Countrywide's Servicing Seen Doubling To Nearly $200 Billion by Yearend

Countrywide Credit Industries's mortgage servicing portfolio will almost double by yearend 1998, to nearly $200 billion, and its share of the home loan originations market will rise to 5.8%, according to a new study.

"Countrywide's 5.2% share of the national origination market in 1993 and $52.5 billion in total production was heavily dependent upon its strong 7.9% refi share," according to an analysis by Jonathan Gray of Sanford C. Bernstein & Co., New York.

"We believe the company's refi volume fell by 85% to just $6.4 billion in its fiscal 1995, (which) ends February 1995, while its share in the purchase sector of the market has expanded dramatically, to an estimated 3.8% from 2.3% in fiscal 1994, and we forecast further expansion to 4.7% in 1995."

Mr. Gray's forecast assumes the average rate for a 30-year fixed mortgage will climb to 10% by 1997 and remain there in 1998. He also expects earnings of Pasadena, Calif.-based Countrywide to wind up at 97 cents a share for the current fiscal year, which ends Feb. 28. After that, he projects $1.54, $2.05, and $2.56 in successive years.

"The rise in rates has materially improved servicing profitability as amortization expense has declined with the collapse in refis," Mr. Gray says. "Production margins, on the other hand, have come under intense pressure from the combination of price cutting and cost pressures."

The analyst says Countrywide should show a loss of about 15 cents a share this year on production, and the number should improve to a profit of 5 cents a share and 43 cents a share over the next two years.

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Plaza Home Mortgage Corp., Santa Ana, Calif., reported that it originated $116 million of loans in January, compared with $561 million in January 1994.

The drop of 79% was especially heavy, but the refinancing boom was still under way a year ago and the year-to-year declines of Plaza and other mortgage companies should dwindle as the year unwinds.

Plaza said its pipeline of loans in process totaled $436 million, compared with $961 million at the same time last year and $464 million on Dec. 31, 1994. Loans to buy homes, which presently dominate the market, generally close more slowly than refis and the conversion of the pipeline into originations takes more time.

Applications in January were $294 million, compared with $818 million in January 1994.

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