Novice Investing - Loaning The Future of CountryWide

Date: Friday 29th 2008f August 2008 12:27:54 PM

Loaning The Future of CountryWide - 11/14/2007

By: Novice Investing Staff

With recent talk regarding economic recession and the death of American economy, it is important to talk about subprime mortgage, which triggers the Federal Reserve to lower their fed fund rate. Discussion about mortgage is not complete without Countrywide Financial Corp. (CFC), which is the largest lender in the sector. It was Countrywide who had the most percentage of subprime mortgage (which is mortgage for folks with less than stellar credit) and it is affected more than other Banks. Share price has plunged from $ 45 per share to $ 14 per share now, a 69% drop within a year.

I am not sure when it happened but Countrywide starts reporting its mortgage loan origination regularly every month recently. For October, the headline reads: "Countrywide's loan funding drop 48 percent", which projects doom and gloom for the company. As usual, getting a little bit deeper into the report will give you some of the positives regarding Countrywide.

Loan Origination	October 2006	October 2007
Home Equity	$ 4.29 Billion	$ 1.36 Billion
Subprime	$ 3.25 Billion	$ 42 Million
Other	$ 34.36 Billion	$ 20.55 Billion
Total	$ 41.9 Billion	$ 21.96 Billion

While total mortgage loan origination is much worse than last year, Countrywide has definitely cut down its risk appetite with less subprime and home equity lending. Further, October loan origination is 4% better than September 2007. Therefore, Countrywide is showing some gradual strength albeit sacrificing some short term growth. With its new loan mix, Countrywide has exited subprime lending for its future growth. It is not clear if exiting the subprime lending is the right move or not. With the right risk allocation, subprime lending can be a very profitable business indeed.

If this loan trend continues for some time, Countrywide may very well report a small profit for its Q4 2007 which management promises to make. For 2008, if the housing market stabilizes (a very big question mark), Countrywide will report decent profit figure. If you think that Countrywide loan trend continues into 2008, you can look at Countrywide as your investment candidate for 2008.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Countrywide Financial Corp. (CFC) or any other securities.

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