Countrywide Financial Takes Hit From Subprime Defaults But Remains Profitable
Watching the lending industry cope with their subprime and Alt-A lending mess you would think that any company that is associated with these loans are going to crash and burn. Countrywide Financial Corp. would be a favorite target, but the company remains profitable, albeit less profitable than a year ago or projections for this year.
Taking a charge of 417 million for late payments for the quarter hurt profitability, however Countrywide still recorded nearly a half a billion in profits for the second quarter of 2007. One of the reasons they have done well is that they did not sell all of the loans they originated. So instead of being a front for writing the loans, Countrywide still is a lender that maintains a portfolio of loans. This allows the company to ride out industry changes and forces them to adjust faster than the loan originators that sold their paper immediately.
Countrywide Financial Corp., the biggest U.S. mortgage lender, reported a third straight quarterly earnings decline and reduced its 2007 forecast because of an increase in late payments by borrowers with strong credit.
Second-quarter net income declined 33 percent to $485.1 million, or 81 cents a share, from $722.2 million, or $1.15, a year earlier, the Calabasas, California-based company said in a statement today. It was expected to earn 91 cents, the average of 13 analyst estimates compiled by Bloomberg. Revenue fell 15 percent to $2.55 billion.
Countrywide said profit was reduced $388 million because of impairment charges on securities backed by prime home-equity loans. The company had already said late payments were rising on loans to people with poor credit. Chief Executive Officer Angelo Mozilo tightened standards for approving new subprime loans in a bid to cut their contribution to as low as 4 percent of total new loans from 8 percent in the fourth quarter. Bloomberg.com
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Comment by Mike Elliott on 24 July 2007:
Those numbers are still a really significant hit. Coming in at 11 percent below expectations on profits (even when expectations were low to begin with) is usually a harbinger of more bad times to come for a publicly-traded company.
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