Countrywide: Bad loans and $900M loss

Soaring credit costs stings embattled mortgage lender, as regulators review acquisition by Bank of America.

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By David Ellis, staff writer

Countrywide only had negative news to report Tuesday, as it recorded a nearly $900 million quarterly loss.

NEW YORK ( -- Countrywide Financial Corp. once again found itself mired in red ink, reporting a loss Tuesday of nearly $900 million as higher housing-related credit losses engulfed the mortgage lender's results.

The Calabasas, Calif.-based company said it lost $893 million, or $1.60 a share, in the first quarter, down from a profit of $434 million, or 72 cents a share, a year ago.

Wall Street's forecasts about the company's results varied wildly, but analysts, on average, were expecting the company to report a profit of 2 cents a share, according to Thomson Financial.

Revenue at the company also fell sharply to $678.9 million from $2.41 billion a year ago.

The results extended Countrywide's recent losing streak. In the previous two quarters, the company posted steep losses amid deterioration in the housing market.

Company officials did not issue any statement on the results. In addition, they said they would not hold a conference call, citing the company's pending merger with Bank of America.

The dreary numbers were largely due to higher credit-related costs, which were driven by more mortgage delinquencies and defaults by borrowers. During the quarter, the company said it was forced to set aside $1.5 billion for losses on residential loans, up from just $158 million a year ago.

In a sign of just how bad things have gotten, the already harrowing delinquency numbers in Countrywide's subprime portfolio moved higher to 35.88% from 33.64% in the previous quarter. Even the company's conventional loan portfolio showed deterioration, as delinquencies jumped to 6.48%.

Charge-offs, or loans that a lender doesn't think are collectible, spiked to $606 million, up from $283 million last quarter and just $39 million a year ago.

At the same time, the company reported a jump in loan applications, which climbed 27% from the fourth quarter, due in part to robust refinancing activity.

Walter O'Haire, senior analyst with Celent, a Boston-based financial research and consulting firm, warned that the spate of refinancings might not continue for long.

"As the housing market continues to decline and defaults and foreclosures continue to rise, the refinance business may be in for a very challenging time in the second quarter," he said.

Countrywide's results are the first since Bank of America (BAC, Fortune 500) announced its plan to buy the troubled mortgage lender in January in an all-stock deal worth approximately $4 billion.

Tuesday's loss is certain to raise fresh questions about the deal. Some Bank of America shareholders have said they believe the bank might be offering too much.

At Bank of America's annual shareholder meeting last week, Chairman and CEO Kenneth Lewis said his firm planned to proceed with the purchase, arguing that the mortgage lender had "great long-term value."

If approved by both federal regulators and shareholders, the deal would make Bank of America the nation's leading mortgage lender and loan servicer. It is expected to close some time during the third quarter.

Also on Tuesday, the Federal Reserve wraps up its two-day hearing on the proposed deal in Los Angeles Tuesday, the second it has held this month.

Countrywide (CFC, Fortune 500) shares gained nearly 2% in midday trading. To top of page

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