Mortgage expert forecasts US housing downturn recession
Countrywide Financial Corp Chief Executive Angelo Mozilo said on Thursday the U.S. housing downturn is likely to lead the country into recession, but that the largest U.S. mortgage lender will survive.
He also described as "irresponsible and baseless" an August 15 report by Merrill Lynch & Co analyst Kenneth Bruce that downgraded Countrywide to "sell" from "buy" and said the company might face bankruptcy if market conditions worsen In an interview with CNBC, Mozilo indicated that to promote liquidity, the U.S. Federal Reserve should cut the rate it charges banks to borrow. Countrywide faced a credit shortage this month as mortgage defaults rose and capital markets tightened. On August 16, it announced an unexpected drawdown of an entire 11.5 billion US dollars credit line because it had trouble selling short-term debt. But on Wednesday, Bank of America Corp said it would invest 2 billion in Countrywide, buying preferred securities convertible into common stock. This eased fears about Countrywide's fate, which at least two analysts this month had said could include bankruptcy. Mozilo called the investment a "vote of confidence" and a "priceless endorsement," but said housing and the economy were not out of the woods. Falling home prices hurt homeowners psychologically and cause them to spend less, he said. I've seen this movie before, and the ending of the movie always ends up in some form of recession," he said. "I can see the economy slowing down substantially enough to give the regulators, the Fed some pause in what's going to happen next." Looking directly to camera, Mozilo said markets are in "one of the greatest panics I've ever seen in 55 years in financial services." Still, he rejected as "irresponsible and baseless" an August 15 report by Merrill Lynch & Co analyst Kenneth Bruce that downgraded Countrywide to "sell" from "buy" and said the company might face bankruptcy if market conditions worsen. "There is no more chance for bankruptcy today for Countrywide than there was six months ago, a year ago, two years ago, and when the stock was $45 a share," Mozilo said on CNBC. "We're a very solid company."