Company cites lower margins, prepayments, loan losses as causes
Tuesday, January 30, 2007
Inman News
Countrywide Financial Corp. posted record earnings in
2006, even as profits in mortgage banking fell 15 percent from 2005.
Countrywide's net earnings of $2.67
billion, or $4.30 per share, represents a 6 percent increase from the $2.53
billion posted in 2005. Earnings for fourth-quarter 2006 were $622 million,
down 3 percent from the same quarter a year ago,
Countrywide's mortgage loan
servicing portfolio grew 17 percent in 2006 to $1.3 trillion, despite high
prepayments among borrowers with adjustable-rate mortgages and slowing
production volume, the company said today in a Securities and Exchange
Commission filing.
Net earnings from mortgage banking
were $453 million for the quarter, up 4 percent from fourth-quarter 2005. At
$2.06 billion, earnings for the year were down 15 percent from $2.43 billion in
2005.
The year-over-year decline in
profits from mortgage banking was attributed to declines in earnings from loan
production (down 21 percent for the year), servicing (down 1 percent for the
year) and closing services (down 13 percent for the year).
Higher interest expenses reduced
profit margins on loans, the value of mortgage servicing rights dropped by $215
million, and an upswing in delinquencies and a need to set aside more money for
loan losses were factors in the decline.
"Looking ahead to 2007, the
industry will likely see continued pressure on margins as mortgage origination
volumes decline and industry capacity is rationalized," said Chairman and
Chief Executive Officer Angelo R. Mozilo. "We are also preparing for
increased borrower delinquencies and continued credit deterioration. We
believe, however, that 2007 will likely be the trough year of the current
housing cycle and that 2008 should represent the beginning of upward trends
associated with the next cycle."
Delinquencies in the servicing
portfolio were 5.02 percent on Dec. 31, compared with 4.61 percent at the end
of 2005. Foreclosures in the servicing portfolio were up 47 percent during the
same period, rising from 44 to 65 basis points.
The year-over-year increase in
foreclosures and delinquencies "is primarily the result of portfolio
seasoning, product mix and changing economic and housing market conditions,"
the company said, and Countrywide "believes its asset valuations and
reserves for credit losses are appropriate for the increase in delinquencies."
At $546 million, nonperforming
assets represented .66 percent of total assets at the end of the year, compared
with $158 million, or .22 percent of total assets at the end of 2005. Year-end
allowances for loan losses more than doubled to $228.6 million, up from $102.7
million at the end of 2005.
Countrywide held $32.7 billion in
pay-option adjustable-rate mortgages in its loan portfolio at the end of the
year, compared with $26.1 billion at the end of 2005. The principal on
pay-option ARM loans with negative amortization stood at $28.9 billion, up from
$13.9 billion at the end of 2005.
For the year, Countrywide saw
double-digit growth in earnings from its banking, capital markets and insurance
segments, with the banking division establishing a new earnings record of $1.38
billion, up 28 percent from 2005.
Countrywide
projects that the total U.S. mortgage market in 2007 will be $2.2 to $3
trillion, and that the company will originate between $375 billion and $525
billion in loans -- capturing 12 percent to 24 percent of the market.
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