Aug. 10 (Bloomberg) -- Countrywide Financial Corp., Washington Mutual Inc. and MGIC Investment Corp. led shares of U.S. mortgage companies lower as demand for loans and sources of new money dried up.

Shares of Countrywide, the biggest U.S. mortgage lender, have lost a third of their value this year, wiping out $8.8 billion of market capitalization that took three years for the Calabasas, California-based company to generate. They fell 2.8 percent today. Washington Mutual, the largest U.S. savings and loan, lost 2.2 percent and MGIC, the No. 1 mortgage insurer, fell 13 percent.

The nation's biggest lenders may face a cash shortage because investors who buy their loans aren't bidding and bankers have cut off credit lines. The fallout has toppled at least 70 mortgage companies and half a dozen hedge funds that bought their loans, and stalled buyouts including MGIC's takeover of Radian Group Inc. Regulators in the U.S., Europe and Japan have responded by pumping money into the banking system.

``Any company that has products related to home sales is in trouble,'' said James Stratton, chief executive officer of investment firm Stratton Management Co. in Plymouth Meeting, Pennsylvania. ``Instead of a soft landing, it's a hard landing,'' said Stratton, whose company has $3 billion in assets.

Countrywide fell 80 cents to $27.86 at 4 p.m. in New York Stock Exchange composite trading, after reaching $24.71 earlier today. Washington Mutual dropped 81 cents to $35.95. MGIC lost $5.58 to $36.21.

Market Disruptions

``Unprecedented disruptions'' in the mortgage market may reduce profit, Countrywide said in a regulatory filing late yesterday. Washington Mutual, based in Seattle, said in its own filing that liquidity had ``diminished significantly'' in the market for home loans made to borrowers who don't meet the top credit standards.

MGIC's takeover of Radian was put in doubt after it said Credit-Based Asset Servicing and Securitization LLC, their jointly owned mortgage investment company, may be worthless.

Investors have stopped buying loans made to the riskiest borrowers, leaving hedge funds, banks and securities firms unable to get accurate prices for their mortgage investments. BNP Paribas SA, France's biggest bank, halted withdrawals from three funds yesterday because it couldn't ``fairly'' assess the value of subprime mortgage holdings.

Lenders roiled by the crisis are shifting assets into cash, prompting the European Central Bank, the U.S. Federal Reserve and the Bank of Japan to ease pressure on the financial system by providing money at below-market rates.

Great Depression

``The secondary market and funding liquidity situation is rapidly evolving, and the potential impact on the company is unknown,'' Countrywide said in its filing. ``These conditions may continue or worsen in the future.''

Countrywide, which accounts for almost a fifth of all mortgages made in the U.S., last month cut its 2007 earnings forecast after net income tumbled 33 percent.

``We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,'' Countrywide Chief Executive Officer Angelo Mozilo said during a conference call with investors July 24. He said it would take all of next year for the mortgage market to ``turn this battleship around'' before demand rebounds in 2009.

Mozilo said in an interview today that the Fed's decision to pump more than $38 billion into the banking system may bolster confidence and help restart stalled credit markets.

Bank's `Advantage'

Libby Hutchinson, a Washington Mutual spokeswoman in Seattle, said the company doesn't rely on mortgage banking to supply its funding needs. ``That's the advantage of being a bank, not a monoline lender,'' she said in an e-mail.

Washington Mutual ``has sufficient capital and ready access to diversified sources of liquidity to enable the company to continue to add assets to its balance sheet,'' it said in yesterday's filing.

Countrywide's allowance for credit losses was $531.1 million as of June 30, almost double the amount on Dec. 31, it said in the filing.

Countrywide again assured investors that it has enough cash to cope with a credit crunch and said it may benefit as the industry's capacity shrinks. The company said earlier this week that it had access to $186.5 billion at mid-year.

not for Sale

Still, Countrywide said it was no longer trying to sell $1 billion of subprime mortgage loans and would instead hold them as investments ``for the foreseeable future.'' The loans now have a value of about $800 million, Countrywide said.

Bids for subprime mortgages, rated as the most likely to default, became scarce in March as overdue payments headed for their highest level since 2002. Now buyers are shunning Alt-A loans, an alternative for people with good payment records who don't otherwise meet all the standards for prime loans.

Mozilo, 68, has tightened standards for approving loans to Countrywide's riskiest borrowers as part of a plan to cut subprime lending to as little as 4 percent of total mortgages, half the level at the end of last year.

Now he must address an increase in missed payments for prime loans, or those granted to borrowers with good credit histories. The company set aside $292.9 million for loan losses in the second quarter, compared with $61.9 million a year earlier. The new figure includes $181 million for prime home-equity loans.

More Fallout

In other mortgage-market developments:

--HomeBanc Corp., an Atlanta-based mortgage lender, filed for bankruptcy protection today, two days after saying it would sell some of its assets to Countrywide. The company said Aug. 7 bankers had cut off credit and left it unable to fund loans.

-- Shares of Accredited Home Lenders Holding Co., a San Diego-based subprime mortgage lender, rose 45 percent after the company said it received regulatory approvals needed for a takeover by private-equity firm Lone Star Funds.

-- Anworth Mortgage Asset Corp. fell 20 percent, the most since 1998, after the investor in mortgage-backed securities said it may have to sell most of the holdings at its Belvedere Trust unit because lenders want their money back.

-- Credit-Based Asset Servicing and Securitization said it will close most of Fieldstone Investment Corp. three weeks after paying $188 million for the home lender. MGIC owns 46 percent of C-Bass.

-- Thornburg Mortgage Inc.'s credit rating was cut by Standard & Poor's because of the ``unsteady state of the secured financing capital markets.'' The Santa Fe, New Mexico, company specializes in high-quality mortgages.

Going Concern

-- Luminent Mortgage Capital Inc., the San Francisco-based mortgage investor, raised doubts about its ability to stay in business after losing access to the commercial-paper market. The company said it's ``exploring all of its alternatives.''

-- CIT Group Inc. Chief Executive Officer Jeffrey Peek bought 14,300 shares on Aug. 8, betting that the stock of the biggest independent U.S. commercial finance company will recover from an almost 40 percent loss this year. New York-based CIT said last month it will exit the subprime mortgage market.

-- Investor Pennant Capital Management LLC said General Electric Co. and Blackstone Group LP's $31.50-a-share offer for mortgage and vehicle-leasing company PHH Corp. is still too low, even with the roiling of mortgage markets.

-- NovaStar Financial Inc., the Kansas City, Missouri-based subprime lender whose stock has lost about 95 percent this year, said it may sell operations and cut staff if investors don't start paying more for its mortgages.

-- Several mortgage companies said they will delay regulatory filings because of the crisis, including Fremont General Corp., NetBank Inc. and Impac Mortgage Holdings Inc.

To contact the reporter on this story: Steve Dickson in New York at sdickson1@bloomberg.net.

Last Updated: August 10, 2007 17:13 EDT