Countrywide's Earnings Fall, But Don't Blame Servicing.

Calabasas, CA -- Countrywide Financial Corporation's second quarter earnings fell short of Wall Street expectations, and stiff competition on the pricing of new loans appears to be the main culprit.

Countrywide said the margin in earns from loan production activity fell to 40 basis points, less than half the first quarter margin.

However, investors took the news in stride, noting that the company narrowed its earnings guidance for 2005 by raising the low end of the estimate. The company's share price rose slightly on July 26, the day earnings were released.

In a conference call with investors and analysts, Countrywide chairman Angelo Mozilo did not mince words about where the pricing pressure is coming from, naming Ameriquest and New Century as aggressive competitors in the loan market.

"That's where the pressure is coming from primarily. My own sense is that this has stabilized somewhat," he said.

Mr. Mozilo added that he believes Washington Mutual, a big buyer of loans from Ameriquest in the past, has either severed its relationship with the firm or scaled back its purchasing. A spokesperson for Ameriquest said the company would have no comment on Mr. Mozilo's remarks.

But Mr. Mozilo also said that Countrywide is seeing pricing pressure on hybrid adjustable-rate mortgage products from banks, which have an appetite for keeping three- and five-year hybrid ARMs on their books. He named Wells Fargo, Bank of America and to some extent Chase as sources of pricing pressure in this market.