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LOS ANGELES - Countrywide Financial Corp. said Tuesday its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults among the most creditworthy borrowers.
The huge mortgage lender was forced to take impairment charges as it braced for the possibility of more people failing to make their mortgage payments.
Countrywide also said the market will become increasingly challenging as loan production subsides while lenders compete with one another more fiercely.
"This is a huge battleship and it's headed in the wrong direction," Chief Executive Angelo R. Mozilo said during a lengthy conference call with Wall Street analysts.
"Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist," he said.
The news sent shares of the Calabasas-based company sliding $3.56, or 10.45 percent, to close at $30.50 on Tuesday.
The rise in credit-related costs were primarily related to the company's investments in prime home equity loans, Mozilo said.
Unlike subprime loans, which target borrowers with spotty credit histories, prime loans are typically available only to those with solid credit profiles who are considered less risky.
The rise in delinquencies and projections of more defaults led Countrywide to write down the value of securities backed by prime home-equity loans by $388 million in the quarter, reducing earnings by 40 cents per share.
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