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Countrywide Confident it Can Manage a $1.5 Trillion Asset

Angelo Mozilo, the chairman and CEO of Countrywide Financial Corp., has a history of setting some pretty ambitious goals for his company.

And he also has a track record of reaching his goals, which is one reason why so many people in the industry pay attention when he talks.

So how about his plan to manage a $1.5 trillion home loan portfolio by 2008?

That's right. Countrywide's leader expects to own the servicing rights on $1.5 trillion of home loans within five years, a steep growth rate from the current portfolio. At the end of last year, Countrywide managed a $645 billion portfolio. By the way, Countrywide also hopes to account for 30% of all loan origination activity by that time.

Countrywide's portfolio has been growing fast for years. And Mr. Mozilo's plans cannot be discounted, even if some people believe he may have to make an acquisition or two to get it done. For the record, Countrywide has long prided itself on generating "internal growth" rather than using the M&A market to build scale.

At a recent Mortgage Bankers Association presentation in New York, Mortgage Servicing News had the chance to ask Mr. Mozilo about the challenges of hedging such a large portfolio.

He said Countrywide already has the technology to operationally manage such a large portfolio. And he expressed confidence that the company can develop the financial expertise needed to effectively manage interest rate risk on such a large MSR portfolio, noting that the marketplace is developing new derivative products that can aid in hedging an MSR asset.

"I don't think you can take a static model and move five years from now," he said. "We'll manage our way through that process."

While Mr. Mozilo expects the refinancing boom to end, he also says that refinancing will continue to play a major role for the mortgage industry. Even in a rising rate environment, he expects refinancing activity to account for 20% to 25% of loan applications.

The trend toward a higher run-rate of refinancing activity in stable rate conditions reflects product innovation in the mortgage industry, he said.

But Mr. Mozilo reiterated his longstanding contention that Countrywide is well positioned to continue growing even when lending volume slows down.

"Refinancing booms represent opportunities to build foundations for sustained growth," he said. "Our experience in working our way through industry cycles and managing interest rates has served us very well."

MBA chief economist Doug Duncan, who also spoke at the same meeting, said that lenders may need to pay more attention to international economic conditions than they have in the past.

Mr. Duncan said there is "sensitivity today in the U.S. mortgage market that didn't exist before as much of the financing comes from offshore."

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