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Sector Snap: Mortgage Lenders
Thomson Financial delivered by Newstex
NEW YORK (AP) - Shares of mortgage lenders climbed Tuesday
on prospects for a Federal Reserve interest-rate cut
and the possibility that Countrywide Financial Corp.
(NYSE:CFC) could attract a buyout.
Mortgage lenders' stocks have fluctuated dramatically
in the past few months and the ones that are not bankrupt
still trade near multiyear lows.
On Tuesday, Sen. Christopher J. Dodd, the Connecticut
Democrat who heads the Senate Banking Committee and is
running for his party's nomination for president, said
he met with Federal Reserve Chairman Ben Bernanke and
urged him to use 'all the tools available' to help calm
distressed financial markets.
The Federal Reserve has two main tools available: the
discount rate, which the Fed cut last week to 5.75 percent
from 6.25 percent, and the federal funds rate. The discount
rate is how much the Fed charges commercial banks for
loans.
Dodd's comments add to the pressure on the Fed to cut
the more-important federal funds rate, the rate that
ultimately determines borrowing costs for nearly everything
from mortgage loans to corporate bonds. That's because
commercial banks borrow from one another far more frequently
than they borrow from the Fed. Many investors expect
the Fed to cut the federal funds rate to revive the financing
markets vital to mortgage lenders.
These markets are depressed amid a worldwide flight
from risk. Mortgage lenders that rely on selling mortgage-backed
bonds, commercial paper and collateralized debt obligations
have been unable to raise cash because buyers in these
markets have all but disappeared.
If the Fed were to cut the federal funds rate, which
is what banks charge one another for overnight loans,
it would pump new cash into the system and encourage
investors to risk returning to these troubled markets.
Also, a number of reports suggested Countrywide Financial
Corp. could attract a buyout, possibly from Warren Buffett.
Countrywide Financial, the nation's biggest mortgage
lender, had to resort to borrowing $11.5 billion from
banks last week, presumably because other sources of
cash have dried up.
The Calabasas, Calif.-based lender's stock jumped $1.79,
or 9 percent, to $21.59. The stock has still lost nearly
half its value this year.
Shares of the second-biggest mortgage lender, IndyMac
Bancorp (NYSE:IMB) , climbed $2.09, or 10.1 percent,
to $22.83. That stock has also lost roughly have its
value this year.
Another piece of news that may have moved mortgage stocks
was Accredited Home Lenders Holding Co.'s (NASDAQ:LEND)
deal to transfer $1 billion in mortgage loans to an unnamed
investor. The complex deal essential shields the San
Diego-based lender's portfolio from deterioration while
giving it an opportunity to profit should the market
recover.
Accredited Home Lenders' shares rose 26 cents, or 4
percent, to $6.70. The company's shares are down nearly
80 percent in the past year.
Shares of NovaStar Financial Inc. (NYSE:NFI PRC) (NYSE:NFI)
rose 17 cents to $7.46.
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