Housing Gloom

Shares of Countrywide Financial Corp., the nation's largest mortgage lender, sank to an all-time low Tuesday as a major homebuilder offered a grim outlook for the industry and the Bush administration signaled it is growing more concerned about rising mortgage defaults.

KB Home reported a mammoth loss for the fourth quarter and said there are no indications that the housing market is stabilizing. The head of Fannie Mae, a government-sponsored mortgage lender, predicted the housing market would weaken through 2009 and said a turnaround wasn't likely.

President Bush, meanwhile, conceded, "It's going to take awhile to work through the downturn," and Treasury Secretary Henry Paulson said he is concerned about the potential for additional home defaults.

Paulson said the administration is exploring expanding a deal it brokered with mortgage lenders last fall to include relief to people who borrowed at prime, conventional rates as well as those with subprime, adjustable-rate mortgages that were due to reset.

Countrywide stock fell in morning trading after The New York Times reported about accusations that the company had fabricated letters submitted in a court case involving a foreclosure in Pennsylvania.

By early afternoon, the New York Stock Exchange temporarily halted trading of Countrywide shares before the company issued a statement denying rumors that a bankruptcy filing was imminent.

"There is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company," the statement said.

When trading resumed, the shares rebounded somewhat, but then slid again. They finished with a decline of $2.17, or 28.4 percent, to $5.47 after falling to an all-time low of $5.05 earlier in the day.

A rating analysis issued by Egan-Jones Ratings Co. suggested Countrywide "is severely challenged and might falter if it does not receive an infusion of at last $4 billion within the next couple of weeks."

The agency said the lender will need the funding to weather a steep decline in mortgage originations and its shift to less-profitable, non-subprime lending.

Uneasy investors were hard-pressed to find reassurance elsewhere.

Los Angeles-based KB Home, one of the nation's largest builders, reported a fourth-quarter loss of $772.7 million versus a loss of $49.6 million in the year-ago period.

Its chief executive, Jeffrey Mezger, predicted that 2008 "will be another tough year for the homebuilding industry." He said consumer confidence must be restored before things can improve.

A trade group for real estate agents did strike a more optimistic outlook, predicting that even though pending U.S. home sales dipped in November, it expects sales may pick up significantly in the second half of the year.

The National Association of Realtors said its seasonally adjusted index of pending home sales fell 2.6 percent in November to 87.6 from October's upwardly revised index of 89.9.

"A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008," said Lawrence Yun, the group's chief economist.

Calabasas-based Countrywide reported a $1.2 billion loss for the third quarter of last year, but management forecast a profitable fourth quarter and 2008.

Wall Street analysts are skeptical the company will be able to deliver on its projection amid ongoing home-price declines, an expected new wave of mortgage defaults this year, and lingering problems with credit markets.

In response to the New York Times report, Countrywide said it doesn't have a policy to fabricate documents, and that nobody at the company ever contended the documents in question were copies or recreations of previously sent versions.

KB Home reported a 31 percent drop in revenue, fewer new home orders and deliveries, and an increase in the rate of home order cancellations.

"We believe this points to continued pain and continued significant impairment charges for the industry in the upcoming earnings season, and thus we reiterate our negative sector stance," Michael Rehaut, an analyst with J.P. Morgan Securities Inc., wrote in a research note.