Countrywide Credit keeps up momentum.

But its stock price falls as investors question outlook

Countrywide Credit Industries has reported earnings up 170 percent over last year and is hiring new employees and negotiating for more office space. But its stock price has fallen $14 recently and analysts blame investor misconceptions that rising interest rates may foreshadow declining business for the mortgage banker.

As mortgage interest rates have climbed half a percent in the last few months, the price of the Pasadena-based company's stock fell to $32 a share in early March from $46 a share in January. And Countrywide officials admit that -- for the first time in five months -- they may not break any records originating loans, as the demand to refinance has slowed.

Countrywide, the nation's largest mortgage banker, has enjoyed a national spotlight this year as it almost doubled its loan portfolio. Last week it announced earnings for the fiscal year ended Feb. 29 jumped 170 percent to $60.1 million. Earnings for the fourth quarter were $21.9 million, up 224 percent from a year earlier.

In the fiscal year, Countrywide originated $12.1 billion worth of loans, increasing its national market share of single-family residential loans to 2.1 percent from 1 percent, according to company figures.

In order to keep up with loan demand the company hired 650 employees this year, increasing its work force by 57 percent to 1,774, said Stanford Kurland, Countrywide's chief operating officer. Interviews are presently being conducted to fill about 200 more positions, Kurland said.

There is no lack of qualified applicants, Kurland said, noting that at a recent job fair 2,000 worthies showed up for the 200 posts. Many of Countrywide's recent hires "are coming out of the banking industry and savings and loan industry," where there is high unemployment, Kurland said.

The company is also negotiating a lease for 300,000 square feet of local office space for its data processing and loan servicing operations, Kurland said. "We are very excited about this new space, but we don't want to make it (the site) public right now," he said.

Countrywide plans to keep its headquarters in Pasadena, Kurland said. It will not move its data processing operations out of Southern California, as Bank of America and First Interstate did last year, he added.

There are some indications, however, that Countrywide has reached its peak. Requests for refinance loans began to wane in February.

For the past five months, Countrywide has broken company records originating loans, topping out at $1.6 billion in loans in February, said Karel Carnohan, vice president of investor relations. Carnohan said, however, that she could not promise Countrywide would continue to make a record number of loans this month.

Refinance loans, which make up 70 percent to 75 percent of total loan volume, are "down slightly from a torrid January," said Carnohan. The company averaged about 750 refinance loan requests a day in February, down from about 800 a day in January, she said.

However, the mortgage banker company experienced about a 21 percent increase in applications for home purchase loans in February from January, she said.

Kurland said, "Let me say the demise of the refinance activity is greatly exaggerated." He added that the recent dip in Countrywide's stock may be due to misunderstanding of the way mortgage bankers operate.

Mortgage bankers typically use money borrowed from a bank to make mortgage loans. The loans are then pooled together and sold to the secondary-market institutions such as the Federal National Mortgage Association (Fannie Mae), the Government National Mortgage Association (Ginnie Mae), and the Federal Home Loan Mortgage Corp. (Freddie Mac). The mortgage banker then continues to service the loans for a fee.

"I'm afraid there is still not a clear understanding of the company's ability to have significant earnings growth when interest rates rise," Kurland said. "The refinance boom has provided our service portfolio with growth. That growth in the service portfolio has long-term implications on the earning potential."

David Hochstim, mortgage banking analyst at Bear Stearns & Co. in New York, agreed the recent plunge in the price of Countrywide stock reflects a feeling that the refinancing boom is over.

People who bought the stock were trying to "get in" on the refinance boom and didn't understand that the company can make profits servicing loans, he said.

"I think the stock market has over-reacted," Hochstim said. "I think their future is quite good. The market thinks their volume is going to decline significantly and I disagree."

Still, Hochstim would not project that Countrywide would grow next year at the same pace as this year.