Countrywide Financial reduced lending to people with poor credit histories in January, as worries over rising defaults drove shares of the largest U.S. mortgage lender and its rivals down for a second day.
Countrywide also said foreclosures rose to their highest level since at least 2002, while delinquencies held near a five-year high -- even as it took less risk.
The Calabasas, Calif.-based company's subprime loans totaled $2.94 billion in January, down 21% from December's $3.74 billion, and the lowest since $2.85 billion in February 2006. They fell 3% from a year earlier.
Pay-option loans, which can let borrowers pay less than the interest due each month, were down 61% from last January to $2.7 billion, Countrywide said.
Countrywide is making fewer risky loans as rising delinquencies prompt many lenders to tighten loan standards.
Still, it said loans past due rose to 4.71% from 4.42% last January, and those with foreclosures pending rose to 0.69% from 0.46%.
The foreclosure rate was the highest since at least March 2002. The delinquency rate was the second highest, after December's 5.0%.
Countrywide on Friday suffered one of the bigger drops within the 23-member KBW Mortgage Finance Index, falling $1.55, or 3.6%, to $42.03 in mid-afternoon trading. The index was down 1.9%.
Shares of mortgage lenders tumbled after two of the biggest lenders to Americans with weaker credit histories on Wednesday warned of poorer results because more loans are going bad.
HSBC Holdings, Europe's biggest bank and the operator of HSBC Finance, said it will set aside about $1.76 billion more for bad debts than expected.
New Century Financial
Friday's larger decliners included several California lenders. Many loans considered more likely to default were made in the most populous U.S. state, as consumers took advantage of low interest rates to buy rapidly appreciating homes.
In mid-afternoon trading, declines included a 9.4% fall at Irvine-based New Century, on top of a 36.2% drop on Thursday.
Shares also were down 4.3% at Newport Beach's Downey Financial
Despite slumping home sales, many consumers are trying to refinance while rates remain low.
At Countrywide, overall mortgage loans rose 13% in January to $37.11 billion. An increase in refinancings offset an 8% drop in new home loans.
"Consumers are actively refinancing adjustable-rate mortgages (ARMs), as fixed-rate mortgages remain very attractive with rates hovering around 6 percent," wrote Credit Suisse analyst Moshe Orenbuch.
The Mortgage Bankers association expects consumers this year to refinance $600 billion to $700 billion of ARMs whose rates would otherwise reset.
It nevertheless expects rates on $500 billion to $800 billion of ARMs will reset, potentially increasing default risk. Among people who owe money on their homes, one in four have ARMs and one in 11 have subprime ARMs, the group said.