Countrywide Denies Bankruptcy Rumours

by Stewart Douglas

Story link: Countrywide Denies Bankruptcy Rumours

Sub-prime hit US mortgage lender Countrywide Financial has today rubbished claims that it is on the verge of filing for initial bankruptcy proceedings, which would see it attract special protection from creditors, after what has been undoubtedly a rough few months for the mainstream mortgage lender.

Shares in the lender today fell by up a quarter on Wall Street after rumours that the company was preparing for bankruptcy protection proceedings began to gather more steam.  However the lender has fiercely denied that this is the case, which did help its shares to recover some ground despite the major downward trend of the day.

Whilst there is no certainty of whether or not Countrywide is approaching bankruptcy, there is little doubt that it is experiencing financial difficulties as a result of its exposure to the sub-prime mortgage market which has necessitated widespread writedowns and losses at the once buoyant lender.

The sub-prime sector deals with those lenders that have a less than perfect credit rating, and was once considered to be a good earner for banks and investment portfolios given the high rewards associated with the loans. 

However as lending practices became more laidback, and interest rates began to rise many borrowers found themselves stretched, leading to widespread repayment problems and ultimately a dramatic rise in foreclosures and loan defaults, causing massive liquidity issues for those that had chosen to invest.

Naturally with banks and funds across the globe throwing money at the sector, often using client funds, changing credit conditions were caused by a distinct shortage of liquidity and panic as to the direction the market was heading following interest rate rises at the Federal Reserve - the extent of which has been felt throughout the USA and across the world.