Tuesday, July 24, 2007

HOUSING DEBACLE?

Countrywide Financial Corp. said Tuesday its second-quarter profit shrank by nearly a third as softening home prices led to more delinquencies and mortgage defaults.

The huge mortgage lender was forced to take impairment charges as it braced for more borrowers unable to make mortgage payments.
Countrywide also said the market will become even more challenging as lenders competemore fiercely.
"This is a huge battleship and it's headed in the wrong direction," Chief Executive Angelo R. Mozilo said during a lengthy conference call with Wall Street analysts.
The news sent shares of the Calabasas-based company sliding $3.92, or 11.5 percent, to $30.14 during afternoon trading Tuesday.
Countrywide reported second-quarter net income of $485 million, or 81 cents per share, compared with $722 million, or $1.15 per share, in the second quarter of 2006 ended June 30.
Analysts polled by Thomson Financial forecast profit of 95 cents per share.
Revenue shrank 15 percent to $2.55 billion from $3 billion. Analysts expected revenue of $2.86 billion.
The rise in credit-related costs were primarily related to the company's investments in prime home equity loans, Mozilo said.
Unlike subprime loans, prime loans are typically available only to borrowers with solid credit profiles who are considered less risky.
Still, a rise in delinquencies and projections of more defaults to come led the company to writedown the value of securities collateralized through prime home-equity loans by $388 million during the quarter, reducing earnings by 40 cents per share.
Countrywide also recorded $25 million in charges on subprime residuals and other securities.
Mozilo said the supply of housing must decline before the market turns around, which he does not foresee before happening until 2009, at the earliest.
"Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist," he said.
The company set aside $292.9 million in preparation of borrowers missing payments on loans. The reserve is more than quadruple the size of the reserve established in the second quarter of last year.
Countrywide issued $123.07 billion in home loans during the quarter, an 18.8 percent increase.

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