Countrywide sees no containment

The past few days has seen a mixed bag of earnings results. Tuesday was no exception with Amazon announcing a 250% rise in 2Q07 profit after the bell whilst Dow component Dupont disappointed with flat profit growth.

However the highlight of the day and possibly of this earnings season came from the largest US mortgage lender Countrywide Financial Corp. (CFC).

Countrywide reported 2Q07 profit dropped 33% almost double the 17% decline expected by analysts. The company cut it's full year earnings forecast to a range of $2.70 to $3.30 a share, down from $3.50 to $4.30 a share previously.

The company said payments were at least 30 days late at the end of 2Q07 on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier.

That's PRIME loans, you know, the good ones, the ones given to people with the highest credit ratings. What's that I hear you say about containment Mr Bernanke?

Payments were late on 23.71% of subprime mortgage loans, up from 15.33% at the end of the same period in 2006.

Whilst the results were below expectations it was the commentary that really got the market's attention. On a conference call with analysts chief executive Angelo Mozilo this to say amongst other things:

"During the quarter, softening home prices continued to affect many areas of the country, and delinquencies and defaults continued to rise across all mortgage product categories as a result."

"based upon what I have seen in the past and the size of this market -- is that it's going to take 2007, the balance of this year, to get this thing to look like it is slowing down; 2008 to get it to slow down and stop; and 2009 to head in the other direction."

"I say 2009 because my experience is that it just takes a long time to change, to turn a battleship around,"

That's 2009 folks as opposed to mid 2008 for a turnaround, however the CEO also refused to rule out price declines in 2009.

"definition of prime may not be as high as some people think."

Oh, so prime borrowers aren't all that prime after all. Seems as though the mortgage industry has been adopting the same Humpty Dumpty use of language as Bear Stearns and the Ratings Agencies.

...and for the grand finale how about this humdinger:

"Company is seeing home price depreciation at levels not seen since the Great Depression"

Ouch!

The company also said they expect to hear mergers and people going out of business in the near future. No surprises there, people have already been going out of business. As the Mortgage Lender Implode-O-Meter suggests more than 100 major U.S. lenders have imploded.