A rush to pull out cash

THE MORTGAGE MELTDOWN

Worried about the stability of mortgage giant Countrywide Financial, depositors crowd branches. In Laguna Niguel, Bill Ashmore drove his Porsche Cayenne to the bank's office and waited half an hour to cash out $500,000. "It's got my wife totally freaked out," he said.

By E. Scott Reckard and Annette Haddad

August 17, 2007

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

Countrywide Financial Corp., the biggest home-loan company in the nation, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren't alarmed by the volume of withdrawals from the bank.

The mortgage lender said it would further tighten its loan standards and make fewer large mortgages. Those moves could make it harder to get a home loan and further depress the housing market in California and other states.

The rush to withdraw money -- by depositors that included a former Los Angeles Kings star hockey player and an executive of a rival home-loan company -- came a day after fears arose that Countrywide Financial could file for bankruptcy protection because of a worsening credit crunch stemming from the sub-prime mortgage meltdown.

The parent firm borrowed $11.5 billion Thursday by using up an existing line of credit from 40 banks, saying the money would help the lender meet its funding needs and continue to grow. But stock investors, apparently alarmed that the company felt compelled to use the credit line, sent Countrywide's already battered stock down an additional 11%.

At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.

In West Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the one clerk who could help them.

Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

"It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

"It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."

Customers, most of whom said they were acting just in case, said they went to the lightly staffed branches because they couldn't get through to the bank via its toll-free number or its slow-moving website.

"I doubt it will go under, but I want to protect myself," said Rogie Vachon, who was the Kings' most valuable player for several years in the '70s. Vachon said he went to the West L.A. branch to withdraw some money because his account balance exceeded the limit on insurance provided by the Federal Deposit Insurance Corp.

In a statement, the bank said: "It is very important to remember that Countrywide Bank is well capitalized, with FDIC-insured deposits, and is one of the largest banks in the United States, with assets over $107 billion."

The bank added that it had significant access to outside capital and was still highly rated by debt-rating firms.

As for parent firm Countrywide Financial, the mortgage giant said draining its credit line would allow it to continue operations while refocusing its business on the "plain vanilla" mortgage loans that can be sold to Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies.

Countrywide said it planned to fund more mortgages through Countrywide Bank and have the bank invest in certain loans that Fannie Mae and Freddie Mac won't buy, such as "jumbo" mortgages, which in California are defined as those over $417,000.

Countrywide recently was funding about $40 billion a month in mortgages. Of those, about half qualified to be sold to Freddie Mac or Fannie Mae, and half were "nonconforming" loans the agencies don't buy, including sub-prime mortgages to higher-risk borrowers as well as jumbo loans, which account for 43% of all mortgages issued in Southern California.

Company executives declined to discuss how the heavy withdrawals at Countrywide Bank branches Thursday might interfere with that strategy.

Mortgage industry executives, however, said that although Countrywide Bank was the nation's third-largest savings and loan, after Washington Mutual and Wachovia Bank's World Savings unit, it was far too small to absorb the entire $20 billion a month in nonconforming loans Countrywide Financial produced.

As a result, the company is likely to make fewer loans while applying more stringent criteria in deciding who gets them -- a transition that could further pinch the strained housing market.

In recent months, sales of high-end houses have been stronger than those for cheaper homes. Now, with a pullback in larger loans by Countrywide and other major lenders, the weakness at the low end is likely to spread upward, said Esmael Adibi, director of Chapman University's Anderson Center for Economic Research.

"The implication will be declining home prices, higher foreclosures, a significant slowdown in spending by consumers," he said. As home sales fall further, "ultimately job growth will slowly deteriorate."

Those long-term concerns weren't the first thing on the minds of depositors withdrawing money Thursday.

At a branch near Countrywide's corporate headquarters in Calabasas on Thursday, a flood of spooked customers seeking to withdraw their certificates of deposit and money-market accounts overwhelmed the small staff.

The Countrywide employees were forced to resort to taking down names and asking people to wait it out or come back later.

"I'm at the age where I can't afford to take the risk," a 69-year-old retiree who asked not to be identified said after transferring money out of his money market account. "I'll gladly put it back as soon as I know the storm is over."

After reading news reports of Countrywide's troubles, Elsie Ahrens of Calabasas decided to close two of her CD accounts at Countrywide.

"It's not worth it," said Ahrens, 42. "I don't think it's going to go under, but you never know."

Ahrens, who runs a voice and data business, took her money and opened a new account at Bank of America, which she said felt more secure and offered a comparable interest rate.

In Laguna Niguel, Ashmore, the Impac Mortgage president, remarked on how the credit problems stemming from sub-prime loans had filtered down to a local bank branch.

"It started out with this global credit crunch we've been reading about," he said as another Countrywide depositor left the bank's office. "It's now gotten down to affecting people like him and me who are closing our accounts."

The other depositor shook his head as he climbed into his car.

"It's all over," he said, and drove away.