Countrywide discloses major loss

Countrywide Financial Corp. reported a $422-million fourth-quarter loss Tuesday and said 33% of its sub-prime mortgages were now delinquent, but the chairman of Bank of America Corp. said its $4-billion takeover of the mortgage giant remained “a go.”

It was the second quarter of losses in a row for Countrywide -- the third-quarter deficit was $1.2 billion -- and left the Calabasas company in the red by more than $700 million for the year. It was Countrywide’s first full-year loss in more than 30 years.

Chairman Angelo R. Mozilo had buoyed investors three months ago despite the huge third-quarter loss by saying the company would return to profitability in the fourth quarter. But a surge of missed payments and a lack of buyers for its mortgages left it in the red.

Countrywide said its fourth-quarter loss amounted to 70 cents a share, compared with profit of $622 million, or $1.01, in the fourth quarter of 2006. For the full year, it lost $704 million, or $2.03 a share, compared with profit of $2.7 billion, or $4.30, for all of 2006.

Delinquencies on sub-prime mortgages to high-risk borrowers rose to 33.64% of such loans at the end of December from 29.08% at the end of September, Countrywide said. Delinquencies on second mortgages made to lower-risk, prime borrowers rose to 7.32% at year-end from 5.76% three months earlier.

Countrywide, the nation’s No. 1 mortgage lender, set aside $924 million for loan losses, more than 12 times its $73-million loss provision in the final quarter of 2006. It also recorded a loss of $394 million on loans it had to classify as “held for investment” because they didn’t qualify for sale to government-sponsored Fannie Mae and Freddie Mac and private investors wouldn’t buy them.

Some investors have remained skeptical that the proposed takeover by Bank of America, expected to close in the third quarter, would go through -- at least on the original terms. But at a financial conference in New York, Bank of America Chairman Ken Lewis said the deal was a key part of his plan to dominate the three cornerstones of consumer banking: deposits, credit cards and mortgages.

Buying Countrywide would give Bank of America 25% of all home mortgages, up from its current 9% share, and the bank would benefit from Countrywide’s superior loan-origination and bill-collecting systems, he said. “At this point, everything is a go to complete this transaction.”

Lewis said his “most senior” aides had closely analyzed Countrywide’s lending problems and Tuesday’s losses came as no surprise.

In arriving at the buyout price, the bank factored in expected costs stemming from lawsuits, markdowns in loan values, and demands from investors that Countrywide buy back flawed mortgages, Lewis said.

Countrywide has reshaped itself into an issuer of conventional prime mortgages, like Bank of America, Lewis said, and both institutions are experiencing a surge in mortgage volumes, especially refinancings, because interest rates have dropped.

“It’s a very good environment at the moment,” he said.

Shares of Bank of America rose 74 cents Tuesday to $41.94, while Countrywide climbed 36 cents to $6.31.

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