Lender is expanding amid strife in industry
The mortgage industry may be contracting, but No. 1 lender Countrywide Financial Corp. is making more loans, taking advantage of a period of turmoil to increase its market share.
The Calabasas-based company said Wednesday that it funded $40 billion in loans in April, up 11% from a year earlier. Refinancings played a major role in the increase as many homeowners decided to trade in their adjustable mortgages for fixed-rate loans.
Countrywide, which recently eliminated about 3,000 jobs to cut costs, has also been hiring top salespeople at other firms in its expansion push.
Two days after New Century Financial Corp., the former No. 1 sub-prime mortgage lender, stopped making loans March 8, Stanton Sasaki, a top New Century salesman, received an e-mail from Countrywide saying “feel free to call us” about a job, he said.
By the time Irvine-based New Century, which was felled by rising defaults and a cutoff of funding by Wall Street, laid off about 2,000 employees last week, including Sasaki, he already had a job lined up at Countrywide.
“A company like Countrywide -- they can pretty much take a group of 1,000 laid-off people and choose the 10 employees they like best,” Sasaki said. He starts his new job next week.
Countrywide’s increase in lending came despite a 49% drop in loans to borrowers with tarnished credit or other issues keeping them from obtaining traditional bank mortgages.
The decline shows how Countrywide, like the rest of the industry, has tightened lending standards for high-risk borrowers.
Countrywide also reported a 60% decline in mortgages that give borrowers several choices on their monthly payments, including paying so little that the loan balance rises. Although Countrywide and most other lenders offer such loans only to borrowers with good credit, these payment-option mortgages also have drawn scrutiny from regulators and analysts because payments can increase drastically when the initial period of easy options expires.
Addressing the threat of “payment shock” when “teaser” rates run out, federal banking regulators have proposed guidelines that would allow loans only to borrowers with enough income to make payments at the eventual higher-interest rate.
Countrywide is in the process of programming its systems to meet that and other more restrictive federal standards, said spokesman Rick Simon.
Last month’s increased lending volume in part reflected that interest rates remain low by historical standards. For the week ended May 4, the average rate for a 30-year fixed mortgage dropped slightly to 6.1% and the average for a 15-year fixed loan also fell slightly to 5.82%, the Mortgage Bankers Assn. said Wednesday.
With homeowners’ concerns rising over adjustable-rate mortgages, Countrywide and other lenders have found it easy to pitch them on refinancing into fixed-rate loans that offer the security of a predictable payment for decades.
Such refinancings pushed the industrywide volume of residential mortgages up to $653 billion in the first quarter from $626 billion a year earlier, a 4.3% increase, despite a decline in home purchase loans. At Countrywide, refinancings accounted for 61% of the month’s lending, up from 54% a year earlier.
But the industry’s uptick in lending isn’t expected to continue. In a survey to be released today, the Mortgage Bankers Assn. projected declining loan volumes through the third quarter of 2008.
But as the housing industry looks more dangerous, Countrywide Chairman Angelo Mozilo sees opportunity.
“He was adamant that Countrywide would be one of the clear winners of market share, as the industry transitions through this part of the cycle,” said Credit Suisse analyst Moshe Orenbuch, who visited Mozilo last week.
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