10:30AM New York – Countrywide reports first quarter loss as credit market losses overwhelm gains in loan origination and securitization.

Gains from loan production and sale were $1.05 billion compared to $1.06 billion a year ago and $274 million in the fourth quarter. Pre-tax earnings in the loan production were $232 million compared to $171 million a year ago and a loss of $507 million in the fourth quarter ending in December.

The new accounting rule from the SEC that requires to book gains on loans at the time of origination then at the time of loan sale helped the company to book higher gains in the quarter. The gains could be substantially different at the time of loan sale than when originated, which may lead to higher charges in the subsequent periods.

Loan demand and origination remains high

In the quarter, the company originated $73 billion of loans of which $67 billion were for securitization and $6 billion for investment compared to $61 billion origination for sales and $8 billion for investment a year ago. Pricing margins for the sale of mortgage loans were stable but market volatility in the secondary market significantly affected the valuations.

Average daily application for mortgages were up 27% to $2.2 billion from a year ago.

First quarter loss on credit market losses

Countrywide Financial Corporation reported first quarter net loss of $893 million or $1.60 per share compared to net income of $434 million or 72 cents per share.

In the fourth quarter ended December 31, 2007 the mortgage lender reported a loss of $422 million or 79 cents per share.

Charges related to mortgage delinquencies, defaults and downward revisions to home prices overwhelmed the gains in the loan productions and mortgage service rights and life and casualty insurance business.

The mortgage lender took set aside as provision charge of $3.05 billion in the quarter, of which $1.53 billion were related to credit losses, $456 million were for representation and warranty claims, $441 million for impairment of credit sensitive retained interests, $236 million for captive mortgage reinsurance claims, $202 million for mortgage securities valuations adjustments and $188 million for valuation adjustments for the mortgages in the inventory.

Credit market loss provision increased

Provision for credit losses on the Company's investment in residential loans was $1.5 billion during the quarter, compared to $925 million last quarter and $158 million in the first quarter of 2007. Charge-offs for the first quarter of 2008 was $606 million, compared to $283 million for the fourth quarter of 2007 and $39 million for the first quarter of 2007. The reserve for credit losses was increased by approximately $1 billion to $3.4 billion at the end of the quarter.

Provision for representations and warranty claims was $456 million during the quarter, compared to a recovery of $58 million in the fourth quarter of 2007 and a $42 million provision in the first quarter of 2007.

Provision for captive mortgage reinsurance claims was $236 million, compared to a provision of $21 million in the fourth quarter of 2007 and a reversal of $60 million in the first quarter of 2007. The liability for future claims increased to $385 million at March 31, 2008.

Banking segment reports losses

The losses in the banking segment that includes warehouse lending and mortgage inventory financing to independent mortgage bankers were $960 million compared to net income of $288 million.

The provision for credit losses in the first quarter increased 91% from the fourth quarter provision to $1.3 billion, driven by the worsening trends and expectations for delinquencies and home prices and the related increase in the projection of future charge- offs during the quarter. During the first quarter of 2008, net charge-offs in Banking Operations were $485 million, which compares to $192 million in the fourth quarter of 2007 and $33 million in the first quarter of 2007.

The allowance for credit losses in the banking operations sector at March 31, 2008 grew to $3.1 billion from $2.2 billion at December 31, 2007. The estimated amounts recoverable from pool mortgage insurance increased to $613 million at the end of the quarter from $556 million at the end of the fourth quarter of 2007.