Sometimes perception really does mirror reality even if the reasoning is obscured. Look at Countrywide Credit Industries’ stock chart for the last year and you’ve got to believe the gigantic Calabasas-based financial services firm is doing something right. Countrywide started 2000 with its stock trading at just under $24 a share. By the second trading day of 2001 it had steadily climbed to $51 a share. After all, Countrywide is the nation’s third largest provider of home loans. The Federal Reserve Bank cut interest rates the same day Countrywide’s stock hit its high and the refinancing business is better than ever. Even industry experts say the lower interest rates and the refinancing trend mean business is bound to be good for mortgage giants like Countrywide. Kenneth Posner of Morgan Stanley Dean Witter Discover & Co. said, if the economy does end up taking a “hard landing, “a sizable refinance boom becomes highly likely.” And David Bigelow, Countrywide’s executive vice president for strategic planning, said, “A lot of investors do perceive our success as being tied to interest rates.” In fact, Countrywide’s net income for the third quarter of 2000 was actually down 5 percent from the year before, a phenomenon Bigelow calls “unusual.” “We were actually in an environment where rates were rising,” he said, “and there was an accounting adjustment we made.” In the quarter ending Nov. 30, 2000, Countrywide reported net income of $95.4 million (87 cents per share), down from the $100.6 million (84 cents per share) reported in the same quarter a year earlier. A lot of things have changed since then. Countrywide did $1.9 billion in refinancing business during December 2000, up 91 percent from December 1999. That surge pushed its total mortgage funding up to $6.2 billion, a 48 percent increase over the same month last year. Refinancing applications amounted to $3.7 billion in December 2000, compared to $1.6 billion a year earlier. Countrywide has $9.9 billion worth of refinancing business in the pipeline, up 41 percent from the same period a year ago. Industry experts, however, say that refinancing activity can be deceptive when you try to link that business to a company’s bottom line. Often, a refinanced mortgage results in little more than a one-time fee for churning a loan. Other times, the loans a company picks up are countered by the loans it loses to other mortgage companies who are also picking up the refinancing business. Indeed, Bigelow said, “If we do get into a refinance boom over an extended period of time, the challenge we face is you have to work to maintain market share.” Nevertheless, he went on, “When you’re in the mortgage business, it’s always exciting when you get into a period of activity when you’re very, very busy.” It may get busier too. David Berson, a Fannie Mae economist, said, “Right now, another two Fed lowerings are built into rates and so we are probably going to see mortgage rates around 7 percent. “The mortgage industry is going to be amazed.” What could also be amazing for Countrywide’s bottom line, anyway is the amount of business coming to it over the Internet. E-commerce funding was worth $2.5 billion to Countrywide last month. “This is the first time in company history that e-commerce has accounted for 40 percent of total funding volume,” said Stanford Kurland, Countrywide’s chief operating officer. By comparison, Internet lending business in December 1999 amounted to 19 percent of the company’s funding. While the argument can be made that increased Internet business reflects merely a change in the way consumers are doing their mortgage shopping rather than a real increase in business, Bigelow said, “It’s us wanting to shift people that way. It creates efficiencies for us.” Principal subsidiaries of Countrywide include Countrywide Home Loans, Inc., which originates, purchases and services home loans; Full Spectrum Lending, a sub-prime residential lender; Landsafe, Inc., a provide of loan closing services; and Countrywide Insurance Services, an insurance agency.
