Welcome to the new and less profitable world of lending. Countrywide Financial's (NYSE: CFC) September lending dropped 44% to $21 billion which helps explain why it announced plans to cut its workforce by 12,000 jobs, or 20% of its workforce, according to a report in today's Wall Street Journal.
Not only are there fewer loans, but the type of loans Countrywide is making now and selling offers lower gains. Countrywide no longer makes the riskier loans that were so profitable because they can't find investors to buy them. New loans now being made are the type that can be sold to government-sponsored investors Freddie Mac or Fannie Mae or loans Countrywide wants to hold itself for the long haul.
Bruce Harting of Lehman Brothers estimates that the gain Countrywide made on these safer bets is about 0.48%, while those riskier loans generated an average gain of 1.09%. That difference is going to hit Countrywide's bottom line hard. Lehman Brothers told the Journal it expects Countrywide to show a third-quarter loss of 95 cents a share or $618 million. Moshe Orenbuch, an analyst at Credit Suisse, expects the loss of $1.3 billion loss or $2.17 a share.
Don't know whose right and Countrywide is staying mum on the issue until it reports earnings on October 26. Stay turned for follow-up, but don't expect any good news out of Countrywide.
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Reader Comments (Page 1 of 1)
10-12-2007 @ 11:28AM
BECKI said...
Countrywide is only losing the exobitant funds they expected to get from their "sub-prime" lending, which is only 25% of their loan portfolio. They are still very healthy. B of A just sunk some pretty substantial monies into Countrywide, which they wouldn't have done if they thought they were not healthy. So don't go getting everyone wired up that this ship is sinking....because it isn't....it is a healthy lender, still making very good loans and crying the blues because this particular division of their company is losing money....they were alway much too easy to get 100% financing from...not to mention "stated income" loans....anyone could tell them on a stated income loan that they made 6 figures and they didn't verify it...they were literally giving money away. Who didn't know this was going to come crashing down? This is just the "junk bonds" of the 80s being lived out in a different drama. We didn't go under from that and we won't go under from this. So cut out all the drama and scare tactics that keep people on edge.
10-15-2007 @ 12:55PM
Americas Watchdog said...
We have the Homeowners Consumer Center & the National Mortgage Complaint Center & the idea that Countrywides problems are limited to sub-prime is ridiculous. They sold thousands and tens of thousands of exotic mortgage products to individuals with very good credit. Many of these same individuals are now on the verge of losing their homes. With 1.5 million adjustable rate mortgage re-sets in 2008 all that we can say is stick around. Lets see how healthy Countrywide is a year from now? At this point its a very big question.
10-17-2007 @ 12:32PM
fred said...
ctw healthy, there are the the real verge of closing wholesale and correspondant areas. they are offering extremely high rates on cd's at thier bank in order to fund operations. short term fix for a potential long term problem. They are not healthy, I hope the dont go out of business , because they would not help out the tough market we are in. but dont be fooled this lender is in lots of trouble.