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Mortgage Industry Earnings Tank

Recent earnings activity

October 26, 2007


photo of Coco Salazar

Countrywide Financial Corp. announced its quarterly earnings worsened by $1.7 billion from the prior quarter and by nearly $3.0 billion from a year earlier. But an improved fourth quarter outlook sent shares soaring by nearly a third. Meanwhile, several other companies reported hundreds of millions of dollars in combined mortgage-related losses.

Capstead Mortgage Corp. reported a loss of $3.1 million for the quarter ended Sept. 30, compared to earnings of $5.8 million in the linked quarter. The primary driver of these results was an $8.2 million charge from selling its lower-yielding, faster prepaying agency-guaranteed securities.

Japan's Nomura Financial Holdings Inc. yesterday announced the months of July through September generated a net loss of $91 million due to the company's exit from the U.S. residential mortgage-backed securities business, a restructuring charge related the company's focus on U.S. core businesses, and unrealized loss on investments in equity securities held for operating purposes.

Third quarter negative earnings of nearly $215 million were announced by Friedman, Billings, Ramsey Group Inc., with the principal driver being $90 million in write downs and losses related to the on-balance sheet securitized loan portfolio, which reduces the company's economic risk in the portfolio to nil. Other factors cited for the quarterly loss were a $67 million net loss from MBS portfolio and operations, including a $57 million loss on the sale of $5 billion in agency MBS; a $17 million charge related to restructuring and operating costs at First NLC Financial Services, which will be acquired by a Sun Capital Partners affiliate; and a $27 million valuation loss relating to the portfolio of conforming and non-conforming loans originated by First NLC that Friedman took ownership of under the Sun Capital sale agreement.

Earlier this week, Countrywide Financial Corp. announced former Housing and Urban Development Secretary Henry Cisneros resigned from its board of directors, which he'd been part of since 2001. The Calabasas, Calif.-based lender emphasized that the departure of Cisneros, who is chairman of homebuilder lender CityView, was unrelated to its operations, policies or practices, according to a Form 8-K filing with the Securities and Exchange Commission.

"I need to focus my time and energies on putting CityView in the best position to adjust to the demands of the period ahead," Cisneros said in an Wednesday's announcement, adding that he had "unwavering" respect for Countrywide.

Countrywide reported today its first quarterly net loss in 25 years. Third quarter earnings were a loss of $1.2 billion -- nearly a $1.7 billion swing from its second quarter profit. The loss included a $934 million provision for loan losses, an $831 million write-down in the value of mortgage servicing rights, a $717 million charge on impairment of retained interests, a $719 million loss on gain on sale of loans and securities, and a $57 restructuring charge for previously announced layoffs of up to 12,000 people this year.

Countrywide Chairman and Chief Executive Angelo R. Mozilo noted in the announcement that, during the period, the company laid the foundation to return to profitability in the fourth quarter. He cited an improved liquidity and capital position, tighter underwriting and improved access to capital through Countrywide Bank.

"Over the longer term, we believe that prospects for the U.S. housing and mortgage markets, as well as for Countrywide, remain very attractive," said David Sambol, president and chief operating officer, said in the announcement.

Word of the improved outlook sent shares of the Calabasas, Calif.-based lending giant soaring 32 percent today to $17.30.

Following the release of the third quarter results, Fitch Ratings said it had anticipated "extreme pressure" on Countrywide's near-term operating performance when the company was downgraded on Aug. 16. Thereby, Fitch maintained Countrywide's BBB+ long-term Issuer Default Rating on Rating Watch Evolving, which could result in better, worse or affirmed ratings.

"Fitch views [Countrywide's] considerable material mark-to-market adjustments and additional provisioning as harsh, but necessary to compete in what could be a challenging road to recovery," the ratings agency said in an announcement.

Coco Salazar is an associate editor and staff writer for MortgageDaily.com.

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