Countrywide Moving Into Retail Marketing Of Subprime Loans

Countrywide Credit Industries, which has made a big splash this year in the subprime lending market through its wholesale division, is now planning to offer "B" and "C" loans through retail outlets as well.

The Pasadena, Calif., mortgage banker has opened two subprime retail offices, in California and Texas, as part of a new division called Full Spectrum Lending.

Stanford L. Kurland, president of Countrywide Home Loans Inc., the company's mortgage banking subsidiary, said Countrywide would have six to eight subprime retail offices open before the end of February, when the company's fiscal year ends.

Mr. Kurland added that Countrywide decided to market its subprime retail products separately because of the many differences between originating conforming loans and B and C loans.

"Subprime is a very time-intensive business compared to 'A' paper," he said. "The underwriting is more intricate."

At the Mortgage Bankers Association of America's annual convention in San Francisco two weeks ago, Countrywide Home Loans chairman and chief executive Angelo R. Mozilo bemoaned the fact that an increasing number of conventional lenders are entering the subprime market. He viewed them as having little expertise in or understanding of the B and C business.

Recognizing that Countrywide itself is new to the subprime business, Mr. Kurland said it had hired, and was continuing to seek, underwriters with subprime experience. It cannot run its subprime operations as it would a conforming loan shop, he said. The company is also developing training programs to teach underwriters the differences, he added.

Countrywide didn't take long to become a major force in this sector. It has originated $680 million of B and C loans and $391 million of home equity loans during the first 10 months of this year.

The increase in the subprime area has helped profitability as well; margins and earnings from loan production grew in Countrywide's second quarter despite lesser overall loan production.

Though Countrywide has enjoyed success in the subprime market so far, Mr. Mozilo expressed concern about the ever-increasing number of players and what impact that might have on profit margins.

In addition to the traditional subprime and home equity powerhouses such as Aames Financial and the Money Store, the mortgage arms of large banks like Norwest Corp. and Chase Manhattan Corp. have also been increasing their presence in B and C lending.

North American Mortgage Co., Santa Rosa, Calif., the No. 2 independent mortgage company, has also jumped into subprime lending, using an alliance with Contifinancial Corp. to accelerate its entry. Conti will buy and securitize the loans originated by North American, as well as training the mortgage company's staff.

A Countrywide affiliate, CWM Mortgage Holdings, is also involved in subprime and jumbo loans through its Indy Mac unit. CWM, traded separately on the New York Stock Exchange, is a conduit that acquires and securitizes various kinds of nonconventional loans.

Mr. Kurland, however, said that room remains for profitable growth, since Countrywide and many other companies are still in the first stages of setting up subprime operations.

"It will take a couple of years to see significant pressure put on margins," he said.

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