Countrywide Funding's reputation stays untarnished despite industry downturn.

Countrywide Funding Corp. of Pasadena is the nation's largest mortgage lender and widely praised for its management savvy.

"This company, from my perspective, is clearly the best operated in the business," declared banking analyst Charlotte Chamberlain of downtown-based Wedbush Morgan Securities.

So why has Countrywide Vice Chairman Angelo Mozilo, axed 30 percent of his company's staff this year?

"It's like Hickory Farms at Christmas," Mozilo related, describing the cyclical nature of the business. The cycle for mortgage lending turned down sharply with rising interest rates in February.

"The refinancing business has collapsed," observed Jonathan Gray with New York investment firm Sanford C. Bernstein & Co. "Countrywide's wholesale business was 80 percent refis."

"The company's earnings are under intense pressure," the analyst said. Even noting the severe staff cuts, Gray added, "They haven't cut costs as fast as the volumes have dropped."

That precipitous drop from its peak level in 1993, has obliterated 50 percent of the refinancing business, and will wipe out another 30 percent in 1995, Gray has projected.

"What you have now is a price war where many of the mortgage lenders will disappear," Gray concluded. Some will go out of business. Others will be bought out by larger financial institutions. It's the sharper companies, like Countrywide, Gray commented, that may survive.

"(Mozilo) is the Erwin Rommel of the business," Gray noted, referring to the World War II German general. Mozilo's organization appears to have better prospects for victory than the famed Desert Fox, analysts agree.

One way Countrywide is fighting the financial wars is by becoming less dependent on the wholesale business, in which it buys loans from mortgage brokers -- a tougher proposition when there are fewer loans to buy and a more ferociously competitive environment.

Last year, Mozilo said, 75 percent of Countrywide's business was wholesale. Its current mix is 60 percent wholesale, with a growing emphasis on underwriting its own mortgages through the company's 272 retail outlets.

While 15 wholesale branches were shut in the recent cost-cutting, none of the staff losses came from the retail side, he said. Indeed, Mozilo said he intends to expand that end of the business. "With a 2.5 percent share, we've got a lot of market to go after," he asserted.

Another successful strategy for Countrywide is loan servicing, which generates a reliable income stream from home loan processing. In 1988, the company reported a $10 million servicing portfolio. This month it hit $100 billion.

"In today's environment," Mozilo noted, "the most profitable part of our operations is the service business." Handling that money is a complex computer system, developed by Countrywide itself.

"Our emphasis on technology has made us more efficient than any other company in the business, and our cost of servicing the loans is also lower," Mozilo declared.

"He's far and away No. 1 in terms of technological innovation," Wedbush Morgan's Chamberlain proclaimed. "That's good for consumers. ... He's made the market much more competitive."

Chamberlain gives Mozilo much of the credit for introducing low-point, low-fee mortgages to the market. With a lean, non-commissioned staff and a computerized underwriting process, Mozilo was in a position to do that.

He intends to maintain that position, chopping heads when necessary, riding the steady loan servicing steed, developing new technologies, and keeping his own head above the mortgage wars as much as possible.

"In 25 years (since the company's 1969 establishment), we've been through more than eight down cycles and have beat (the competition) through up and down markets," Mozilo said. He doesn't sound overly concerned about the present refinance slump, even as firms like Bernstein downgrade his stock a notch.

"He refers to us analysts as vampires -- we suck on numbers," Chamberlain said. "My response is, 'We're Druids, very carefully measuring things from observation.'" Thus far, her observations are largely positive.

Mozilo looks past the staff cuts and mortgage wars, just as he looked past the company's slow climb to 1980s success. Although he had no control over the savings and loan industry collapse that sped his growth at that time, he did have control over the company's methodology -- which he credits as his single largest success factor -- and put the systems in place to take advantage of opportunity when it arose.

He's still focusing on systems and methodology to take Countrywide into the next decade.

"We're looking now for the technological means to make the mortgage application process a hell of a lot more efficient than it is today, so it doesn't take weeks or months but hours or days, so you can go to your PC at home or a kiosk at the Galleria and apply for a loan. Whoever makes that breakthrough will be the ultimate (industry) winner," Mozilo projected, his voice conveying a message about who he expected that winner might be.

With Countrywide's foray into financial services and his market share growth strategies, Mozilo's not likely to be facing the same competitors he bested in the past 25 years.

"Our competition is not the independent mortgage banker, but major commercial banks, strong savings and loans, large financial service companies and the major industrial companies that have been diversifying into mortgage processing," he said.