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Mortgage Outlook Gloomy

Angelo Mozilo warns analysts in conference call

August 31, 2006


photo of Patrick Crowley
Countrywide's founder and CEO is predicting a rocky ride in the short term for the mortgage industry and those who invest in mortgage related companies. But he was more optimistic about the long term outlook.

"I've never seen a soft landing in 53 years" in the mortgage business, Angelo R. Mozilo, who oversees the nation's largest mortgage lender, recently told equity analysts in a conference call. "I think we have a way to go here for this thing to level out.

"I have to prepare the company for the worst that could happen in the markets."

Countrywide took a big hit in July. The company reported that its lending activity dropped 19 percent from July of 2005, from $21 billion last year to $17 billion this year.

"Year-to-date fundings of $256 billion was down 3 percent from last year," Countrywide said in a statement.

Mozilo said the coastal areas, where there has been what he called "tremendous explosions of value", could be hit particularly hard by the downturn.

"Those things have to settle down a bit," he said.

Mozilo also expressed some concern about home prices that are flat or even falling in some places.

"The trend is down," he said.

The overall mortgage market is also set to take a hit. Mozilo said originations will reach $2.4 trillion to $2.8 trillion this year, down from $2.9 trillion in 2005. He predicts a further reduction next year.

"2007 will probably be the low end of the range," he said.

Mozilo is more optimistic about the industry's long term prospects and viability.

He did note one good thing about the business. "Home ownership is certainly not a fad. It's built into the culture. We're looking at a very, very healthy long term picture in the mortgage market."

Competition, however, is growing, and it's come from Wall Street and banks -- Wells Fargo, Citicorp, Chase Bank, Lehman Brothers, Bear Stearns and others.

"Our major competitors ... have become very aggressive in one of our channels, that is the correspondent channel," Mozilo said. "That is the easiest channel to become aggressive in because it is strictly price driven."

Mozilo said he is concerned about the new spate of competitors on the horizon because of how they operate.

"They don't know the mortgage business, and that makes them a dangerous competitor," he said. "They have lots of money to spend ... and have no hesitation about paying personnel two or three times what we would pay personnel because they are used to the big bucks.

"So I think they'll be disruptive for awhile," he said. "That's a paradigm shift that is taking place and one that we are keeping our eye on."

Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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