Subprime City Confidential: Aug. 15, 2007

Mortgage fears go Countrywide. Will Lone Star have to hold its nose and buy Accredited? Canada's housing market sizzles—and more

by Will Andrews

Countrywide's Conundrum

Countrywide (CFC), which has spared no effort to remind the Street that it has access to oodles of liquidity, can't seem to convince the doubters. The shares fell sharply in afternoon trading on Aug. 15, following wire-service reports of rumors that the company has been unable to borrow money in the commercial paper market. The speculation comes on the heels of a downgrade of the stock, to the rare sell call by a Merrill Lynch (MER) analyst. (Analysts usually stop covering a company when it starts going downhill, avoiding the need for a negative recommendation.)

Volume was extraordinarily heavy—almost six times the stock's average—persuading Standard & Poor's analyst Stuart Plesser that some major institutional holders are selling shares. Plesser also thinks that the company has probably been forced to hold more loans than it is accustomed to, due to lack of liquidity in the secondary market.

BusinessWeek's Ben Steverman writes that executives and many analysts believe Countrywide has enough to cash to keep more loans on its balance sheet until the secondary market returns to normal (see BusinessWeek.com, 8/15/07, "Mortgage Lenders: Close to the Edge?"). When that will happen is anyone's guess.

Thornburg: The Check Is (Not Quite) in the Mail

Mortgage lender Thornburg (TMA) would probably get miffed—or worse—if its customers said they were delaying their regularly scheduled payments. But when Thornburg President Larry Goldstone said the company would delay payment of its regular quarterly dividend from a scheduled date of Aug. 15 until Sept. 17, investors bid the shares higher anyway.

The real reason for Wednesday's share-price jump was investor relief with the company's assertions that it has received and met all margin calls to date. The day before, Thornburg's stock had tumbled 47%. Thornburg said the dividend delay comes in response to significant disruptions in the mortgage market that have caused a "sudden and unprecedented" decline in the market prices of the company's AAA-rated mortgage securities. As the mortgage security prices plummeted, the decline in the value of the company's holdings forced Goldstone to hold off on the payout. Thornburg's book value per share has declined to $14.28, from $19.38 at June 30.

Accredited: Buy Me or Else

Shares of another beleaguered mortgage lender (is there any other kind these days?), Accredited Home (LEND) jumped Aug. 15 after Lone Star Funds said late Aug. 14 that it will extend its $15.10 per share, or $400 million, tender offer for Accredited until Aug. 28 due to a request by the company.

One day earlier, Accredited sued Lone Star and two affiliates in an attempt to get them to follow through with their offer. Lone Star, like the fellow who discovers a big puddle of oil under the used car he's about to write a check for, has tried to back out of the deal. According to a Dow Jones (DJ) report, Lone Star said in a filing Aug. 10 with the Securities & Exchange Commission that Accredited Home wouldn't meet the conditions of its offer, initially launched in June.