Angelo Mozilo, Countrywide's chief executive and co-founder, said in a letter to employees: "This current cycle is certainly the most severe in the contemporary history of our industry."
Countrywide announced the cuts hours after the labour department said US non-farm payrolls fell by 4,000 in August, the first drop in four years.
|"During the past two years, the growth in home price appreciation has stopped dead in its tracks"|
Angelo Mozilo, Countrywide's chief executive and its co-founder
The unexpected decline prompted calls for the Federal Reserve to cut interest rates before credit market turmoil drives the economy into recession.
In response to the changed market, Countrywide plans by the end of this month to move most of its residential loan business into Countrywide Bank, so it can tap more funding sources.
It is also restricting loans to those that can be sold in the secondary market, or that qualify under its bank's criteria. Few will be subprime, which go to people with poor credit.
Mozilo also said: "During the past two years the growth in home price appreciation has stopped dead in its tracks.
"There have also been significant increases in delinquencies and foreclosures among far too many borrowers. More recently the secondary market for jumbo and non-agency conforming loans has become nearly illiquid."
Countrywide executives were unavailable for interviews.
The US mortgage industry has lost well over 50,000 jobs this year.
Dozens of lenders have cut back operations or left the industry. More than a dozen have gone bankrupt, including American Home Mortgage Investment Corp and New Century Financial Corp.
This week alone mortgage firms announced job losses that may exceed 15,000, including at IndyMac Bancorp, Lehman Brothers Holdings and National City.
Countrywide said its cuts would be mainly in mortgage production, which employed about 33,800 people at the end of June, as well as in general and administrative support.
Countrywide shares have fallen 57 per cent this year, closing on Friday down 27 cents at $18.21. They rose to $18.50 in after-hours trading following the job cut announcement.