Countrywide Financial Corp., the nation's largest mortgage lender and easily the most recognizable company involved in the nation's mortgage crisis, reported a loss of more than $1 billion in the third quarter. The quarterly loss is the company's first in 25 years, but the Calabasas, Calif.-based company insists it will be profitable in the fourth quarter and in 2008.
Countrywide posted a third-quarter loss of $1.2 billion compared with earnings of $647.6 million during the same quarter a year ago. Angelo R. Mozilo, Countrywide's CEO, says the credit crunch and a slumping housing sector have stalled the demand for the company's loans.
"Countrywide's results for the third quarter of 2007 reflect the impact of unprecedented disruptions in the U.S. mortgage market and the global capital markets, as well as continued weakening in the housing market," Mozilo said in a statement. "However, during the period we also laid the foundation for a return to profitability in the fourth quarter. Countrywide has responded decisively and taken the steps we believe are necessary to address the current challenging market environment. During the quarter, the company stabilized its liquidity, strengthened its capital position, significantly tightened its loan program and underwriting guidelines, and began the process of right-sizing operations for today's lower volume mortgage market."
Countrywide's total revenue was in the red by $50 million in the third quarter, due to impairments and charges, from $2.82 billion during the same period a year ago. In addition, origination volume fell to $96 billion from $118 billion.
David Sambol, Countrywide's chief operating officer, says there are three factors that contributed to Countrywide's losses: inventory valuation adjustments (by unprecedented disruption in the capital markets); increased credit costs related to continued deterioration in the housing market; and restructuring charges resulting from Countrywide's expense reduction initiatives.
"For the most part, management views these charges to be either non-recurring in nature, or to represent significant increases to valuation adjustments for future losses not yet incurred and to reserves," Sambol said.
Countrywide has had its share of headlines in 2007. The lender has been prominent in the subprime lending fiasco, the SEC recently launched an informal probe of Mozilo's sales of company stock, and earlier this week, Countrywide announced a plan to refinance or modify $16 billion in loans to help struggling borrowers, drawing both praise and criticism from advocacy groups. Yesterday, former Secretary of Housing and Urban Development Henry Cisneros resigned from Countrywide's board.