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Rating Action:

Moody's confirms Countrywide senior debt at A3 stable

02 Aug 2007
Moody's confirms Countrywide senior debt at A3 stable

Approximately $24 Billion in Securities Affected

New York, August 02, 2007 -- Moody's Investors Service has confirmed the ratings of Countrywide Financial Corporation (CFC) at A3 (senior unsecured debt), Countrywide Bank FSB at A2 (LT bank deposits) and Countrywide Home Loans, Inc. (CHL) at A3 (senior unsecured debt). The outlook on the ratings is stable. These actions conclude a review.

"The confirmation of Countrywide's ratings reflects the company's success in maintaining a leadership position in the US mortgage banking business, solid liquidity and risk management practices, and its ability to generate positive earnings in the first half of 2007 despite falling origination volumes and rising loan credit challenges," says Philip Kibel, Moody's analyst. "Countrywide's improved diversification, which includes material, annuity-like income streams from banking and insurance operations, increases its earnings stability. Liquidity provided by a growing deposit base at Countrywide Bank and access to Federal Home Loan Bank advances should help the company weather current reduced liquidity in the US mortgage market."

Moody's notes that CFC has not been able to avoid the adverse effects of the deterioration in US mortgage asset quality. Recent reductions in liquidity in the US ABS market, as well as the negative effects on its earnings in the first half of 2007 due to credit challenges associated with subprime and prime HELOC portfolios, have become a burden to CFC's ratings.

CFC's stable rating outlook reflects Moody's expectation that CFC will be able to withstand potential asset quality challenges in the second half of 2007 and into 2008, while maintaining sound liquidity. Moody's also expects that CFC will achieve success in its planned integration of its mortgage banking operations currently housed in its Countrywide Home Loans subsidiary into the operating platform of Countrywide Bank. CFC's market leadership, ability to leverage its efficient national operating platform, and sophisticated risk and financial management systems are also positive rating factors.

A rating upgrade is unlikely without improvement in asset quality, as well as continued diversification of the company's product lines, with annuity-like earnings consistently representing over half of total earnings, combined with further growth in total market share. Further supports of a rating upgrade are successful navigation through the housing market downturn, absorbing potential subprime aftershocks and managing through record-high adjustable-rate mortgage (ARM) resets.

The ratings could come under downward pressure should the performance of its prime and non-prime portfolio significantly deteriorate, causing substantial negative pressure on operating earnings, such as two consecutive loss quarters. Additional factors that would result in downward rating movement include: loss of market share, or missteps in the integration of CHL mortgage origination and servicing platform into the bank. Overly optimized capital management, liquidity shortfalls, negative consequences from regulatory or legislative scrutiny, or significant volatility in the valuation of its MSR asset would also add to negative ratings pressure.

The following ratings were confirmed with a stable outlook:

Countrywide Financial Corporation -- Backed Senior Unsecured debt at A3, Backed Senior Unsecured Shelf at (P)A3, Backed Subordinate Shelf at (P)Baa1; Backed Preferred Stock Shelf at (P)Baa2; Subordinate Debt at Baa2; Short-term debt at Prime-2.

Countrywide Home Loans, Inc. -- Senior Unsecured debt at A3; Senior Unsecured Shelf at (P)A3; Subordinate Shelf at (P)Baa1; Short-term debt at Prime-2.

Countrywide Capital I -- Backed Trust Preferred at Baa1

Countrywide Capital III -- Backed Trust Preferred at Baa1

Countrywide Capital IV -- Backed Trust Preferred at Baa1

Countrywide Bank, National Association -- Bank Financial Strength at C+; LT Bank Deposits at A2; LT Deposit Note/CD Program at A2; LT OSO at A2; LT Issuer Rating at A2; Short-term debt at Prime-1

The following ratings were upgraded with a stable outlook:

Countrywide Capital V -- Trust Preferred to Baa2, from Baa3. This reflects Moody's updated guidance for notching hybrid securities published in February 2007 ("Updated Summary Guidance for Notching Bonds, Preferred Stocks and Hybrid Securities of Corporate Issuers").

Countrywide Financial Corporation [NYSE: CFC] is a leading originator and servicer of single-family mortgages. CFC operates in five segments: Mortgage Banking, which originates, purchases, securitizes and services mortgages; Capital Markets, which operates as an institutional broker-dealer that specializes in trading and underwriting mortgage-backed securities; Insurance, which offers property, casualty, life and credit insurance as an underwriter and as an independent agent, and provides reinsurance coverage to primary mortgage insurers; Banking, which operates a federally chartered bank that offers retail and commercial financial products and services, and also originates mortgages and home equity lines of credit primarily sourced through CFC's mortgage banking operation; and Global Operations, which provide mortgage application processing and mortgage servicing for third parties. At June 30, 2007 Countrywide reported assets of $217 billion and equity of $14.4 billion.

New York
Philip Kibel
Senior Vice President
Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Kriz
Managing Director
Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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