Countrywide prepares for end of refinancing craze. (Investments & Finance).

FOR the last two years, the mortgage business has been the goose that laid the golden egg for Countrywide Financial Corp.

Loan fundings grew from $14.8 billion in October of 2001 to $34.7 billion in October of this year. However, for the first time in six months, that number fell in the following month -- to $32 billion in November -- indicating the refinancing craze may be coming to an end. That has analysts now wondering whether a diversification ago will finally start paying off.

Known primarily for its mortgage lending division, Countrywide in recent years has begun to branch out into other businesses hoping to stabilize a revenue stream largely dependent on the up-and-down nature of interest rates. It added Countrywide Bank and an insurance unit last year. And it expanded LandSafe, its title and escrow company.

With the sharp decline in interest rates over the past two years, the company has seen revenues climb nearly every quarter. But all that may be changing.

"This will be a test for the company's strategy to diversify its business," said Jennifer Scutti, an analyst with CIBC World Markets Corp. in New York.

Mortgage lending is now responsible for about 70 percent of Countrywide's sales. The remaining 30 percent is divided up among LandSafe; a title insurance, home appraisal and escrow services division; Countrywide Bank; Countrywide Insurance Group; Countrywide Capital Markets; and Full Spectrum Lending.

Countrywide CEO and Chairman Angelo R. Mozilo has said he wants mortgage lending to account for 50 percent of overall sales within five years.

The company made $184 billion in home loans during the first 10 months of the year, compared to $138 billion in loans for all of last year, but already some see lending activity declining in 2003. With interest rates expected to inch up, analysts like Scutti say the refinancing boom is slowly winding down.

"Refinancing activity is falling after mortgage rates for 30-years rose above 6 percent," Scutti said, "and we're going to see a lot more of that next year."

Likewise, Steven DeSanctis of Prudential Securities said the mortgage business will likely slip next year and the company will have to push its other units to make up for some of that lost mortgage revenue.

"The other units are performing, but they'll have to really pick things up to take up the slack," he said.

"If anybody can do it, they can," DeSanctis said, noting that he's unsure whether Countrywide's other businesses will offset potential drops in the mortgage business in 2003.

Countrywide stock climbed much of the year, moving from a 52-week low of $37.60 on Feb. 22 to a high of $55 on Aug. 22. However, it has hovered around $50 since mid-September, giving analysts reason to think the stock price has indeed topped out.

"Investors see that interest rates are not going to get any lower and they're reacting to that," said Joel Hauck of Wachovia Securities, who still rates the stock as a buy.

According to a survey by First Call, 15 of 26 analysts polled rated the stock a buy, despite signs that the mortgage market is cooling.

Countrywide stock closed at $51.47 on Dec. 20.

At the same time, the company's numbers have remained strong. For the quarter ending Sept. 30, the company reported $228.5 million in net income on $1.6 billion in total revenue, compared to the quarter ending Aug. 31, 2001 when it reported $149.2 million in net income on $1.2 billion in total revenue. (Just this year, Countrywide changed the beginning of its fiscal year from Dec. 1 to Jan. 1.)

"The mortgage banking operation has been strategically designed to balance the counter-cyclical nature of our production and servicing businesses," Mozilo said.

"We have established a solid platform from which to build future growth and shareholder value."

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Countrywide Finance Corp.

Stock Prices


Dec. 20, 2001  $42.22
Dec. 20, 2002  $51.47

Note: Table made from line graph

Year (Dec. 31)                     2001      2000

Revenue (millions)             $2,635.7  $2,073.8
Cost of Goods Sold (millions)     134.8     106.8
Operating Expenses (millions)   1,712.2   1,381.0
Operating Income (millions)       788.6     586.0
Net Income (millions)             486.0     374.2
Earnings PerShare                 $3.89     $3.14

SUMMARY

Business: Consumer financial services 

Headquarters: Calabasas

CEO: Angelo R. Mozilo

Market Cap: $6.4 billion Dividend Yield: 0.96%

Total Liabilities: $40.3 billion

PIE: 10.85

Long-Term Debt: $17.3 billion