Countrywide, Countrywide, Countrywide.
That was the mantra for real estate stocks in August as the giant mortgage banking company took investors on a roller-coaster ride. Shares opened Aug. 1 at $27.22 and closed 30 days later at $19.85, a loss of 27 percent.
Countrywide’s widely reported ups and downs seemed to overshadow positive developments at smaller IndyMac Bank. Roth Capital upgraded the company’s rating from “sell” to “hold,” and 600 employees reportedly were hired from American Home Mortgage, which filed for bankruptcy in August. Even better, IndyMac resumed origination of some jumbo home loans that had been cut back due to illiquidity in the secondary market and traded its first mortgage bonds, in two packages worth $240 million and $350 million, in five weeks. The company’s shares mounted a comeback from $20.16 to $24.20, a one-month gain of 20 percent.
The mortgage lending sector overall benefited from the Federal Reserve’s cut in the discount interest rate that banks pay to borrow from the Fed and a subsequent drop in consumer mortgage interest rates.
Also in the plus column among the 10 real estate stocks that comprise the hypothetical Inman Index were Freddie Mac, which rose from $56.90 to $61.61 for an 8.3 percent gain, and ZipRealty, which jumped from $7.28 to $7.45, an increase of 2.3 percent for the one-month period.
Freddie Mac seemed to benefit from a Bush administration announcement of a mortgage bail-out plan that included a private sector partnership with the secondary mortgage market companies. Freddie Mac also announced that its retained loan portfolio grew 14 percent on an annualized basis in July. But at month-end, the company reported a 45 percent decline in earnings from $1.4 billion, or $1.93 per share, for last year’s second quarter to just $764 million, or $1.02 per share, for this year’s second quarter.
ZipRealty announced a 16 percent increase in second-quarter revenues from $27 million last year to $31 million this year, but the company’s quarterly loss widened from $200,000, or 1 cent per share, for last year’s second quarter to $1 million, or 5 cents per share, for this year’s second quarter. Zip also announced plans to commence operations in three New York counties this year.
Meanwhile, back at Countrywide, investors and depositors were spooked mid-month when the lender was forced to borrow $11.5 billion from 40 other banks to enhance liquidity and fund its mortgage pipeline. An analyst at Banc of America Securities upgraded Countrywide from “sell” to “neutral,” but simultaneously cut the target share price from $31 to $21. The next day, Countrywide pulled out its head-chopping axe and laid off 500 of its 60,000 employees. Analysts at Wachovia and Friedman Billings upgraded Countrywide’s shares from “under-perform” to “market perform,” and investors flocked back to the company on the news that Bank of America stepped up to buy $2 billion of nonvoting convertible preferred stock, an investment that one Los Angeles-based portfolio manager described as “a vote of confidence from a major financial institution.” But then, investors had second thoughts and Lehman Brothers cut its target price from $30 to $28 with an unchanged “equal weight” rating. At least one observer called foul at the very fortuitous timing of Countrywide CEO Angelo Mozilo’s recent sales of company stock.
Despite the positive contributions of IndyMac, Freddie Mac and ZipRealty, the Inman Index collectively lost 2 percent in August and has fallen more than 27 percent this year as the housing and mortgage markets have stumbled. As of Aug. 31, the biggest losers were Countrywide, down 54 percent; IndyMac and Move, both down 47 percent; and D.R. Horton, down 42 percent. Also in the negative column were Toll Brothers, down 33 percent; HouseValues, down 2.7 percent; and Fidelity National Financial, down 24 percent. First American Financial has hung on to its distinction of being the only Inman Index column in positive territory this year with a return of 2.7 percent.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright 2007 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without the author’s written permission.