Countrywide Slumps On Set-Asides

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The ongoing refinancing boom continued to wreak havoc on Countrywide Financial Corp., which reported a 28% drop in second-quarter earnings, to $566 million, or 92 cents a share, compared to the same quarter last year, due to a massive swing in the value of its servicing portfolio.

The nation's biggest mortgage lender reported a $1.4-billion loss for funds set aside for the recovery of mortgage servicing rights, compared to a $1.2-billion gain in the second quarter last year-as record numbers of its borrowers continue to refinance their mortgages.

However, all but $261 million of the $2.6- billion difference, was made up by a $2.3-billion swing in the value of the company's hedging portfolio.

The ongoing mortgage boom helped push Countrywide's loan production up 21% over last year, to $121 billion for the quarter, and its servicing portfolio by 33% to a new high of $964 billion at mid-year. For the first six months of the year, Countrywide reported a 6% drop in net income to $1.26 billion, or $2.05 a share, compared to the first half last year.

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