To see how times have changed for mortgage bankers, look no further than Countrywide Credit Industries Inc. Just a year ago, the Pasadena (Calif.)-based company was flying high. It was the biggest originator of home mortgages in the country, riding a wave of mortgage refinancing that pushed its lending volume from $12 billion in 1991 to $52 billion in 1993.
Now, in a stunning turnabout, Countrywide is sagging badly. It faces a 32% drop in earnings, down from $179 million to $122 million for the year ending Feb. 28, 1995, according to Zacks Investment Research. Smith Barney Inc. analyst Thomas O'Donnell expects Countrywide's share of the overall mortgage market to fall from 5% in 1993 to 4% in 1994, even as the market itself shrinks over 30%.
REFI WOES. Countrywide's woes, including a 27% drop in its stock, don't seem to faze Vice-Chairman and CEO Angelo R. Mozilo, who co-founded Countrywide in 1969 along with chairman David S. Loeb. Mozilo, a Brooklyn (N.Y.) native and a high school boxer known for sartorial flash and a year-round tan, is Countrywide's primary spokesman, leaving Loeb to handle the company's finances. Mozilo plans to market mutual funds and financial-planning services through a newsletter to Countrywide's 850,000 core customers. He also intends to double to 600 his branch offices, which he predicts will give him 10% of the national market by the year 2000.
Good luck. Countrywide's past reliance on mortgage refinancings has hurt it seriously now that refinancings have slowed. In a move to boost short-term income, Countrywide in August sold rights to service $6 billion in mortgages, rights that could have proved valuable over the long haul. And despite eliminating 30% of its workforce, Countrywide's costs are falling more slowly than loan originations, says Sanford C. Bernstein & Co. analyst Jonathan E. Gray.
PRICE-WAR WOUNDS. Worse, competitors are making major inroads by offering currently popular below-market adjustable-rate loans. Mortgage banks have difficulty matching those terms. Charles R. Rinehart, chief executive of H.F. Ahmanson & Co. in Irwindale, Calif., a leading adjustable-rate lender, says Countrywide will be disappointed if it expects price competition to end soon.
Mozilo argues that rivals' price cutting is temporary. "There are some examples of mortgages as much as five [percentage] points below current market, which is unconscionable," he says. Many analysts do expect Countrywide to weather the current mortgage-banking slump and even generate higher earnings in 1996. But Loeb and Mozilo are about the only people who expect Countrywide to reach its 10% market-share goal. More likely, with the tide against it, the company will have to wait for the next wave of lending activity--or maybe longer--for that dream to come true.