Struggling mortgage lender Countrywide Financial CFC will cut as many as 12,000 jobs in a bid to slash costs and cope with soaring foreclosures and defaults, the company said Friday.
The cuts, amounting to as much as 20% of its workforce, are needed because the company expects new mortgages to fall about 25% in 2008 from this year's levels, Countrywide said.
In a letter distributed to employees, Countrywide CEO Angelo Mozilo called the current market cycle "the most severe in the contemporary history of our industry."
"During the past two years the growth in home price appreciation has stopped dead in its tracks and in many areas of the country it has turned in the wrong direction," Mozilo said in the letter.
In recent weeks, Countrywide borrowed $11.5 billion and sold a $2 billion stake to Bank of America so it could keep operating its retail banking and mortgage lending businesses.
The job cuts planned during the next three months are expected to center primarily on the company's production divisions and its general and administrative support areas.
Actual reductions could be lower if interest rates and other market conditions improve, Countrywide said.
The latest cuts followed the elimination of about 900 positions earlier this week and 500 others last month.
The company employed more than 61,000 people as of July 31, with about 34,000 working in loan production.
Earlier Friday, IndyMac Bancorp announced plans to eliminate as many as 1,000 jobs, citing difficulties from the mortgage lending and housing market downturns.
The Pasadena, Calif.-based mortgage lender and bank said it expects its loan production volume to decline by roughly half in the fourth quarter.
Countrywide said it intends to keep transferring its residential lending business into its Countrywide Bank unit as a way to strengthen its access to funding.
Almost all of its residential lending activity will be originated through the bank by the end of this month, the company said.
Countrywide has also shifted its loan production guidelines and now only makes loans that can be sold on the secondary market to government-backed enterprises such as Fannie Mae or Freddie Mac or that qualify under investment requirements for its banking unit.
Countrywide has been struggling as the housing slump led to a sharp rise in mortgage defaults and foreclosures, particularly among borrowers with subprime loans.
The mortgage fallout has left many lenders strapped for money to fund new loans.
Lenders that relied on selling loans on the secondary market to fund their operations have been particularly hard hit, with dozens going out of business or forced into bankruptcy this year.
That has resulted in tens of thousands of jobs being lost industrywide.
Like other lenders, Countrywide has tightened its credit guidelines and stopped selling some types of adjustable rate loans.
In the letter to employees, Mozilo outlined additional steps the company is taking to shore up its operations.
Among the changes, the company is consolidating its sales force and plans to keep targeting borrowers who now have adjustable rate subprime loans with offers to refinance with prime loans that carry more stable payments.
Mozilo noted some 75% of the company's Full Spectrum Lending Division's loans this year have been prime loans, many sold to borrowers who refinanced from subprime loans.