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Is a 20% Servicing Market Share Possible?

Ten years ago Countrywide Home Loans was the nation's No. 1 ranked residential servicer with $110 billion in housing receivables on its books and a market share of 3.23%. Today, Countrywide is once again No. 1 - after a few years of being ranked second and third - but its market share has grown to 11.43%.

Stated differently, the California-based company's market share grew by 253% while its receivables jumped by 711%. (At the end of March, Countrywide serviced $893 billion in home mortgages, about $20 billion ahead of the No. 2 ranked Wells Fargo. See rankings in this issue.)

Countrywide's founder and chairman Angelo Mozilo has long expressed his desire to see Countrywide have a 20% market share. The question, though, begs: can Mozilo and his talented crew pull it off.

Judging by the numbers (which come from Mortgage Servicing News affiliate, the Quarterly Data Report), it would appear that Countrywide is facing a basic dilemma: the faster it grows - and the larger it grows - the overall market is growing even faster, much faster.

It's no secret that Countrywide clawed its way back to the top by becoming a correspondent-buying behemoth. Its retail and wholesale growth has been impressive, no doubt, but it really turned on the juice by aggressively purchasing already-funded loans (as well as the underlying servicing rights) from other mortgage banking firms.

Is there anything wrong with this strategy? Not really - as long as you keep your production channels diversified and (more importantly) as long as you don't overpay for mortgages. Anyone who knows Angelo Mozilo and his No. 2, Stan Kurland, realize that these two grizzled industry veterans never overpay for anything. Ever.

Overpaying for correspondent production - as Messrs. Mozilo and Kurland will understand - is the quickest way to the abyss.

The industry is littered with examples of mortgage firms that thought they could buy market share in the correspondent niche while ignoring both price and their other channels. Do the names HomeSide Lending and Lomas & Nett-leton ring a bell?

If Countrywide continues to grow as it has, it likely will never achieve a 20% share (or it will take forever to get there) because the overall receivables market is growing even quicker. It's simple math, well sort of.

As always, there are a few "wild cards" to think about. Countrywide could get to 20% by acquiring a top 10 competitor or two. But based on its history, the company has always chosen to grow "organically" instead of by acquiring others. Based on the stellar profits it posted the past two years, this strategy has paid off handsomely.

Another possibility is that the housing and mortgage markets will collapse in a mushroom cloud once the housing "bubble" finally implodes.

If - and when - that happens, Countrywide will be able to buy competitors on the cheap. In fact, firms will be lining up like panicked customers of the Bailey Building & Loan to sell.

But don't hold your breath. No one in the industry is seriously buying the housing bubble thing, at least not yet. Sure, there will be some "slow leaks" in housing prices in certain markets but as long as borrowing costs stay cheap (thanks to interest-only loans), it's not likely to happen anytime soon.

So, how does Countrywide, or anyone else for that matter, achieve a market share of 20%? They don't. At least not in the next few years. After that, who knows?

Paul Muolo is executive editor of Mortgage Servicing News and National Mortgage News. He can be e-mailed at Paul.MuoloeMedia.com.

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