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Countrywide Denies Bankruptcy Rumors

Shapiro said Countrywide's "survival strategy has depended on access to the secondary markets through [government-sponsored entity] purchase and resecuritization," in a note to clients. "That strategy is less viable in an atmosphere where the GSEs themselves are capital constrained and may need to shrink."

The downgrade comes as Freddie reported a $2 billion net loss for the third quarter, sending shares swooning lower by 29%. The government-sponsored agency attributed the loss to increased money it needed to set aside for credit losses as well as a markdown in the value of its assets.

Freddie also said it hired two investment banks to help it look into raising capital and it is seriously considering cutting its dividend in half after posting the big quarterly loss.

Mortgage companies have been hit hard by an increase in defaults and a deterioration of home prices. Concerns about the state of the mortgage arena have caused an overall drop in confidence about debt securities that have been underwritten by banks and mortgage firms that have ties to unsavory mortgage loans.

The bad mortgage paper has unsettled the markets and hobbled lenders including big firms like Countrywide and IndyMac (IMB), which have been forced to retrench their operations to stay afloat. Both companies have had to cut staff as originations slowed. Currently the two lenders only originate loans that are eligible to be purchased by the GSEs.
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