Countrywide Sees Volatility

It says subprime won't be a huge problem, though.
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Countrywide Financial


is feeling pain from the downturn in subprime mortgages.

The Calabasas, Calif., lender said it "may experience short term earnings volatility" as it tightens its lending standards on mortgages for homebuyers with weak credit histories.

Last month, Countrywide funded a total of $35.2 billion in loans, up 11.6% from the same period last year, according to monthly data released by the company.

Funding of nonprime loans fell 9% to $2.6 billion last month. At Dec. 31, the company's nonprime residuals were $402 million, or 0.2% of its total assets.

"The nonprime lending industry is currently experiencing significant volatility and instability," says David Sambol, Countrywide's president and COO. "As a result, many nonprime competitors have recently exited the market and other lenders have suggested their continued viability is in question.

"As a result of investor concerns about nonprime loan performance, yield requirements have increased and secondary market liquidity has been reduced," Sambol says. "These factors will adversely impact residual valuations and gains on sale of nonprime loans until market conditions improve."

News comes as specialty mortgage companies have posted losses amid a souring credit environment for subprime mortgages. Two companies,

New Century Financial

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Fremont General


, have stopped making new loans to subprime customers. Lenders have withdrawn financing from New Century, and Fremont agreed last week to a cease-and-desist order from the FDIC.

Countrywide's monthly purchase volume fell 7% to $13 billion in February. New home equity loans fell 13% to $3 billion.

For the year, the lender made $73 billion in total loan funding, up 13% from the year earlier period. (Countrywide's total loans include commercial real estate loans.)

Countrywide says at the end of February, it had $63.9 billion of mortgage loans in process.

Shares fell 65 cents, or 1.8%, to $35.45.