Fourth Quarter Earnings Decline For Countrywide Mortgage
Countrywide, the biggest U.S. mortgage lender, reports that fourth-quarter profit fell 2.7 percent and that weaker home sales will limit this year’s earnings as well.
According to Bloomberg.com, the California-based company forecasts its 2007 earnings around $3.80-4.80 a share, compared with $4.30 for 2006.
Change is definitely in the air as Countrywide Mortgage issued 9 percent fewer home loans during the fourth quarter as applications tied to home purchases dropped industrywide to a three-year low.
CEO Angelo Mozilo cut more than 900 jobs as part of an effort to trim $500 million in annual expenses. Now Countrywide is talking with Bank of America about forming a joint mortgage company, a person with knowledge of the matter said last week.
“Looking ahead to 2007, the industry will likely see continued pressure on margins as loan origination volumes decline and industry capacity is rationalized,” Mozilo said in a statement. “We are also preparing for increased borrower delinquency and continued credit deterioration.”
Analysts predicted the home mortgage company would earn $1.04 a share in the fourth quarter, according to the Bloomberg survey. For all of 2006, profit improved 5.8 percent to a record $2.67 billion as revenue rose 14 percent to $11.4 billion.
“Countrywide is a reflection of the overall home mortgage market,” according to Frederick Cannon, an analyst at Keefe Bruyette & Woods, who called the 2007 forecast a cautious outlook. “The company stayed up longer than expected, but 2007 certainly has its challenges.”
The company said in its preliminary monthly reports it funded about $122 billion of mortgage loans during the three-month span, 9 percent less than a year earlier. Sales of previously owned homes fell 0.8 percent for the month of December, capping their biggest annual slump since 1989.
Mozilo said in today’s statement that 2007 will likely be the bottom of the housing market cycle and predicted improvement in 2008. In October, he said that the housing market already had a hard landing and that it will likely tread water in 2007 as bad credit mortgage lenders close or combine.
Profit from mortgage banking climbed to $453 million from $434 million a year earlier. Countrywide earned $1.26 billion from selling home loans to investors, 44 percent more than a year earlier. The company’s profit margin doubled from selling sub-prime (or bad credit home loans) that it made to borrowers with blemished credit records.
“That figure really jumped out at us,” said Cannon, who rates Countrywide shares as underperforming this year. “That’s a bit of a surprise because at other companies we’ve seen some weakness in that margin.”