Countrywide shaken by subprime crisis

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Countrywide Financial, the largest US mortgage lender, said its earnings in its first quarter tumbled as it was shaken by the crisis in the market for subprime mortgages and the wider troubles of the housing market.

Net earnings fell by 37 per cent to $434m, or 72 cents a share, down from $684m, or $1.10, in the same period last year. Revenue fell 15 per cent to $2.51bn. Analysts polled by Reuters Estimates had expected earnings of 77 cents a share.

The company, which originates almost one in five mortgages in the US, said its mortgage banking operations saw revenues from subprime mortgages – loans made at high rates to those with poor credit ratings – drop by $400m, equivalent to about 41 cents a share of earnings.

Sales of packages of subprime mortgages were hurt as the value of loans fell because investors required higher yields and the company set aside reserves for anticipated higher losses.

Outside of its subprime problems, Countrywide said deteriorating housing market conditions and rising delinquencies in housing had also hit its earnings by about 14 cents a share.

It added that “considerable risks remain in the mortgage marketplace, including but not limited to potential further deterioration in the housing market [and]... potential pending regulatory or legislative actions that could impose constraints on our operations.”

However, Countrywide said the troubles in subprime mortgages also presented a business opportunity. A number of subprime lenders have gone out of business, whittling down the number of competitors in the market.

”While turbulent mortgage market conditions had an adverse impact on the company’s first quarter, looking forward, management is optimistic about the long-term future growth prospects and profitability of the company stemming from the consolidation and rationalisation occurring in the residential mortgage markets today,” said Angelo Mozilo, chairman and chief executive.

The company said it had introduced guideline changes to reduce its exposure to losses from subprime mortgages, and as a result expects that both its subprime arm would return to profit from the next quarter onwards.

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