Oct. 26 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage lender, said profit will rebound from the first quarterly loss in 25 years as it cuts jobs and tightens lending standards. The shares rose the most in two decades.

The company that provides one out of every five U.S. mortgages will earn 25 cents to 75 cents a share in the fourth quarter and will be profitable in 2008, according to a Countrywide statement. The Calabasas, California-based company had a $1.2 billion loss in the third quarter.

``It looks a lot better for Countrywide than what we thought,'' Robert Napoli, mortgage industry analyst at Piper Jaffray & Co. in Chicago, said today. While the company has built what look like healthy reserves, ``you certainly don't know for sure given this market,'' he said.

The lender has lost almost 60 percent of its market value this year in what Chief Executive Officer Angelo Mozilo called the worst housing market since the Great Depression. Profit at the high end of Countrywide's predictions would be 26 percent below the results from a year earlier.

Countrywide gained $4.23, or 32 percent, to $17.30 in 4:17 p.m. New York Stock Exchange composite trading. It was the stock's biggest one-day surge since 1982, and Countrywide was the biggest gainer in the Standard & Poor's 500 Stock Index.

The company earned $647.6 million a year earlier. The loss per share was $2.12, or $2.85 including effects of new convertible preferred stock, compared with profit of $1.03 in the same period of 2006.

Calling a Bottom

President David Sambol called the third-quarter loss ``an earnings trough.'' For 2008, return on equity will range from 10 percent to 15 percent, Countrywide said, without giving data on the actual profit.

The company reported writedowns of $1 billion in loans and securities and $1.9 billion from reduced values of its securitized loans, reflecting ``a perfect storm in the mortgage market,'' Sambol said during a conference call today. Countrywide also boosted its provision for loan losses to $934 million, more than triple the level of June 30, citing more overdue payments by customers with home equity and ``pay-option'' adjustable-rate mortgages.

Countrywide is in the middle of cutting 10,000 to 12,000 jobs because it's making fewer loans. The firings caused a $57 million charge in the quarter, with another $70 million to $90 million coming mostly in the fourth quarter, the statement said.

Drawing the Line

``They have drawn a line in the sand and they are looking for the fourth quarter to be profitable,'' said Vince Arscott, an analyst in New York at Fitch Ratings. ``We think that will be difficult.''

Estimates for future defaults and charge-offs of bad loans increased because housing markets continued to deteriorate, credit remained tight and late payments are still rising, the company said.

Countrywide expects U.S. home prices to decline by 6.7 percent in 2008, which may be optimistic, said Thomas Atteberry, who oversees $2.6 billion in assets at First Pacific Advisors LLC, a Los Angeles investment firm that has owned Countrywide shares.

``Their reserve coverage is based on what they've written off so far, but those are mortgages that went bad a year ago,'' Atteberry says. ``The bigger issue is, what is going bad a year from now?''

Merrill Lynch Upgrade

Kenneth Bruce, the Merrill Lynch & Co. analyst who predicted in August that Countrywide might go bankrupt and triggered the mortgage lender's worst stock-market loss since 1987, upgraded the company to ``neutral'' today from ``sell.''

Countrywide had to tap $11.5 billion in emergency credit in August after cash ran short. Countrywide said it lined up an additional $18 billion of ``highly reliable'' funds this month. In September the company sold $2 billion in preferred stock to Bank of America Corp., which Mozilo called ``one of the most important steps Countrywide has made in its 40-year history.''

Loan production recorded a pretax loss of $1.32 billion, compared with a profit of $281 million a year earlier. Total loans funded fell 15 percent to $90.4 billion. The company blamed weak markets where mortgages that aren't backed by government- sponsored agencies are traded.

After relying on sales of its mortgages and short-term borrowing as its main funding sources, the company now relies on bank deposits, which it collects by paying market-leading interest rates to savers at 150 offices and on the Internet. The company plans to add 50 more offices by the end of the year, Sambol said.

SEC Probe

Mozilo, 68, confirmed he's facing an informal U.S. inquiry into his stock sales. Mozilo has sold more than $280 million of Countrywide shares during the past two years, while exercising options valued at $65.8 million, The Washington Service, which tracks trading by executives, said on Oct. 9.

Mozilo said he's cooperating with the SEC and that he's confident the investigation won't find anything improper.

The company has tightened lending standards to cut down on defaults. More than half of Countrywide's subprime, pay-option adjustable rate and home equity loans made in 2005 and 2006 would not be granted under the company's tougher standards, Sambol said.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: October 26, 2007 19:00 EDT