Shares of mortgage lenders climbed Tuesday on prospects for a Federal Reserve interest-rate cut and the possibility that Countrywide Financial Corp. could attract a buyout.
Mortgage lenders' stocks have fluctuated dramatically in the past few months and the ones that are not bankrupt still trade near multiyear lows.
On Tuesday, Sen. Christopher J. Dodd, the Connecticut Democrat who heads the Senate Banking Committee and is running for his party's nomination for president, said he met with Federal Reserve Chairman Ben Bernanke and urged him to use "all the tools available" to help calm distressed financial markets.
The Federal Reserve has two main tools available: the discount rate, which the Fed cut last week to 5.75 percent from 6.25 percent, and the federal funds rate. The discount rate is how much the Fed charges commercial banks for loans.
Dodd's comments add to the pressure on the Fed to cut the more-important federal funds rate, the rate that ultimately determines borrowing costs for nearly everything from mortgage loans to corporate bonds. That's because commercial banks borrow from one another far more frequently than they borrow from the Fed. Many investors expect the Fed to cut the federal funds rate to revive the financing markets vital to mortgage lenders.
These markets are depressed amid a worldwide flight from risk. Mortgage lenders that rely on selling mortgage-backed bonds, commercial paper and collateralized debt obligations have been unable to raise cash because buyers in these markets have all but disappeared.
If the Fed were to cut the federal funds rate, which is what banks charge one another for overnight loans, it would pump new cash into the system and encourage investors to risk returning to these troubled markets.
Also, a number of reports suggested Countrywide Financial Corp. could attract a buyout, possibly from Warren Buffett. Countrywide Financial, the nation's biggest mortgage lender, had to resort to borrowing $11.5 billion from banks last week, presumably because other sources of cash have dried up.
The Calabasas, Calif.-based lender's stock jumped $1.79, or 9 percent, to $21.59. The stock has still lost nearly half its value this year.
Shares of the second-biggest mortgage lender, IndyMac Bancorp, climbed $2.09, or 10.1 percent, to $22.83. That stock has also lost roughly have its value this year.
Another piece of news that may have moved mortgage stocks was Accredited Home Lenders Holding Co.'s deal to transfer $1 billion in mortgage loans to an unnamed investor. The complex deal essential shields the San Diego-based lender's portfolio from deterioration while giving it an opportunity to profit should the market recover.
Accredited Home Lenders' shares rose 26 cents, or 4 percent, to $6.70. The company's shares are down nearly 80 percent in the past year.
Shares of NovaStar Financial Inc. rose 17 cents to $7.46.
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