Countrywide's Servicing Segment Faces More Strain from Residual Interests
Like many research analysts, those at Credit Suisse have "dramatically tempered" their outlook for Countrywide Financial Corp. While most of the attention has focused on Countrywide's challenges in secondary marketing and the writedown of its residuals, credit costs are also a factor in the company's challenges.
Countrywide is expected to take significant hits to the valuation of its residual interests in loans that have been packaged into securities during the third quarter, and those writedowns will run through the company's servicing segment results. The anticipated writedowns in the value of Countrywide's residual interests in securitization deals may trim earnings by $2 per share in the second half of this year, Credit Suisse said in a report. That takes a big bite out of earnings from Countrywide's mortgage servicing operation.
Credit Suisse forecasts that Countrywide's servicing division will return to "modest levels of profitability" in 2008.On the bright side, the disruption in the loan servicing market "should improve profitability in Countrywide's servicing business over time, as refinance activity slows significantly," Credit Suisse said.
"As prepayment activity slows, the value of Countrywide's existing servicing book should increase," the CS report said.
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