Shares of Calabasas-based Countrywide Financial Corp. and several other top mortgage lenders fell Tuesday after Banc of America Securities lowered ratings on the companies, citing declining credit quality among borrowers and rising investor anxiety about the sector.
In a research note, Banc of America cut Countrywide to “sell” from “neutral” and lowered its 12-month price target on the stock to $30 from $39.
The company’s shares fell as low as $32.35 before rebounding somewhat to close down 12 cents, or 0.4%, to $33.08. The stock is down 10.6% this year.
“We think market sentiment in the mortgage sector will become increasingly ruled by fear,” Banc of America analysts said in the note.
The brokerage also downgraded Pasadena-based IndyMac Bancorp and Oakland-based Golden West Financial Corp., the parent of World Savings, to “neutral” from “buy.”
IndyMac dropped $1.92, or 4.6%, to $39.70; Golden West fell $1.63, or 2.6%, to $60.30.
Last week, the National Assn. of Realtors reported that sales of existing homes fell 2.6% in July from June, suggesting the market may be slowing.
Expectations that the Federal Reserve will continue to hike short-term interest rates also are raising concerns that borrowers who have flocked to adjustable-rate loans with low “teaser” rates could struggle when their payments adjust in 2006 and 2007, boosting loan delinquency rates.
Banc of America cut its 2005 earnings estimate for Countrywide to $4.15 a share from $4.34, and its 2006 estimate to $4.37 from $4.40.
“Increasing difficulty gauging the scope and impact of [loan] origination declines and mounting credit risk should erode earnings confidence” in Countrywide, the analysts said.