Rate-Freeze Talk Lifts Lenders

Countrywide faced a liquidity crisis so large that many investors feared the company would go under as the markets for mortgage-backed securities essentially froze up in the summer.

Last week analysts feared once again that the company could go bankrupt after Freddie Mac(FRE) reported a $2 billion net loss for the third quarter. 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. Earlier in the month, Fannie Mae(FNM) also reported losses.

The news is troublesome because Fannie and Freddie, known as government-sponsored entities, or GSEs, are some of the largest purchasers of residential mortgage loans. The need for the GSEs to purchase mortgage loans is especially important these days, as the market for mortgage-backed securities remains for the most part frozen.

Countrywide said in a statement last week that as of Oct. 31 it had $35.4 billion worth of "highly reliable liquidity," up from $33.6 billion in September. Countrywide Bank also has enough liquidity available "to meet its projecting operating and growth needs" and has significant contingent liquidity to meet evolving market conditions, it said.

As if the news couldn't get any worse for Countrywide, early this week U.S. Sen. Charles Schumer (D., N.Y.) called for a federal probe of the advances the lender received from the Federal Home Loan Bank of Atlanta. In a letter, Schumer said the poor quality of loans Countrywide put up as collateral "may pose a risk to the safety and soundness of the FHLB system as a whole."

Countrywide said at an investor conference in New York this week that it is in "full compliance" with the collateral requirements of the Federal Home Loan Bank of Atlanta. The bank also defended its processes in a letter to members the next day.

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