Countrywide Home Loans is forming a joint venture that would make it the first major U.S. mortgage lender to tap the European market.
The California-based giant said Wednesday that it will form an alliance with Woolich PLC, a British bank, to provide mortgage services in the United Kingdom, France, and Italy.
"This is a major step in the globalization of mortgage banking," said Stanford L. Kurland, president and chief executive officer of the unit of Countrywide Credit Industries.
The joint venture, still unnamed, will use Countrywide's advanced technology and well-honed expertise to service the equivalent of $40 billion of mortgage loans and process new originations for "the Woolich," as the $54 billion-asset bank is known. It will also offer these services to other lenders in the U.K. and the European Union.
The European market will more than double the company's geographic territory, Mr. Kurland said.
U.S. mortgage lenders have an imperative to expand into international markets, said Debra Erb, senior director in the international unit of the Mortgage Bankers Association of America. "Our market is essentially mature," she said. "There are way too many competitors, and the margins are extremely thin."
Countrywide chose to plant its first flag in the U.K. because its language, legal system, and mortgage process are the most similar to those in the United States. The mortgage markets in the U.K. and Europe are "fragmented and relatively inefficient," Mr. Kurland said.
The company hopes to replicate the U.S. model for mortgage lending, to improve customer service and drive down costs.
Countrywide becomes one of very few mortgage companies to make the leap overseas from the U.S. market. Several subprime loan specialists have set up shop in the U.K. And HomeSide Lending of Jacksonville, Fla., dispatched its chief executive officer to Australia to replicate its successful formula there, after HomeSide was bought by National Australia Bank.
"The problem has been finding models that other companies can look at and build upon," Ms. Erb said. She predicted that Countrywide's success in putting together a business plan would inspire others to delve overseas.
The joint venture will kick off in the second half of the year, Mr. Kurland said. He said each company's investment would be under $17 million, but declined to be more specific.
The partnership will also lay the foundations for a possible conduit operation which would purchase, pool, and securitize mortgages, Mr. Kurland added.
Though there have been some securitizations of European mortgage loans, the market is less developed than in the United States. The advent of a single European currency is expected to encourage securitization, because it will enable European investors to buy mortgage- or asset-backed bonds without taking on currency risk, Ms. Erb said.
Underwriting and loan documentation are not standardized in the U.K. and Europe as they are in the United States, Mr. Kurland noted. "Every lender has its own set of standards, which does not lead well to securitization techniques," he said. "One of the first efforts we're involved in is creating a standardized product."
Another potential challenge for U.S. mortgage lenders in Europe is the relative difficulty of foreclosing on properties, Ms. Erb said. "In certain countries the courts don't tend to favor lenders. It can be a lengthy process, or you don't get consistent treatment."
Foreclosure treatment in the U.K. is similar to that in the United States, she said, but it is more difficult in France, Spain, and Italy.