Extending its lead among U.S. mortgage companies looking to expand abroad, Countrywide Credit Industries Inc. is establishing a U.K. operation that will buy and securitize mortgages for sale to investors.

Stanford L. Kurland, president and chief executive officer of Countrywide, said the company has hired an executive who is already working to develop the mortgage loan conduit business, which he expects to be in place sometime in 2001.

The initiative comes after a year in which the Calabasas, Calif.-based mortgage lender set up beachheads in the U.K. as first steps to exporting mortgage technology and techniques throughout Europe, where a secondary market for mortgages has yet to really develop.

"We looked for an entry into the European market because we sensed that it would provide a great opportunity for expanding the growth rate of the company and extracting value for a lot of the technological developments that we've invested in," Mr. Kurland said. "We see it as a potential to replicate a lot of the technology and process value that we have in the United States across another market that is as big as our market here."

He said the loan conduit might resemble Countrywide's correspondent loan division, which acquires loans from lenders, or its wholesale system, which deals with mortgage brokers.

Countrywide's U.K. businesses include a joint venture with Woolwich PLC, a British bank and mortgage lender - recently purchased by Barclays PLC - through which it services around 700,000 loans in England, about 5% of the market. Countrywide has also opened a company that provides origination fulfillment services and technology for U.K. lenders, though it does not itself originate loans.

Just last week the company announced the establishment of a London affiliate of Countrywide Capital Markets, which will distribute U.S. asset-backed securities to European investors.

Countrywide's international expansion has for the most part gone unmatched by other U.S. mortgage companies, despite much talk of tapping overseas markets. Countrywide is one of only a handful of North American. firms on the ground in England, along with Basis100, a Toronto-based technology company; E-Loan of Dublin, Calif.; Electronic Data Systems Corp. of Plano, Tex.; and HomeSide Lending.

One of the challenges is how little the structures of mortgage markets abroad resemble that of the United States. In the U.K., for example, there is no equivalent to Fannie Mae and Freddie Mac, the government-sponsored secondary market giants, nor is there an established securitization market. As a result, England is served by a collection of portfolio lenders using a wide assortment of underwriting procedures and criteria.

"Mortgages should be spelled differently in the U.K.; it's a different market," said Jason Smith, executive vice president of Basis100. "If you have five different mortgage lenders, each of them underwrites differently using different rules."

In fact, the mortgage structure in England more resembles the U.S. mortgage market in the '80s, Mr. Kurland said, when mortgages were provided by the savings and loans industry and most people kept their money in S&Ls and other depository institutions. By contrast, in the United States today, many borrowers have significant investments in the stock market or in mutual funds, and capital for funding mortgages comes from the secondary market - which is lacking in England and most of Europe.

Countrywide's goal, Mr. Kurland said, is to develop a channel for mortgage lenders in the U.K. to move loans off their books and free up capital to increase lending, as well as to simplify the process for the mortgage introducers.

"In Europe, the concern is that money will move into more of the U.S. style of investing, and the banks and building societies will need a securitization market in order to fund the assets that they now have on their balance sheet," he said. "That's one of the reasons why securitization is so important."

Mr. Kurland stressed that though the development of a securitization market in Europe would be "great," it is only one of several techniques he can use to create pools of loans for acquisition by long-term investors. He said he expects England and Europe, as evolving marketplaces, to first adopt a whole-loan pool sale process.

Whatever form the market takes, Countrywide is trying to participate. "We have great expertise in putting together whole loan packages and marketing them, as well as trying to bring standardization to both the origination and servicing processes," Mr. Kurland said, adding, "We are committed to participating in that market as it develops, and it can develop in a variety of ways."

Michael McMahon, an analyst with Sandler O'Neill & Partners, said that given the U.K. market's complexities, Countrywide's cautious strategy is a good one. He said it is minimizing the risk by working with Woolwich and by simply being a processor/servicer, which he said lets it learn the U.K. mortgage market without assuming undue risk.

"I think it's very smart how they went about it, and I think it's important to distinguish what they did versus what some others might do," Mr. McMahon said. "It has allowed them to learn the mortgage market in the U.K. without the added risk of being directly involved in the business."

Mr. McMahon cautioned, however, not to expect a strong secondary market to take shape right away in Europe. "It's something that can be changed, but not overnight, not next quarter, and probably not next year," he said. "I see that as taking several years to develop - there's a lot of work that has to be done - but there's no doubt the American mortgage system is the envy of the world."

Mr. Smith of Basis100, which sells loan origination systems in Canada, the United States, and now England, concurs that technology providers have to be flexible in Europe.

"To be successful there, you have to go right down to the basics and allow each lender to do even underwriting in their own unique way," he said. "Products are structured differently, and there are different concepts and different issues. I think that is a huge issue for the U.S. technology provider."

And Basis100 has adopted a similarly deliberate approach to its business in Europe.

"Right now we are focusing on the U.K., where there are huge opportunities," Mr. Smith said. "It's a great springboard into the rest of Europe."

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