Countrywide posts loss

NEW YORK (Reuters) - Countrywide Financial Corp (CFC.N), the mortgage lender being acquired by Bank of America Corp (BAC.N), posted a larger-than-expected $421.9 million quarterly loss on Tuesday as more homeowners fell behind on payments.

Shares of Countrywide, the largest U.S. mortgage lender, nevertheless rose as much as 8.6 percent as worries eased that the $4.3 billion takeover might fall apart.

Countrywide's fourth-quarter loss was 79 cents per share, compared with a year-earlier profit of $621.6 million, or $1.01 per share. Analysts on average expected a loss of 32 cents per share, according to Reuters Estimates. Countrywide had on October 26 projected a profit of 25 cents to 75 cents per share.

The loss was 65 percent smaller than the $1.2 billion that Countrywide lost in the third quarter.

Bank of America Chief Executive Kenneth Lewis said the results met his expectations when the second-largest U.S. bank agreed on January 11 to buy Calabasas, California-based Countrywide for $7.16 per share.

By Monday, Countrywide shares had fallen 17 percent below that price on concern that Charlotte, North Carolina-based Bank of America might try to renegotiate or cancel the merger.

"Everything is a go to complete this transaction," Lewis said at a Citigroup Inc financial services conference. "Items driving the loss were consistent with our due diligence and (the) transaction price." Lewis also said results reflected dramatic improvement in mortgage business fundamentals.

A third-quarter closing for the takeover of Countrywide is expected. The combined company would make about one in four U.S. home loans.

"We believe B of A has consistently envisioned reaching the mountaintop in mortgages, which while solidly out of favor, in our view still remains a core relationship product for the leading retail bank," analysts at CreditSights Inc wrote.

In afternoon trading, Countrywide shares were up 38 cents, or 6.4 percent, at $6.33 after earlier rising to $6.46. Bank of America shares were up 66 cents, or 1.6 percent, to $41.86. One year ago, Countrywide shares closed at $43.38.

ONE IN THREE SUBPRIME PAYMENTS LATE

Countrywide, which collects payments on $1.48 trillion of mortgages, said more than one in three borrowers with subprime home loans were behind on payments at year-end.

The 33.64 percent delinquency rate was up from 29.08 percent at the end of September. Late payments also rose on traditional mortgages and home equity loans.

Countrywide set aside $907 million for bad loans, up from $70.8 million a year earlier, and wrote down $831 million for prime home equity loans.

It also took a $394 million loss as it reclassified $7 billion of jumbo mortgages as loans it holds for investment. Loan volume fell 44 percent to $69.2 billion.

"(Results) were adversely impacted by further credit deterioration across the industry and continued illiquidity in the secondary mortgage markets," Chief Executive Angelo Mozilo said in a statement.

Restructuring charges were $87 million, in part for the elimination of 11,000 jobs since the end of July.

"We are surprised the losses were only $422 million and not billions of dollars, given Countrywide's huge loan portfolio," said Sean Egan, managing director of Egan-Jones Ratings Co in Philadelphia. "You still want to hear Bank of America put its full faith and credit behind Countrywide bonds. Until that happens, and the transaction is closed, risk remains for Countrywide bondholders and shareholders."

For all of 2007, Countrywide lost $704 million, or $2.03 per share, its first annual loss in more than 30 years.

PROBES, LAWSUITS

Countrywide and Mozilo have become targets for what critics call lending excesses that fueled a housing meltdown and raised the chance of a U.S. recession.

On Tuesday, RealtyTrac said U.S. foreclosure filings in 2007 rose 75 percent from a year earlier, with more than one-fifth coming in California.

Countrywide has stopped making most riskier home loans to focus on less profitable mortgages that Fannie Mae (FNM.N) and Freddie Mac (FRE.N) can buy.

The company said it helped more than 81,000 borrowers restructure their mortgages last year, with more than twice as many workouts in the second half of the year.

Mozilo, 69, on Monday said he would forfeit $37.5 million of severance and perks upon his retirement.

Critics fault him for collecting hundreds of millions of dollars from pay and stock options from 2002 through 2007.

Countrywide also faces a wide variety of investigations into its lending practices, lawsuits from shareholders and borrowers, and a U.S. Securities and Exchange Commission probe into Mozilo's stock sales. Mozilo has denied wrongdoing.