Countrywide Reports 27% Gain in Earnings
The nation’s still-potent housing market helped lift Countrywide Financial Corp.’s first-quarter profit 27% as demand increased for home mortgages, the company said Tuesday.
The better-than-expected results prompted Countrywide to raise its outlook for the rest of the year. Investors cheered the news, pushing the company’s stock up 2.6% in heavier-than-average trading.
Also on Tuesday, the Commerce Department reported sales of new homes soared 12.2% in March, hitting a record 1.4 million and quashing Wall Street expectations of a decline.
Countrywide, the nation’s largest mortgage lender, reported first-quarter net income of $689 million, or $1.13 a share, compared with $543 million, or 90 cents, in the year-earlier period. Analysts surveyed by Thomson First Call had forecast profit of $1.02 a share in the quarter.
Revenue rose 22% to $2.4 billion for the period ended March 31, in line with analyst estimates. Total loan funding rose 21% to $92 billion, and the number of loans increased 8% to 538,339.
“Countrywide opened 2005 with a solid first quarter,” Chairman and Chief Executive Angelo Mozilo said. Improvement in the company’s mortgage banking segment, which includes lending and loan servicing, accounted for about two-thirds of Countrywide’s total pretax profit. The rest of Countrywide’s earnings came from its diversified businesses segment, which includes insurance and capital markets.
Mortgage banking pretax earnings rose 38% to $772 million, bolstered by $193 million from selling certain non-prime loans originally recorded in last year’s fourth quarter. The results also were helped by higher margins for prime loans and getting a tighter handle on expenses by trimming sales commissions.
“Over the long run, Countrywide has been very good at managing expenses,” said Robert Napoli, an analyst with Piper Jaffray & Co., who said he was maintaining his “outperform” rating on the stock.
The company raised its 2005 earnings forecast to $3.60 to $4.60 a share, up from $3.55 to $4.55. Analysts surveyed by Thomson First Call had estimated $3.93.
In trading on the New York Stock Exchange, Countrywide shares rose 86 cents to $33.89. After hours, the stock rose as high as $34.29. The shares have fallen 8% this year.
Even though the nation’s housing market is slowing -- prices aren’t rising as fast as a year ago and interest rates have started to climb -- the cost of borrowing money to buy a house remains at near-historical lows, spurring home sales and pumping up prices. Those factors, analysts said, contributed to the strong new-home sales in March. New-home sales were also revised upward for February, January and December.
Goldman Sachs economist Andrew Tilton said rising rates and media reports about the possibility of still-higher rates “encouraged home shoppers to ‘rate lock’ and purchase before things got too expensive.”
The new-home sales data followed Monday’s report from the National Assn. of Realtors that sales of existing U.S. homes rose in March to their third-highest level, even as the median home price soared 11.4%, the largest jump in nearly 25 years.
In California, the seasonally adjusted median home price is approaching half a million dollars. In March, the price of an existing single-family house rose 16% to $495,400 from a year earlier, while sales rose 7.5%, the state’s Realtors group said.
Escalating prices are driving more borrowers to purchase adjustable-rate mortgages, which typically start out with lower interest rates -- and thus lower monthly payments -- than fixed-rate loans. At Countrywide, adjustable-rate mortgages also have higher margins, which added to the firm’s profit gains.
Countrywide said its production of adjustable-rate mortgages rose 45% in the first quarter compared with a year earlier and constituted 53% of all loans. Among the company’s more popular loans is the “pay-option” adjustable-rate mortgage, which represented 18% of all Countrywide loans produced in the first quarter. With such a loan, the borrower has several payment options every month, including paying interest only; paying less than the interest due, which causes the loan to be negatively amortized over its term; or paying principal and interest.
It makes sense that companies like Countrywide, which controls about 15% of the mortgage market, offer new types of loans, especially adjustable-rate mortgages, analysts said.
“Lenders with spirited competition have expanded their menu offerings to find new audiences,” said Keith Gumbinger, vice president of mortgage rate information service HSH Associates. “And the audience seems receptive.”
Mozilo forecast full-year loan volume of $330 billion to $425 billion and growth in Countrywide’s average loan servicing portfolio to $950 billion to $980 billion.
Countrywide raised its quarterly common stock dividend to 15 cents a share from 14 cents.
