Financial stocks, especially those tied to the mortgage industry, helped fuel a 237-point drop in the Dow Jones industrial average on Wednesday.

Freddie Mac’s shares plunged by $3.20, or 24%, on the day, closing at a new 52-week low of $10.26.

Fannie Mae’s shares fell $2.31, or 13%, to close at $15.31.

Bank of America, which recently closed on its acquisition of Countrywide Financial, saw its shares fall $1.48, or 6%, to close at $22.06.

Radian Guaranty’s shares fell by 18 cents, or 11%, to close at $1.53.

Analysts attributed Wednesday’s broad market decline to concern about a slowing economy, more bad debt at banks, and higher oil and commodity prices.

The Federal Reserve Board on Thursday announced its approval of the notice of Bank of America Corporation, Charlotte, North Carolina, to acquire Countrywide Financial Corporation ("Countrywide"), Calabasas, California, and thereby indirectly acquire Countrywide Bank, FSB, Alexandria, Virginia, and certain other nonbanking subsidiaries of Countrywide.

Attached is the Board’s Order relating to this action.

Attachment (1.38 MB PDF)

Andrea Kramer interviews market analyst Mark Fightmaster on Countrywide Financial.

Can Loan Mods Keep U.S. Out of Recession?

A pickup in loan modifications could be an important factor in keeping the U.S. economy out of recession, according to Mark Zandi, chief economist of Moody’s Economy.com.

Speaking at a housing forum sponsored by the Office of Thrift Supervision, Mr. Zandi argued that the Federal Reserve Board has to be aggressive in cutting interest rates and said 20% to 30% of adjustable rate mortgages need to be modified before they reset to give the housing and mortgage markets any chance of a recovery. Countrywide Financial chairman and chief executive Angelo Mozilo said he supports the Bush administration’s effort to increase loan modifications.

However, he stressed that the lack of liquidity in the secondary market (except for Fannie Mae, Freddie Mac, and Federal Housing Administration-eligible loans) is putting downward pressure on sales and house prices.

Mr. Mozilo called on the administration to relax its grip on Fannie and Freddie so the two mortgage giants can use their resources to “jump-start” the secondary mortgage market and restore investor confidence.

Schumer Urges Review of Countrywide Financial Collateral

Senator Charles Schumer has urged the regulator of the Federal Home Loan Banks to undertake a special review of the loans that Countrywide Bank has pledged to collateralize $51 billion in advances from the FHLBank of Atlanta.

The thrift subsidiary of Countrywide Finance increased its advance borrowings in the third quarter by $28.2 billion, up nearly 80% from those of the previous quarter.

In a letter to the Federal Housing Finance Board, Schumer urged the regulator to “probe” the underlying risk of Countrywide’s collateral, which includes payment option mortgages.

The senator said in a CNBC-TV interview that he has concerns about the Atlanta FHLBank’s ability to assess the risk of Countrywide’s collateral. “At a time when Countrywide’s mortgage portfolio is deteriorating, the Federal Home Loan Bank’s exposure to Countrywide poses an unreasonable risk,” the Senate Banking Committee member said.

A Finance Board spokesman said the agency would “respond to Senator Schumer,” but declined to comment further.

C-BASS Owned Fieldstone Files for Chapter 11

The C-BASS owned Fieldstone Mortgage of Maryland which closed its doors last week has filed for Chapter 11 bankruptcy protection.

According to the Mortgage Industry Directory, Fieldstone ranked 26th among all subprime lenders last year, funding $5.2 billion.

According to its bankruptcy filing, its creditors include Morgan Stanley, Bear Stearns, and Countrywide Financial, among others. C-BASS, in turn, is owned by two publicly traded mortgage insurance companies, MGIC and Radian, which have been trying to sell the company and its servicing unit, Litton Loan Servicing of Texas.

In February C-BASS bought Fieldstone, a publicly traded real estate investment trust, for $260 million. This past summer, in the wake of the margin calls, MGIC and Radian wrote down their interest in C-BASS by $1 billion.

Wholesale Mortgage Production Falls 57% at Countrywide Financial

Countrywide Financial funded just $3.2 billion in mortgages through loan brokers during October, a startling 57% decline from the level of a year earlier.

During the month its retail production fell by 29%, while loans bought through the correspondent channel declined 52%.

Countrywide funded $22 billion in October, a 48% drop from the level recorded a year earlier. Like most residential lenders, Countrywide has been hurt by the meltdown in the subprime and nonconforming niches and a credit crunch in the secondary market.

In a statement, Countrywide president David Sambol noted that 90% of the company’s production is now funded through its thrift affiliate.

Anthony Mozilo of Countrywide Financial - Brokers Will Survive

Even though the future of loan brokering looks dicey, the business will survive, according Countrywide Financial chairman and chief executive Angelo Mozilo.

In a recent speech at the annual UCLA Real Estate Conference, Mr. Mozilo said, “Mortgage brokers will continue to be an important channel, but the ultimate financing will come from banks and thrifts, or conduits directly related to their activities.”

He said banks and thrifts will be the “primary providers” of U.S. mortgage finance money in the future. A recent report issued by Wholesale Mortgage Research & Consulting, predicted that the number of loan brokerage firms operating in the United States would fall by one-third, to 35,000, by the end of 2009.

Countrywide Loses $1.2B in 3Q.

Countrywide Financial on Friday morning announced a stunning $1.2 billion loss in the third quarter. This is the largest loss in Countrywide’s history and then predicted an unbelievable return to profitability in the fourth quarter and next year.

The company also revealed that it moved $12 billion of nonagency loans and securities onto the balance sheet of its bank, into a “held-for-investment” account.

In a statement, Countrywide chairman, chief executive and the man currently investigated by the US Securities and Exchange Commission and who was also paid in excess of $57.0 million, Angelo Mozilo blamed the loss on the mortgage market’s nonprime liquidity crisis, noting that it was forced to revalue its mortgage holdings downward and pay more to third parties for credit protection.

The company said it lost $1 billion by selling mortgage assets at a discount or marking down their value.Its servicing business was a major source of income in the quarter, posting operating earnings of $764 million, a 47% rise from that of a year earlier. But its loan production unit lost $1.3 billion in the third quarter.

Countrywide funded $94.6 billion in loans during the quarter, a 19% drop from the level of a year earlier.

The National Association of Mortgage Brokers is hoping to find some middle ground with House Democrats on a provision in a newly introduced predatory lending bill that would ban “incentive” payments to originators, including yield spread premiums that are a broker’s main source of compensation.

All direct mortgage lenders, such as Bank of America, Countrywide Financial, WAMU, receive the same yield spread premiums BUT they DO NOT have to disclose it! Because of loose banking laws, that need to be addressed as well, they are able to hide their upfront profits from the consumer.

“I understand their intent is aimed at incentive payments,” NAMB executive vice president Roy DeLoach said, where a securitizer pays an additional premium for certain types of loans.

The NAMB agrees that incentive payments should be banned. “We want to clarify that an origination fee can be paid by the lender to the brokers,” Mr. DeLoach said. Otherwise, the mortgage brokers will be forced to oppose the bill introduced on Oct. 22 by Reps. Barney Frank, D-Mass., Brad Miller, D-N.C., and Mel Watt, D-N.C.

“The indirect compensation mortgage brokers receive from lenders is a defendable fee that actually lowers closing costs to consumers,” NAMB president George Hanzimanolis said.