Countrywide Warns on 2nd Quarter as It Spreads Gains

Countrywide Financial Corp., the largest U.S. mortgage lender, said Thursday that its second-quarter earnings might not meet investor expectations as it spreads out some gains from making new loans over several quarters instead of realizing them in a single quarter.

The Calabasas-based company affirmed its previous forecast for full-year earnings of $3.60 to $4.60 a share. That helped lift Countrywide’s shares in early trading.

Wall Street analysts had expected the company to earn $1.05 a share in the second quarter and $4.22 for the year, according to Reuters estimates.

Countrywide said its fast-growing bank arm had held on to billions of dollars of loans, instead of selling them.

The mortgage lender has traditionally made loans and then quickly sold them to investors and realized the gain.

But with low rates having spurred several years of record lending in the mortgage industry, Countrywide is holding on to more loans through its Countrywide Bank arm, said John Kichula, financial services analyst at Glenmede Trust Co. in Philadelphia.

That is likely what cut into second-quarter earnings, Kichula said. By holding on to more mortgages, the company can generate profit from the assets over time rather than all at once, he added. Glenmede owned Countrywide shares as of its most recent filing.

“Assuming they do a good job with managing interest rate and credit risk, it could make sense for them,” Kichula said.

Countrywide Bank’s assets reached $66 billion June 30, up 141% from June 2004.

In 2001, when Countrywide acquired the entity that became Countrywide Bank, it had $75 million in assets, according to a company filing.

Countrywide’s bank held on to $7.2 billion more in mortgage loans in the second quarter than in the first quarter. It also held on to $1.8 billion more in home equity loans. Those $9 billion in loans could have been sold to recognize a $150-million pretax gain, Countrywide said.

Countrywide said demand for loans was strong in the second quarter as mortgage rates fell. Second-quarter mortgage loan volume totaled $120 billion, 21% greater than a year earlier.

Countrywide shares fell 6 cents to $38.53 on Thursday. The shares have risen 4.1% this year while the Standard & Poor’s thrifts and mortgage finance index has fallen 6.2%.