Countrywide Swings to Loss
Amid Heavy Credit Expenses

Countrywide Financial Corp. reported a loss of $421.9 million for the fourth quarter as growing defaults and declining home prices battered the nation's largest mortgage lender in terms of loan volume.

The loss underscores the challenges facing Bank of America Corp., which agreed three weeks ago to acquire Countrywide for about $4 billion of stock. But Bank of America's chief executive officer, Kenneth Lewis, said at an investor conference in New York that the Countrywide results were consistent with his bank's expectations. "Everything is a go" to proceed with the planned purchase of Countrywide, he said. The purchase is due to be completed in the third quarter.

Countrywide's loss for the latest quarter works out to 79 cents a share. The mean estimate of analysts surveyed by Thomson Financial was a loss of 30 cents a share.

In late October, Countrywide had predicted that it would earn 25 cents to 75 cents a share in the fourth quarter, and the Calabasas, Calif., company hadn't updated that forecast despite widespread analyst forecasts that the company would record a loss. In the year-earlier quarter, Countrywide reported earnings of $621.6 million, or $1.01 a share.

But Countrywide's latest quarterly result marked an improvement from the third quarter, when it had a loss of $1.2 billion, or $2.85 a share. The improvement partly reflected a smaller loss on the core mortgage-lending operation as Countrywide adopted more stringent lending standards and made more loans it could sell at a profit, mainly to government-sponsored investors Fannie Mae and Freddie Mac.

Despite the loss, Countrywide declared a quarterly dividend of 15 cents per common share, unchanged. That dividend costs the company about $87 million per quarter.

As more people fall behind on their monthly payments, Countrywide made a provision of $924 million for credit losses in the fourth quarter, compared with provisions of $73 million a year earlier and $937 million in the third quarter. The company also wrote down by $831 million in the latest quarter the value of its "residual" interests in securities backed by mortgages originated by Countrywide.

Countrywide's savings bank held about $86 billion of loans for investment at year end. Payments were 90 days or more overdue on 3% of loans held for investment, up from 1.7% on Sept. 30 and 0.7% at the end of 2006. Nonperforming loans totaled 2.55% of assets at the end of 2007, up from 0.63% a year before. Foreclosed real estate held by Countrywide totaled $394.9 million at year end, up from $27.4 million a year before.

As the entire mortgage industry shrank, loan originations dropped to $61 billion in the latest quarter from $118 billion a year earlier.

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