Countrywide to Expand Loan Servicing Business

Countrywide Financial Corp.’s stock Friday shot up 10% and hit a record high after Chief Executive Angelo Mozilo upped his 2003 earnings estimate and said the Calabasas mortgage company would aggressively grow its mortgage servicing business to offset a slowdown in mortgage refinancings.

In a broadcast interview, Mozilo said Countrywide’s earnings for 2003 would be more than $15 a share. It’s the second time he has boosted the company’s earnings estimate this year. The new estimate is more than double the $6.49 a share it earned in 2002.

Countrywide, the nation’s largest independent mortgage lender, is benefiting from a surge in mortgage applications as interest rates have hit a 40-year low. Countrywide shares hit a record high $95.78 on Friday before closing at $94, up $8.25, on the New York Stock Exchange. The shares have risen 82% this year.

Separately, Sanford C. Bernstein & Co. analyst Jonathan E. Gray wrote in a report issued Friday that Countrywide would make “an attractive ... acquisition for a large bank” such as Wells Fargo & Co. or Citigroup Inc. Gray added that he did not know of any deal underway with Countrywide; Bernstein owns shares in Countrywide.

A spokeswoman said the company does not comment on rumors of mergers or acquisitions. Other analysts discounted the idea of a takeover.

In his comments, Mozilo said Countrywide’s mortgage lending would fall from $420 billion this year to about $300 billion next year.

But as interest rates rise and the refinance frenzy cools, the company plans to push its loan servicing business.

“We’re increasing [our] sales force substantially. We have about 7,000 in the field today,” Mozilo said on the TV show “Bloomberg on the Markets.” “We’ll have 10,000 by the end of 2004.”

Loan servicing involves everything from collecting and processing loan payments to handling inquires from borrowers. Countrywide receives a servicing fee usually of 0.25% to 0.5% of the loan’s principal balance.

Countrywide’s loan servicing portfolio will grow to $640 billion this year, Gray estimated, compared with $452 billion last year. Analysts expect the servicing portfolio to hit more than $1 trillion by 2007.

Countrywide is rapidly changing from purely a mortgage player to a “consumer financial services company.... That means they will be more profitable and less sensitive to swings in interest rates,” said Michael McMahon, an analyst with Sandler O’Neill & Partners.