Countrywide Financial, the largest U.S. mortgage lender, Tuesday reported a 33 percent decline in second-quarter profit and slashed its full-year earnings forecast, citing a difficult housing market.
Shares of Countrywide fell as much as 8%, to their lowest level since November 2005.
Net income for the Calabasas, Calif.-based company fell to $485.1 million, or 81 cents per share, from $722.2 million, or $1.15 per share, a year earlier. Revenue fell 15 percent to $2.55 billion.
Analysts on average expected profit of 93 cents per share on revenue of $2.9 billion, according to Reuters Estimates.
Countrywide also cut its full-year earnings forecast for the second time, to a range of $2.70 to $3.30 per share from the $3.50 to $4.30 per share it had forecast in April, and the $3.80 to $4.80 it had forecast in January. Analysts on average expected $3.65. Profit was $4.30 per share in 2006.
"Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories," Chief Executive Angelo Mozilo said in a statement.
"Due to these adverse conditions, the company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home equity loans."
The company set aside $292.9 million for bad loans during the quarter, nearly five times more than a year earlier, and wrote down $388 million worth of "prime" home equity-backed loans.
"The numbers are pretty sobering," said Stuart Plesser, analyst at Standard & Poor's. "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's data suggest that credit deterioration is extending beyond "subprime" borrowers, who have weaker credit histories, and afflicting "prime" or "near-prime" borrowers thought to be better credit risks.
Tough Market Outlook
Mozilo said in a Tuesday conference call that the U.S. housing market is unlikely to recover before 2009, as lenders and homeowners work through oversupply, stagnating home prices, and the excesses of recent lax lending standards in much of the mortgage industry.
"It just takes a long time to turn a battleship around," Mozilo said. "This is a huge battleship, and we're headed in the wrong direction."
Calling it "a gut feeling," Mozilo said, "It's going to take the balance of this year to get this thing to look like it's slowing down (and) 2009 to head into the other direction."
Countrywide joined other large mortgage lenders, including Wells Fargo and Washington Mutual, in reporting higher credit losses.
These lenders' shares also declined on Tuesday, as did shares of other home loan providers such as Accredited Home Lenders Holding, Impac Mortgage Holdings and IndyMac Bancorp.
Other companies are also feeling fallout from the housing slump. Building materials maker USG on Tuesday said the housing industry is entering the second year of what will likely be a multiyear downturn.
And DuPont Chief Executive Charles Holliday said the chemical company is "not assuming anything improving in North American housing, until sometime well into 2008."
At Countrywide, pretax profit from mortgage banking fell 49 percent in the second quarter to $319.6 million, as revenue slid 18 percent.
Mortgage loan production rose 19 percent to $123.1 billion, of which just 4 percent was subprime. Countrywide has tightened its lending guidelines and, like many rivals, has stopped making some of the exotic subprime loans that have triggered many defaults.
The company now expects to make $420 billion to $500 billion of loans this year, down from its prior forecast of $450 billion to $550 billion.
In banking, pretax profit fell to $128.9 million from $324.6 million as credit losses rose more than sixfold. Pretax profit fell 31 percent in capital markets but rose 11 percent in insurance.
"Credit performance has surfaced as a bigger risk factor than we expected," wrote Morgan Stanley analyst Kenneth Posner.
Through Monday, Countrywide shares had fallen 20 percent this year, compared with a 13 percent decline in the KBW Mortgage Finance Index.