Countrywide profit plummets

No. 1 mortgage lender, hurt by surging homeowner defaults, slashes outlook.

NEW YORK (Reuters) -- Countrywide Financial Corp., the largest U.S. mortgage lender, Tuesday slashed its full-year earnings outlook and said quarterly profit slid 33 percent, hurt by rising homeowner defaults in as the U.S. housing market slumps.

Shares of Countrywide sank more than 7.2 percent on the New York Stock Exchange Tuesday morning.

Second-quarter net income for the Calabasas, California-based company fell to $485.1 million, or 81 cents per share, from $722.2 million, or $1.15, a year earlier. Revenue fell 15 percent to $2.55 billion.

Analysts on average expected profit of 93 cents per share on revenue of $2.9 billion, according to Reuters Estimates.

Countrywide (Charts, Fortune 500) also cuts its full-year earnings forecast to a range of $2.70 to $3.30 per share from the $3.50 to $4.30 it had forecast in April, and the $3.80 to $4.80 it had forecast in January. Analysts on average expected $3.65. Profit was $4.30 per share in 2006.

"We expect difficult housing and mortgage market conditions to persist" this year, Chief Executive Angelo Mozilo said in a statement.

"Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories," Mozilo added.

Countrywide, which competes against Wachovia (Charts, Fortune 500), Wells Fargo (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), set aside $292.9 million for credit losses, up nearly fivefold from $61.9 million a year earlier.

Countrywide shares fell $2.49 to $31.57 in pre-market trading. Through Monday, the shares had fallen 20 percent this year, compared with a 13 percent decline in the KBW Mortgage Finance Index.

Mortgage banking

Pretax profit from mortgage banking fell 49 percent to $319.6 million as revenue slid 18 percent, though earnings roughly tripled from the first quarter.

Results reflected a $388 million writedown in the value of "prime" home equity-backed loan assets on its balance sheet, and a $25 million writedown for subprime assets, largely because delinquencies and defaults are rising.

Fed looks to rein in 'liar loans'

Mortgage loan production rose 19 percent to $123.1 billion, of which just 4 percent was "subprime," Countrywide said.

The company has tightened its lending guidelines, and like many rivals has stopped making some of the more exotic subprime loans that have triggered greater-than-expected defaults.

In banking, pretax profit fell to $128.9 million from $324.6 million, as credit losses rose more than sixfold. Pretax profit also fell 31 percent in capital markets, while it rose 11 percent in insurance.