Thanks to the Enron scandal, transparency is at an all-time high. And that clarity enables observers of public companies to see which ones are going strong and which ones are shaking in their boots.

In the past week, real estate giant Cendant’s real estate earnings were up a whopping 31 percent, while home loan finance heavyweight Washington Mutual’s earnings dipped 49 percent.

While a wide range of factors explains the discrepancy, there is one fundamental explanation: The re-sale housing market is still hopping and Cendant is the leader. The mortgage business, on the other hand, is suffering from the shrinking refinance market.

Cendant’s revenue from real estate franchise, brokerage and relocation operations increased 31 percent to $1.8 billion in the second quarter. Meanwhile, its mortgage services segment saw second-quarter revenues slip 13 percent to $344 million from $394 million a year ago.

That apparently was enough for Cendant to think about cutting the strings on its mortgage business. The company earlier this month said it plans to sell its mortgage arm and now is in talks with a prospective buyer.

Sources have said Countrywide plans to buy Cendant’s mortgage segment, which makes sense given that Countrywide is still prospering. Its second-quarter earnings soared 83 percent to $700 million from $383 million a year ago.

When interest rates climbed and the mortgage refinance market went whacko, some mortgage companies kept their heads high, but others quickly grew weak. Mortgage leader Washington Mutual is being hit the hardest.

WaMu’s second-quarter earnings were a disappointing $489 million, down significantly from $995 million a year ago. The lender’s home loan volume from the mortgage banking business fell to $59.5 billion, from $106.7 billion last year.

At the end of June, WaMu revised its financial outlook for the remainder of the year, stating it now expects to make between $3.00 to $3.60 per diluted share. It had previously forecast $4.35 a share. The revised forecast was the second in seven months.

Now the lender faces a shareholder lawsuit stemming from the revised earnings forecasts. The complaint charges WaMu with violations of the Securities and Exchange Act of 1934 and alleges the company knew or disregarded that its earnings growth could not be sustained when mortgage volumes start to dry up from rising rates.

And that’s not all. WaMu, which already cut 7,400 jobs in the six months ended March 31, has warned of more layoffs during the remainder of the year. These woes taken together have prompted speculation that the company could be a takeover target.

But what about the positive earnings reports from Wells Fargo, Countrywide and Fannie Mae?

Wells Fargo reported second-quarter net income of $1.71 billion, up 12 percent from $1.53 billion a year ago, and real estate loan originations climbed to $96 billion in the second quarter, up $31 billion from the first quarter. Fannie Mae’s second-quarter earnings were up 0.9 percent from last year to $1.1 billion this year.

It just goes to show that good management teams may be good at riding the curve up when things are hot, but are even more valuable when things turn bad. Managing to a downturn is something only the best executives accomplish.


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