Countrywide Financial, the largest U.S. mortgage lender, said Friday it would cut up to 12,000 jobs, the biggest job reduction by a single company to stem from the deepening U.S. housing crisis.
The lender expects to eliminate up to 20 percent of its work force over the next three months, for a loss of 10,000 to 12,000 jobs. It said the cuts were needed because mortgage volume may decline 25 percent in 2008 from this year's level.
"You need to right-size the ship," said Peter Kovalski, who helps invest more than $12 billion at Purchase, New York-based Alpine Woods Capital Investors, which owns Countrywide shares.
"They're doing the right thing to quickly downsize. Things are going to get worse before they get better."
Countrywide announced the cuts hours after the Labor Department said U.S. non-farm payrolls fell by 4,000 in August, the first drop in four years. The unexpected decline prompted calls for the Federal Reserve to cut interest rates before credit market turmoil drives the economy into recession.
"This current cycle is certainly the most severe in the contemporary history of our industry," Countrywide Chief Executive Angelo Mozilo, who co-founded Countrywide in 1969, said in a letter to employees.
The U.S. mortgage industry has lost well over 50,000 jobs this year as housing demand softened, loan delinquencies and foreclosures soared, and investors stopped buying many kinds of home loans they now consider too risky.
Dozens of lenders have cut back operations or quit the
industry this year. More than a dozen have gone bankrupt, including American Home Mortgage Investment and subprime specialist New Century Financial. Mortgage firms this week alone announced job losses that may top 15,000, including at IndyMac Bancorp, Lehman Brothers Holdings and National City.
Countrywide said its job cuts would be mainly in mortgage production, which employed about 33,800 people at the end of June, as well as in general and administrative support.
Banking, insurance and loan servicing operations would likely not be materially affected, it said.
Countrywide shares have fallen 57 percent this year, closing Friday down 27 cents at $18.21. They rose to $18.50 in after-hours trading following the job cut announcement.
Spokeswoman Jumana Bauwens did not have information on how much of a charge Countrywide would take for the job cuts, or when it might incur such a charge.
REVERSAL OF FORTUNE
The job cuts mark an abrupt reversal of fortune for Mozilo, who had long portrayed himself and his company as a survivor of any market downturn, believing the Calabasas, California-based lender would add market share as weaker rivals fell away.
Countrywide made $245.1 billion of home loans from January to June, commanding a 17.4 percent nationwide market share, according to the Inside Mortgage Finance newsletter. From January to July, Countrywide added more than 6,900 employees.
But as markets tightened, the strains began to show. They became acute on Aug. 16 when Countrywide unexpectedly tapped an entire $11.5 billion bank credit line because investors stopped buying the short-term debt it used to fund operations.
Six days later, Bank of America threw it a lifeline, buying $2 billion of preferred stock that can be converted into a roughly one-sixth stake in Countrywide. Mozilo told Reuters at the time the investment was a "vote of confidence," though the housing slump was likely to lead to an economic recession.
"The crisis in the subprime market is having wide repercussions," Rep. Henry Waxman, a Democrat whose Congressional district includes Calabasas, said in an e-mail to Reuters. "Congress needs to act to protect the innocent victims."
In response to the changed market, Countrywide plans by the end of this month to move most of its residential loan business into Countrywide Bank, so it can tap more funding sources.
It is also restricting loans to those that can be sold in the secondary market, including to Fannie Mae and Freddie Mac, or that qualify under its bank's criteria.
Few will be subprime, which go to people with poor credit.
"During the past two years the growth in home price appreciation has stopped dead in its tracks," Mozilo said in his letter to employees. "There have also been significant increases in delinquencies and foreclosures among far too many borrowers. More recently the secondary market for jumbo and non-agency conforming loans has become nearly illiquid."
Bank of America spokesman Scott Silvestri declined to discuss Countrywide's job cuts. "We have a passive investment in the company," he said.
Countrywide executives were unavailable for interviews.
Despite the cuts, Kovalski of Alpine Woods still sees Countrywide as a survivor, saying: "They are the largest player, and now they have the backing of Bank of America."