Countrywide Reports $893 Million Loss From Bad Loans
By David Mildenberg and Ari Levy
The net loss was $893 million, or $1.60 a share, compared with a profit of $434 million, or 72 cents, in the year-earlier period, the Calabasas, California-based company said in a statement today.
Countrywide's latest loss may feed investor concern that Bank of America will reduce or cancel its January offer to acquire the nation's biggest mortgage lender for about $4 billion in stock. U.S. foreclosure filings more than doubled in the first quarter as payments rose for subprime adjustable mortgages, according to data vendor RealtyTrac Inc.
“The problem with Countrywide is that it comes with this portfolio that was not underwritten correctly and is very sloppy,'' said Paul Miller, an analyst at Friedman Billings Ramsey & Co., in an interview with Bloomberg Television. Miller expects Bank of America to end up buying Countrywide at a lower price than originally negotiated.
Countrywide declined 23 cents, or 3.9 percent, to $5.60 in early trading at 8:46 a.m. in New York. The lender has declined about 85 percent in the past 12 months.
Bank of America, the nation's second-biggest bank by assets behind Citigroup Inc., said April 21 that the sale remains on course for completion in the third quarter.
Bank of America, based in Charlotte, North Carolina, dropped 12 cents yesterday to $38.18.
The Countrywide brand and its adjustable-rate loans with higher default rates will be discarded after the acquisition, while the lender's president, David Sambol, will run the combined mortgage operations.
The combination would make Bank of America the biggest U.S. mortgage lender, handling about one out of every four home loans. The bank ranked fifth in 2007, according to trade publication Inside Mortgage Finance.
The mortgage company posted a $703.5 million loss for all of last year, the first in 30 years, because of higher loan losses and writedowns of securities backed by home loans.
Provisions for credit losses were $1.5 billion in the first quarter, compared with $925 million in the preceding quarter and $158 million in the year-earlier period. Results included $441 million of impairment charges tied mostly to home-equity securitizations.
Countrywide wrote down $390 million of assets amid “disruption in the capital markets and declining liquidity'' for mortgages that aren't eligible for sale to Fannie Mae and Freddie Mac, the two largest U.S. providers of financing for home loans, the company said.
Foreclosures doubled to 1.64 percent of unpaid principal in February from 0.8 percent a year earlier at the servicing unit, Countrywide said on March 13. Home loan payments more than 60 days late declined to 7.44 percent of unpaid principal in February from 7.47 percent in the previous month, the company said in the same report. It has since stopped issuing monthly updates on overdue loans.
About 43 percent of Countrywide's $87 billion loan portfolio is in California, followed by 7 percent in Florida, the company said in a Feb. 29 regulatory filing. California had the nation's sharpest price decline in the fourth quarter, 6.6 percent, the Office of Federal Housing Enterprise Oversight said Feb. 26. Nevada dropped 5.9 percent and Florida slid 4.7 percent.
Net revenue more than doubled at Countrywide during the U.S. housing boom of 2002 through 2006 as the company loosened underwriting standards to compete for borrowers. That led to rising defaults, Sambol said in October.
New York Lawsuit
Countrywide faces a lawsuit by the New York city and state comptrollers and their pension funds, alleging Countrywide and securities and accounting firms defrauded investors with overly optimistic comments.
Countrywide Chief Executive Officer Angelo Mozilo, 69, has said he's facing an informal U.S. inquiry into his stock sales. Mozilo has sold about $450 million of Countrywide shares during the past four years, according to the New York comptrollers' lawsuit. He reported stock option gains of $121.5 million last year, while giving up $36 million in severance pay and consulting fees due to the Bank of America sale, according to an April 24 regulatory filing.
Mozilo said he's cooperating with the U.S. Securities and Exchange Commission and that he's confident the investigation won't find anything improper.