Shares of Thornburg Mortgage, Accredited Home Lenders Holdingand other mortgage stocks were trading higher Thursday after Bank of Americamade a $2 billion investment in Countrywide Financial.
By late morning, Thornburg shares were trading up 4.8% to $13.46, while Accredited shares gained 2.3% to $6.24.
Shares of Countrywide gained $1.07, or 4.9%, to $23.89. Even with the gains, the stock has still lost about half its value this year and is trading at its lowest price since 2003.
Financial stocks, however, did not get a boost from the $2 billion injection as some analysts had suspected. But home building shares gained ground.
Interpretations about what the investment means vary, but the more optimistic analysts said this infusion of cash will be enough for Countrywide to wait out a tumultuous mortgage market.
In recent weeks, Countrywide, the largest U.S. home mortgage lender, has struggled to raise the financing it needed to fund its business. Bank of America's move is largely being seen as a much-needed vote of confidence in the company.
'A Great Endorsement'
"It's a great endorsement of Countrywide," said Countrywide Chief Executive Angelo Mozilo, in an interview with CNBC's Maria Bartiromo. "It's important from our viewpoint that somebody of that caliber to give us the vote of confidence that was needed in this environment when everybody was in a panic and things were being said about Countrywide which weren't true."
The step was enough to help reduce the cost of protecting Countrywide's debt as the price of the company's credit default swaps fell to levels not seen since worries about its access to short-term financing first surfaced.
Although Friedman Billings Ramsey analyst Paul Miller upgraded Countrywide shares to "market perform," saying the cash infusion would help the company weather the storm in the mortgage market, other analysts were skeptical that this would be the only fix needed.
Stifel Nicolaus analyst Chris Brendler told the Associated Press he expects that $2 billion is not all the money Countrywide needs. It is clear the company's access to cash has dwindled since three weeks ago when Countrywide said it had access to $186 billion, Brendler said.
Countrywide probably lost money on its home loans or had to take a big charge assuming its loan portfolio was worth less, Brendler said.
With this deal, Countrywide gives away a big piece of itself and Brendler said this implies Countrywide's assets have lost a lot of value. He expects Countrywide shares are being pushed higher by investors betting that Bank of America will buy Countrywide before it goes bankrupt.
Impac Mortgage Cuts Work Force
The Countrywide news comes as another mortgage lender, Impac Mortgage Holdings, disclosed it is reducing its work force amid the continuing credit crunch.
The Newport Beach, Calif., mortgage loan investment company said it laid off about 350 employers as part of a plan to trim its operating expenses. In addition, Impac will close some of of its mortgage origination locations.
Impac is one of the nation's largest providers of so-called Alt-A loans, which is a category of loans that are typically between prime and subprime in terms of credit quality.
Last week, Impac said it had no intention of declaring bankruptcy.
On Wednesday, several mortgage lenders took similar steps with Accredited Home Lenders and HSBC Holdings announcing job cuts as they work to conserve cash. Lehman also closed its subprime business. Two days earlier, Capital One Financial closed its GreenPoint mortgage unit. Over the past six months, scores of small-to-midsize lenders have collapsed as anxiety grew and the housing market weakened.
However, it is likely that the investment by Bank of America in Countrywide, will provide the markets with greater confidence.
Several analysts had said that the actions would help shares of financial companies, which have lagged the broader market.
"We view both moves as attempts to 'prime the pump' to get liquidity flowing again," said Lehman Brothers analyst Jason Goldberg, in a research note. "Since mid-July, the shares of First Horizon Nationaland National Cityhave been the hardest hit in our coverage amid mortgage concerns. This news could provide some relief to them and the group."
However, both stocks were adding to their recent losses.
On Wednesday, Bank of America, Citigroup, JPMorgan Chaseand Wachovia said they each borrowed $500 million from the Federal Reserve. The statement was aimed at reassuring the market that credit remains available to the banks.