What if Countrywide DOES go BK?

Yesterday, Countrywide Financial had to issue an official statement saying they were NOT going to declare bankruptcy. From Marketwatch.com:

“There is no substance to the rumor that Countrywide is planning to file for bankruptcy,” the company said in a statement emailed to MarketWatch.

The stock was crushed. It finished down over 28% and is the lowest its been in decades.

A few months ago, they received an infusion of $2 billion in cash from Bank of America. It likely wasn’t enough. Their real problem is that mortgages have just dried up. And they are not lending outside of the conforming loan limit (or rarely lending outside of it.) The conforming loan limit is $417,000.

But the real question is: what happens if Countrywide actually DOES go under? It’s likely they would be bought out by someone and mortgages would continue to be issued. If they don’t go under, they will need more cash. Who is willing to lend it in this environment? Some analysts say they need another $4 billion.

Who would have thought only a year ago that the country’s largest mortgage insurer that has been in business for decades could be at risk. But it is.

We are already feeling the ramifications of Countrywide’s struggles. Loans are harder to get. If it’s a jumbo, you must have perfect credit history and a large downpayment. If Countrywide goes BK, it could become even more difficult.

Some real estate experts are calling this the bottom of the housing market. If Countrywide goes under, the bottom could be far, far, away.