Countrywide Financial, the US' largest mortgage lender and loan servicer, reported a US$1.2 billion loss in the third quarter of this year on Friday, but said it expected to return to profitability by the end of the year as the housing crisis subsided and it capitalized on disruptions in the home loan market.
Although the loss was Countrywide's first in 25 years, its upbeat outlook pushed the company's shares up 32 percent on Friday, to US$17.30. Nevertheless, the stock is down 60 percent this year.
"Countrywide and our very capable management team have taken the steps we believe that are necessary to position Countrywide to continue our long-term track record of success," the company's founder and chief executive Angelo Mozilo said in a conference call with analysts.
Citing the upheaval in the nation's mortgage and residential real estate market, Countrywide officials said it incurred a pretax loss of US$1.97 billion in the third quarter, in contrast to a US$665 million profit in the second quarter of this year. Loan financings fell to US$96 billion in the quarter, down from US$118 billion during the same period of last year. The company said 90 percent of its loans were made through Countrywide Bank.
Delinquencies among the company's loans continued to rise significantly. For instance, in its portfolio of pay option adjustable-rate loans, which allow the borrower to pay no principal and only a small percentage of the interest owed, 3 percent were more than 90 days late in the quarter. During the same period last year, 0.3 percent were that far behind.
Reflecting the declining value of mortgages made previously, the company adjusted the values of loans on its books, recording charges of almost US$900 million against those in its inventory or still in its pipeline at the end of the quarter. The provision for credit losses on the loans it holds for investment totaled US$934 million; most of it, US$790 million, was recorded at Countrywide Bank.
Countrywide wrote down US$690 million more on the value of residual interests it holds in home equity lines and subprime loans it has made.
Kenneth Bruce, an analyst at Merrill Lynch who had a sell rating on Countrywide shares, upgraded the stock to neutral on Friday because the loss was not as bad as had been expected. Last August, Bruce warned investors that Countrywide could face solvency hurdles as the market for commercial paper, its main source of financing for mortgages, seized up.
Countrywide said on Friday that it had enough capital, liquidity and financing for its operations and growth plans. In addition to the US$11.5 billion in bank lines secured last month, Countrywide said it had arranged a one-year, US$10.4 billion commercial paper facility and US$6.25 billion in repurchase agreements.
At the beginning of the conference call, Mozilo praised Henry Cisneros, a Countrywide director whose resignation was disclosed on Wednesday.
Cisneros, a former US housing and urban development secretary, said that he had left the board to focus on CityView, a home builder financing company he runs. Mozilo said the nominating committee of Countrywide's board was searching for an independent director to replace Cisneros.
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