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Countrywide Waves Off Call for Probe

The struggling lender says it is in 'full compliance' on collateral for more than $50 billion in advances.

Countrywide Financial


on Tuesday brushed off criticism of more than $50 billion in advances made to its struggling bank by a government-sponsored institution.

The nation's largest mortgage lender, during a previously scheduled presentation in New York, said it is in "full compliance" with the collateral requirements of the Federal Home Loan Bank of Atlanta. In a letter Monday, U.S. Sen. Charles Schumer (D., N.Y.)

called for a federal probe of the advances, saying 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."

David Bigelow, Countrywide's managing director of investor relations, said the lender is very familiar with the collateral requirements of the FHLB through its long-standing relationship with the quasi-government agency.

"The FHLB has some experience in risk management, and they probably have some idea what they're doing in terms of their lending activities," Bigelow said during a scheduled presentation at the FBR Capital Markets conference, according to



Bigelow also reiterated that the company has "adequate liquidity" to fund growth and operating needs, addressing persistent rumors that the company is on the verge of bankruptcy that

sent the stock below $10 last week.

FHLB Atlanta has made $51.4 billion in advances to Countrywide Bank as of Sept. 30, Schumer wrote, citing the most recent

Securities and Exchange Commission

filings. The amount represents 37% of the bank's total outstanding advances and the $62.4 billion in loans Countrywide has put up as collateral represents 78% of its total mortgage holdings, Schumer said.

"I find these numbers alarming as reports continue to emerge about how Countrywide's reckless and predatory lending practices were a leading contributor to today's foreclosure crisis," Schumer wrote in the letter calling for the probe.

A spokesman for the FHLB of Atlanta did not immediately return a request for comment.

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Countrywide has been struggling to stay afloat and find funding to originate mortgage loans as the credit crunch intensifies. As the markets for mortgage-backed securities essentially froze up in the summer, Countrywide faced a liquidity crisis so large that many investors feared the company would go under.

Among other things, in August, the lender drew down an entire $11.5 billion credit line. It also sought a $2 billion investment by

Bank of America

(BAC) - Get Bank of America Corporation Report

through the purchase of preferred stock. Countrywide said in September that it secured an additional $12 billion in borrowing through new or existing facilities.

The Calabasas, Calif.-based company has also been entangled in regulatory probes from the SEC and over CEO Angelo Mozilo's alleged accelerated stock sales, particularly as the housing industry began its descent.

Last week analysts feared once again that the company could go bankrupt after

Freddie Mac


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


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.

Bigelow on Tuesday reiterated the problems experienced by GSEs will not have a "material" impact on its ability to fund loans.

Countrywide shares rose 36 cents, or 4.2%, to $9.