First-quarter revenue from subprime mortgage lending at Countrywide Financial Corp. dropped by $400 million from the previous quarter, the company reported today, while rising delinquencies and increased loss reserves drove up credit costs by $132 million.

Countrywide’s net earnings of $434 million, or 72 cents per share, were down 30 percent from $622 million, or $1.01 per share, in the fourth quarter of 2006, and off 36 percent from $684 million, or $1.10 per share, in the first quarter of last year.

Pretax earnings in mortgage banking plummeted from $453 million in the fourth quarter of 2006 to $100 million in the first quarter of 2007. But Countrywide firmed up its bottom line for the quarter by boosting pretax earnings in two other lines of business: capital markets (up 33 percent from the previous quarter, to $132 million) and insurance (up 140 percent, to $180 million).

Countrywide Chief Executive Officer Angelo Mozilo said the company’s “increasingly diverse business model” has been generating more than half of Countrywide’s earnings from businesses other than mortgage banking since 2006.

Mozilo restated a point that he’s made frequently in the past: that the company will benefit from the slowdown in the housing market because other lenders will go out of business and Countrywide will increase its market share. 

“Countrywide’s residential lending operations continued to grow market share, with first-quarter production representing over 18 percent of U.S. mortgage originations and our servicing portfolio reaching 8.4 million loans, which represents 13 percent of residential loans outstanding,” Mozilo said in a statement. “In addition, our pipeline heading into the second quarter is very strong at $69 billion, up 21 percent from the fourth quarter of 2006 and up 8 percent from the first quarter last year.”

Subprime lending accounted for less than 7 percent of Countrywide’s loan production during the first quarter, but a growing number of loans the company made in the past are starting to show up in the nonperforming-assets column.

Nonperforming residential loans totaled $693.8 million, or .82 percent of assets, up from $519.1 million at the end of 2006, or .63 percent of assets. Only a fraction of those loans, totaling $146.3 million, carried third-party credit enhancements such as pool mortgage insurance. 

The value of foreclosed real estate on Countrywide’s books quadrupled, from $27.4 million at the end of 2006 to $110.1 million at the end of 2007’s first quarter.

At $803.9 million, nonperforming loans and property in foreclosure totaled .95 percent of assets, up from $546.5 million, or .66 percent of assets, at the end of 2006.

Mortgage loan production for the quarter totaled $110.6 billion, including $93.8 billion in prime loans, $7.5 billion in subprime loans and $9.2 billion in home equity loans. In comparison, fourth-quarter-2006 loan production totaled $117.7 billion, including $98.6 billion in prime loans, $9.1 billion in subprime loans and $10 billion in home equity loans.

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