Countrywide to axe 12,000 workers

Countrywide to axe 12,000 workers
By David Wighton in New York
Copyright The Financial Times Limited 2007
Published: September 8 2007 00:16 | Last updated: September 8 2007 00:16


Countrywide Financial, the biggest home lender in the US, on Friday night announced plans for up to 12,000 job cuts, or one-fifth of its workforce, in the next three months as it forecast a slump in mortgage volumes next year.

The company said the job cuts could be lower if interest rates fell and mortgage market prospects improved. But on the basis of the current interest rate environment it was predicting a 25 per cent fall in the total mortgage market in 2008.

The warning is the latest blow to the mortgage industry, which has seen the failure of dozens of lenders following the turmoil in the credit markets.

This week, Lehman Brothers said it was making further cuts in its mortgage business, taking its job losses to more than 2,000, and National City, the Cleveland-based bank, said it would cut 1,300.

Other lenders are expected to cut back on mortgage and securitisation staffs to reflect lower mortgage volumes and de creased investor demand for securities backed by mortgages.

The sharp rise in defaults among US subprime mortgage borrowers has led to a dramatic fall in new subprime lending. Many institutions have stopped making such mortgages altogether while others have tightened underwriting standards.

US mortgage volumes have grown rapidly in recent years, partly due to aggressive expansion by non-bank lenders who have sold the mortgages on to investors. But investors are now shunning securities backed by subprime mortgages and by other mortgages not operating with credit guarantees. This has led to sharply increased interest rates on these mortgages, which has choked off demand.

Angelo Mozilo, Countrywide’s chief executive, on Friday described the downturn as “certainly the most severe in the contemporary history of our industry”.

Mr Mozilo said that Countrywide still offered among the broadest product ranges in the industry in spite of the recent decision to stop making subprime loans that are not eligible for sale or securitisation under programmes supported by government-backed credit guarantees.

He said many rivals had pulled out of the business, which offered Countrywide the opportunity to gain market share.