Investing in Mortgage: Blue Monday for Mortgage Companies
By Ian L. Cooper
Still defying gravity and mystifying investors, there are few signs of weakness in hiring even as the economy has slowed inside a year.
According to Friday’s report, non-farm payrolls were up by 180,000 last month, bettering most forecasts as the unemployment rate fell to 4.4% from 4.5%. That, my friends, is a strong report any way you cut it. Despite a weak housing market, softer business investments, etc., America is still hiring. Consumer spending continues to be strong. And GDP, excluding housing, is posting hearty gains.
Yep, the jobs number will provide quite a rosy day for most stocks, even an early morning gap up for the major indices… unless of course, you’re referring to mortgage stocks, like American Home Mortgage (AHM), and its competitors like Countrywide Financial (CFC), which could fall in sympathy.
AHM just cut down its Q1 and full year earnings forecasts thanks to problems in the mortgage sector. It now expects to post Q1 earnings of 40 to 60 cents a share -- a significant drop from its previous forecast of $1.11 to $1.17 a share. For full year 2007, earnings of $3.75 to $4.25 are expected as compared to earlier forecasts of $5.40 to $5.70 a share. Worse, AHM is cutting its quarterly dividend to 70 cents from $1.12.
Just how bad is the mortgage sector. According to Michael Strauss, AHM’s chairman and CEO (as quoted by MarketWatch.com), “While the market may recover, and while we will attempt to restore our gain on sale margins by raising interest rates charged to consumers, our working assumption must be that current market conditions will persist and that our gain on sale margins will not recover through the balance of the year.”
Look for plenty of downside in AHM and, in sympathy, Countrywide Financial.
Take care,
Ian L. Cooper, Editor, Death Cross Trader
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