Countrywide profit down 33 pct, slashes outlook

By Jonathan Stempel

NEW YORK (Reuters) - Countrywide Financial Corp CFC.N, the largest U.S. mortgage lender, posted a 33 percent decline in quarterly profit Tuesday and slashed its 2007 forecast as more homeowners fell behind on payments.

Profit missed Wall Street estimates and the reduced forecast was Countrywide's second in three months. Countrywide shares fell 10.5 percent, their biggest percentage decline since October 2004.

The results suggest that rising delinquencies and defaults are spreading beyond "subprime" borrowers, who have weaker credit histories, to "prime" borrowers thought to be better lending risks, including many with home equity loans.

"This is a huge battleship, and we're headed in the wrong direction," Chief Executive Angelo Mozilo said on an analyst conference call, referring to the housing environment.

He said it may be 2009 before the market recovers from oversupply, stagnant home prices, and increasingly lax lending standards that left many borrowers overstretched.

"Nobody saw this coming," Mozilo, a 54-year mortgage industry veteran, said on the nearly three-hour call.

Countrywide said second-quarter net income fell to $485.1 million, or 81 cents per share, from $722.2 million, or $1.15, a year earlier, its third consecutive quarterly profit decline. Revenue fell 15 percent to $2.55 billion, although mortgage loan volume rose 19 percent to $123.1 billion.

Analysts on average expected profit of 81 cents per share on revenue of $2.9 billion, according to Reuters Estimates.

"SOBERING"

Calabasas, California-based Countrywide set aside $292.9 million for bad loans, up from $61.9 million a year earlier and took a $388 million write-off for prime home equity loans.

It cut its 2007 earnings forecast to between $2.70 and $3.30 per share, below the average Wall Street forecast for $3.65. Countrywide had forecast $3.80 to $4.80 in January, and cut that to $3.50 to $4.30 in April. Profit in 2006 was $4.30 per share.

"The numbers are pretty sobering," said Stuart Plesser, a Standard & Poor's equity analyst with a "hold" rating on Countrywide. "The issue is not whether Countrywide survives the housing tailspin, which it should, but when the housing market starts to show some strength. It won't be in 2007."

Countrywide shares closed down $3.56 at $30.50 on the New York Stock Exchange, their lowest since October 2005. The KBW Mortgage Finance Index .MFX fell 4.5 percent. Countrywide shares are down 28.2 percent this year, while the KBW index is down 17.1 percent.

BROADER FALLOUT

Countrywide joined other large mortgage lenders in reporting higher credit losses, including Wells Fargo & Co (WFC.N) and Washington Mutual Inc (WM.N).