Countrywide Braces for Drop-Off

A blizzard of mortgage refinancings helped boost Countrywide Financial Corp.’s profit by nearly 60% to record levels in the fourth quarter, the country’s third-largest home lender reported Friday.

But now Calabasas-based Countrywide, like others that feasted on America’s refinancing banquet, is preparing for leaner times ahead.

The national volume of mortgage refinancings, which has put extra cash into the pockets of property owners and propped up the economy, is expected to fall almost 50% this year from 2002’s record $1.44 trillion, according to the Mortgage Bankers Assn. of America.

Countrywide alone added 6,000 to its nationwide workforce last year, including contract and temporary workers. With mortgage rates projected to rise, contributing to a drop in loan production, “there may be some staff reductions,” said Countrywide Treasurer Eric P. Sieracki.

Although he did not elaborate, other company executives noted that any potential job losses in the mortgage business could be offset by expanding employment in other operations. In fact, Countrywide is hoping its recent moves to diversify into banking and insurance, along with other steps, will allow profit to keep growing and minimize job losses.

Industry analysts, however, said it remained to be seen whether Countrywide can avoid an erosion in profit that typically has followed the end of a wave of refinancings. “They haven’t proved that yet,” said Michael McMahon, a mortgage and banking industry analyst at Sandler O’Neill & Partners.

During the mid-1990s, when a refinancing boom evaporated, Countrywide was forced to slash its labor force about 40% and take other painful measures.

This year, the likely drop in refinancing activity is expected to put even more pressure on smaller mortgage brokers and bankers, and it could trigger more consolidation among the bigger players.

Analysts said the industry would become more cutthroat as Countrywide and other major mortgage lenders such as Washington Mutual Inc., Wells Fargo & Co. and Bank of America Corp. battle over the remaining business.

“At some point there is going to be nothing left to refi,” said Bruce Norman, president of First Mortgage Corp., a mortgage banker based in Diamond Bar. “As businesses contract, a lot of that employment will contract along with that,” he said, referring to the recent growth in jobs in the industry.

Ted Groze, a Los Angeles mortgage broker and president of the California Assn. of Mortgage Brokers, said he and other smaller brokers would be under greater strain: “We are on everybody’s bull’s-eye.”

The refinancing surge played a major role in Countrywide’s strong fourth quarter. It reported net income of $254.8 million, or $1.94 a share, up from $161 million, or $1.27 a share, from the year-ago period. Quarterly revenue soared 62% to about $1.4 billion.

For the year, profit jumped 57% to $841.8 million, or $6.49 a share, from $537.5 million, or $4.34 a share, in 2001. Revenue last year increased 58% to $4.5 billion.

Loan volume during 2002 ballooned beyond $250 billion, with refinancings accounting for about 65%, one of the highest levels in the company’s history.

Countrywide, one of the Los Angeles area’s largest employers, has expanded its workforce during the refinance boom with many temporary and contract workers. That means the company, which employs nearly 30,000 nationwide, can more easily reduce its labor costs.

Countrywide executives also said a relatively new commissioned sales force is being expanded rapidly to increase the company’s share of home purchase loans, which are expected to remain in strong demand this year. In addition, Countrywide’s “diversified businesses,” which are not as dependent on the ups and downs of mortgage lending, today generate about one-third of its pretax earnings.

“We never had the balance that we have today,” Chairman Angelo R. Mozilo told analysts during a conference call Friday. “We feel confident that we can sustain the earnings growth in any foreseeable environment.”

Shares of Countrywide rose 21 cents to close Friday at $54.28 on the New York Stock Exchange.