Countrywide Home Loan Profits Fall 37 Percent
Shares in Countrywide Financial, America’s biggest independent mortgage lender, took a knock yesterday after the company revealed first quarter profits had fallen a worse-than-expected 37 percent.
The bank, which is one of the biggest creditors to bankrupt subprime (bad credit mortgage) lender New Century, whose collapse last month stoked the worldwide fears over the strength of the housing market and economy, has had to set aside cash for growing bad debts among its borrowers.
First quarter net income was just $434 million, contrasted with $683.5 million a year ago. Countrywide home loans‘ revenue shrank 15 percent to $2.41 billion, compared with the consensus forecast of analysts of $2.58 billion.
Countrywide shares fell 76 cents, or 2 percent, to $36.96 in early trade on the New York Stock Exchange.
Chief Executive Angelo Mozilo said the collapse of the subprime mortgage sector - which includes home mortgage loans to people with bad / poor credit records - has hampered profits.
“Earnings were impacted by charges relating to our subprime activities as well as increases to our loss reserves stemming from higher delinquencies and softer housing markets.”
Bad debt cost Countrywide $132 million, or 14 cents per share, during the quarter, the company said. Countrywide set aside $81 million to cover expected losses from unpaid loans and recorded a $119 million accounting charge because its stake in prime home equity loans lost value.
These were offset by extra cash from reserves in the company’s insurance segment. But Countrywide said that while “turbulent mortgage conditions had an adverse impact” on the first quarter, the mortgage provider remains about its long-term prospects.
Meanwhile credit rating agency Moody’s warned that the housing market downturn was increasingly spreading to builders and that “the market was unlikely to show any signs of stabilization until 2008 at the earliest.”
“Home builders are continuing to cope with stubbornly high inventories amid continued decimation of earnings,” said its Senior Credit Officer Joseph Snider. “This underscores a potentially serious problem and signals that their current ratings may be too high,” said Snider.
SOURCE: Times Online