Mozilo asks Fannie, Freddie to ‘step up’

Shares of Countrywide Financial Corp., the nation’s largest mortgage lender, fell after Chief Executive Angelo Mozilo decried the housing market’s credit shortage.

Mozilo, speaking at a conference in Washington, said government-chartered companies Fannie Mae and Freddie Mac, the two biggest sources of mortgage funds, should try harder to help home buyers and investors in mortgage securities.

“It’s very important for Fannie Mae and Freddie Mac to step up,” Mozilo said. “It’s the only way out of this to shorten the cycle. Otherwise it’s going to be very painful.”

Countrywide no longer can raise funds using commercial paper and intermediate-term notes, its favored strategy for 40 years, Mozilo said. The company is instead borrowing from the Federal Home Loan Bank system and seeking to attract deposits to its bank unit, as well as selling loans to Fannie Mae and Freddie Mac.

Washington Mutual Inc. CEO Kerry Killinger, addressing the same conference, said funds were “very scarce” for loans that don’t meet guidelines of the two government-backed entities.

Fannie Mae CEO Daniel Mudd said the weakening housing market was forcing Fannie Mae to be “as careful as anyone else is” when buying or guaranteeing mortgages. He urged industry leaders to develop clearer definitions and standards for sub-prime mortgages, typically made to borrowers with weak credit histories.

The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, said last week it wouldn’t allow the companies to buy mortgages with loan amounts exceeding $417,000. Some had advocated such a move to return liquidity to the market for “jumbo” mortgages.

Shares of Calabasas-based Countrywide fell 14 cents, or 1.3%, on Monday to $10.68 a share. Fannie Mae sank $2.17, or 5.7%, to $36.25. Freddie Mac dropped $1.54, or 4.4%, to $33.53.

Mozilo and Killinger, meanwhile, endorsed Treasury Secretary Henry M. Paulson Jr.’s effort to negotiate a loan-modification plan to help keep some sub-prime borrowers from losing their homes to foreclosure.

“We just need to see if we can’t get to a collective decision that protects everyone” -- borrowers and investors who buy mortgage-backed securities, Killinger said.

Paulson, who also spoke at the conference, said he was confident the government and the home-loan industry, including lenders, loan servicers and investors in mortgage-backed securities, would agree on a plan this week.

Meanwhile, a national labor union launched a campaign against Countrywide on Monday, calling on members and other consumers to boycott the lender’s bank until it guaranteed that it wouldn’t foreclose on borrowers who had fallen behind on their adjustable-rate loans.

Unite Here, which represents more than 450,000 workers in the apparel manufacturing, hotel, restaurant and retail industries, asked consumers not to make deposits at Countrywide Bank and urged them to e-mail the company demanding assurances it won’t foreclose on borrowers with mortgages that reset last year and will this year.

The union worries that Countrywide’s loan modification efforts will focus on borrowers who have yet to see their home loan rates reset upward, ignoring thousands who fell behind last year, said Zakia Henderson-Brown, a research analyst with the organization.

By targeting Countrywide Bank, the labor union hopes to hurt the lender’s ability to generate funds needed to make new home loans.

Countrywide representatives couldn’t be reached for comment on the call for a boycott.