CFC: Fee Income Pays the Bill.

Countrywide Home Loans CEO Angelo Mozilo says the mathematics of loan servicing have changed dramatically for his company.

In short, Countrywide believes its traditional servicing fee, typically about 25 basis points on conventional, conforming loans, may be virtually pure profit margin. That's right, not servicing fees minus servicing costs equals profit, but pure profit.

That's because ancillary income seems to be paying for the entire servicing department's operational costs.

Extra fees that Countrywide charges its loan servicing customers - such as Internet payment fees and late fees - "far and away pay the entire cost of our servicing operation in terms of personnel," Mr. Mozilo said during an investors conference sponsored by Goldman Sachs last week.

He said fees generate around $17 million to $19 million per month in extra revenue for Countrywide, resulting in a "substantial increase" in the company's loan servicing margin.

And as the company's servicing portfolio grows, the dollar volume of that fee income will rise as well. Additionally, the growing importance of ancillary fees in paying for servicing operations may help lenders persuade other parties that servicing fees can be reduced.

As part of a goal of achieving about 30% market share by 2008, Countrywide has said that it expects to build a servicing portfolio totaling $1.9 trillion in home loans - more than twice the size of the largest servicing portfolio today.