Despite interest rate fluctuations in the last few months, Countrywide Credit Industries reported record earnings for the fourth consecutive quarter.
The Pasadena, Calif.-based mortgage company announced last week that net income in its third quarter increased 25% from last year's third quarter.
Still, the solid results were not a surprise. The company's earnings per share of 62 cents were just a penny higher than the consensus estimate of Wall Street analysts.
Because of higher rates at the beginning of the quarter, which ended Nov. 30, Countrywide's loan origination volume of $8.3 billion was lower than the second quarter figure of $9.2 billion. The company originated $9.3 billion in last year's third quarter. But purchase mortgage originations rose slightly in the third quarter, to $6.1 billion from $5.9 billion.
Loan production volume for the first nine months of Countrywide's fiscal year increased 14% to $28.5 billion from $25 billion in the first nine months.
And because of lower interest rates toward the end of the quarter, Countrywide's pipeline of approved loans in process increased 5% from the same period last year.
This should bode well for Countrywide's fourth-quarter earnings. Countrywide's chairman, David S. Loeb, said that most of the increase in the pipeline came from the company's retail and wholesale divisions, areas that Mr. Loeb said are more profitable than Countrywide's other production outlet, its network of correspondents.
Richard Strauss, an analyst for Goldman, Sachs & Co., said Countrywide should continue to post strong earnings results since its subprime division is "already a big home run business."
Countrywide began originating subprime loans - those to consumers with less than perfect credit histories - last year through its wholesale division and unveiled a plan to roll out a retail subprime division this quarter.
Sanford C. Bernstein analyst Jonathan Gray said that Countrywide's subprime division has great potential, but added that it is still unclear exactly how profitable the business is because Countrywide hasn't disclosed enough information about the subprime division's income.
Countrywide's servicing portfolio, $153 billion as of Nov. 30, was 15% higher than in the period last year. But earnings from servicing declined slightly in the third quarter as servicing expenses increased. Mr. Gray said this could be attributed to greater costs associated with hedging the portfolio against interest rate risk.
