COUNTRYWIDE PROFITS PLUMMET CALABASAS-BASED MORTGAGE GIANT SAYS WOES COULD PERSIST TO 2009.
CALABASAS -- A souring mortgage outlook that now includes borrowers with good credit drove a 33 percent decline in second-quarter profits at Countrywide Financial Corp. and the company said Tuesday that the depressed housing market might not rebound until 2009.
Calabasas-based Countrywide, the nation's biggest mortgage lender, said it took a $417 million impairment charge in the second quarter on investments that now have a credit risk to them. This includes $388 million to cover potential problems with portions of prime-grade home-equity loans still on the company's books.
Countrywide's stock fell $3.56, or 10.45 percent, on Tuesday to $30.50, a 52-week low.
During a conference call, Angelo R. Mozilo, the company's chairman and chief executive officer, said there was still strength in the core loan- production business.
But Countrywide's results "were adversely impacted by continued weakness in the housing market," he said. "During the quarter, softening home prices continued to affect many areas of the country, and delinquencies and defaults continued to rise across all mortgage product categories as a result."
That led to increased credit-related costs in the quarter, primarily concerning its investments in prime home-equity loans, he said.
"Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist," Mozilo said. "This is a huge battleship, and it's headed in the wrong direction."
In the May-to-June period, the company reported a net income of $485 million, equal to 81 cents per share, down from $722 million, or $1.15 per share, in the like period a year ago.
Analysts polled by Thomson Financial forecast a profit of 95cents per share.
Revenue dipped by 15 percent to $2.55 billion from $3 billion.
And the company cut its earnings projection for the year to between $2.70 and $3.30 per share, down from the April estimate of $3.50 to $4.30 per share.
The company also set aside $293 million in the second quarter for loans it's holding for investment, including a loan loss provision of $181 million on prime home-equity loans.
"The story here is credit deterioration: Countrywide continues to suffer by its disproportionate mortgage portfolio exposure to pay-option ARMs (adjustable-rate mortgages), prime home-equity loans, and California," said a note from analysts at Goldman Sachs.
They noted that Countrywide's second-quarter set-aside is up 93 percent from the first quarter and 375 percent from a year ago.
Countrywide made $123.07 billion in home loans during the quarter, up an annual 18.8 percent.
The mortgage industry has tightened lending standards in response to the subprime sector's problem of rising late payments and foreclosures.
For example, market tracker DataQuick Information Systems reported Tuesday that second-quarter foreclosures soared 799 percent to a record 17,408 properties.
And notices of defaults, the first step in the process, made triple-digit gains across the state.
Mozilo said Countrywide has also tightened its credit guidelines and stopped selling some types of adjustable-rate loans.
The company will also implement additional lending restrictions.
Countrywide said 4.56 percent of its prime home-equity loans were delinquent at the end of the quarter, up from 1.77 percent in the year-ago period. About 23.71 percent of its subprime loans were delinquent, up from 15.33 percent.
The company said mortgage delinquencies were particularly high in areas of central California, South Florida and the Midwest.
The company said the delinquencies were not because of borrowers struggling with mortgage interest rate resets, as many had expected. Instead, the delinquencies have been largely because of factors such as homeowners' job losses, the company said. Those homeowners have been unable to refinance because the value on their home has fallen, and the credit crunch has cut off other borrowing options.
"I do think it's important to observe what happens going forward," Mozilo said. "We are experiencing home price depreciation almost like never before, with the exception of the Great Depression."
That may be true in some parts of the country, but in many areas of California, including Los Angeles County, prices are still making modest gains from year-ago levels.
The Associated Press contributed to this report.
Lender's profits shrink