, counsel to the chairman at the Washington- based Federal
Housing Finance Board, and Chris McEntee, a spokesman for the Atlanta
home loan bank, declined to comment on the letter. Countrywide
spokeswoman Amber Cousins didn't immediately respond to a request for
comment.

Schumer's letter urged Rosenfeld to review the Atlanta bank's collateral
evaluation policies and Countrywide's pledged collateral. The senator
also asked Rosenfeld to consider barring more advances based on
collateral that doesn't meet federal bank regulators' guidelines for
subprime mortgage lending.

Relative Safety

The Schumer letter spooked credit markets. Investors fled to the
relative safety of U.S. government securities, pushing yields on U.S.
2-year notes to as low as 2.88 percent, the lowest since December 2004.
Yields on U.S. 10-year notes touched 3.79 percent, the lowest since
March 2004.

``You had Schumer talking about Countrywide, and doing all this funding
through the home loan banks,'' said John Roberts, managing director at
Barclays Capital Inc. in New York. Along with purchases of Treasuries by
mortgage-servicing firms, ``the combination seemed to light the market.
It just took off.''

Countrywide has been aggressive in seeking to raise cash through
deposits, partly because the company can't rely solely on Home Loan
Bank advances and partly because deposits can offer cheaper funding,
Chief Executive Officer Angelo Mozilo said in a telephone interview on
Nov. 19.

``You can't just get a charter and go in and borrow from the bank, and
that's it, that's your franchise,'' Mozilo said. `You have to have a
reliable source of deposits.''

Countrywide, which has announced plans to add 70 banking branches, will
``do what we have to do to make sure the company is going to be OK''
when it comes to the rates it offers on certificates of deposits and
other savings products, Mozilo said.

Home Loan Banks

The Federal Home Loan Banks are cooperatives created by President
Herbert Hoover in 1932 to spur mortgage lending. The system's 8,100
owners and customers range from New York-based Citigroup Inc., the
largest U.S. bank, to the single-branch Custer Federal Savings & Loan
in Broken Bow, Nebraska. They borrow in the bond market and lend the
money to their members.

Lenders turned to the banks as two main sources of funding, short-term
IOUs backed by mortgages and mortgage-bond sales, began to dry up in
August.