Countrywide Financial Corporation, the country's leading mortgage lender, may have to lay off as much as 20 percent of its 60,000 person work force, reports MarketWatch.com. Over the next three months, as many as 12,000 employees could find themselves out of work.
This is just the latest in a series of layoffs in the mortgage and housing sectors, which have reportedly cut more than 80,000 jobs this year. According to Business Day, other lenders, including IndyMac Bancorp, National City Corporations, and Lehman Brothers, have made similarly significant cuts.
The Countrywide layoffs come on the tail of $11.5 billion worth of bank loans taken out last month, MarketWatch announces. These layoffs are apparently part of the company's efforts to stay afloat financially.
Sources indicate that most of the staff members to be laid off will be those involved in the approval and underwriting of mortgages and back-office operations. Insurance, servicing and banking divisions are not expected to be affected at this time.
So how did such a mighty company fall? In an Icharus-like move, Countrywide was swept up by the housing market boom earlier in the decade, and scurried to make non-traditional and subprime loans, according to reports from the Associated Press. Then, when the market turned and interest in buying the mortgages cooled, Countrywide was left with a lot of unsellable loans-and virtually no cash.
Analysts are divided about whether or not the hot sun of rising foreclosure and default rates will be enough to completely melt Countrywide's wax wings of adjustable-rate mortgage loans. Mythical metaphors aside, it's still too early, according to the Associated Press, to determine whether or not Countrywide will come out of this crisis without serious financial ramifications.
One shareholder in the company is demanding to know why Countrywide opted for short-term, unsustainable profits in lieu of a more conservative, long-term plan, notes the Triangle Business Journal.
Why indeed? Perhaps the company, which started as a two-person operation in 1969 and built itself up by riding out the various waves of the real estate market, was over-confident about its ability to survive another boom-slump cycle.
Some apparently believe that Countrywide's troubles came from underestimating the speed with which the market would change. Other reports suggest that Countrywide's many loans to customers with blemished credit ratings are causing trouble as many of these borrowers default on their payments. AP reports point to former Countrywide employees who have claimed that the company urged them to lead borrowers toward subprime loans as a means of maximizing profits.
Most likely, it is a combination of all these factors that's left Countrywide in its current financial fix.
The situation Countrywide finds itself in is not unique. The plight of borrowers who are facing foreclosure or filing bankruptcy because of ARMs gone wrong is common, and the impact of those failed loans on the companies that made or purchased them has been equally serious.
Unfortunately, the only way to know what will happen to either of these groups is to wait it out.