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Countrywide Sees Potential for More Credit Losses

Countrywide Financial, the largest U.S. mortgage lender, said it may see more credit losses as downward trends in the economy and in the real estate market conspire to boost delinquency rates.

In its annual filing with the Securities and Exchange Commission, released Friday, Countrywide said rising monthly payments on adjustable-rate mortgage loans, also known as ARMs, could also prompt a rise in delinquencies.

"Any increase in prevailing market interest rates may result in increased payments for borrowers who have adjustable rate mortgage loans," Countrywide said.

Countrywide suffered from "significant disruptions in the U.S. mortgage market and the global capital debt markets" in 2007.

"Investor demand for non-agency mortgage-backed securities abruptly declined in the third quarter of 2007 and participants in the commercial paper and repurchase segments of the debt markets substantially curtailed their financing of our mortgage loan inventories," it said.

ARM loans held for investment by Banking Operations that were delinquent for 90 days or more jumped to 5.36 percent from 0.63 percent in 2006, though the number of borrowers electing to make less-than-full interest pavements fell 6 percentage points to 71 percent.

Countrywide agreed in early in January to be bought by Bank of America for about $4 billion. That purchase is due to be completed in the third quarter.

Last month it said foreclosures and late payments rose in January to new records, reflecting the nation's deepening housing and credit crunch.

But it also said average daily mortgage application volume surged 72 percent from December, and mortgage loans being processed rose 46 percent, suggesting homeowners are taking advantage of lower interest rates to refinance.

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