•      David Sambol, Countrywide’s President and Chief Operating Officer:
  Turning to Countrywide’s earnings for the second quarter of 2007, our core operations posted solid results during the quarter, particularly in our residential and commercial loan production and servicing businesses. However, the Company’s quarterly earnings were adversely impacted by continued weakness in the overall housing market, which resulted in our need to materially increase credit loss reserves.  
  
  Despite the challenging market conditions that are impacting our industry, Countrywide generated $485 million in pre-tax earnings in the second quarter.  While many of our competitors lost money or are going out of business altogether, Countrywide sustained its long streak of profitability, and we continued to grow our market share as well.  These achievements in a very difficult environment are a testament to the strength of the franchise that we have built.
  
  During our conference call with shareholders, we also communicated that while the near-term environment will continue to be very challenging for the industry and Countrywide, we nevertheless intend to capitalize on opportunities that will increasingly present themselves to us.  We anticipate that the current disruption in the marketplace and the distress being experienced by many of our competitors will allow us to accelerate growth in our sales force, our customer base, our volumes and our market share.  
  
  Our overriding intent remains what it always has been: to be the dominant real estate lender in the industry.  Countrywide’s long-term future growth prospects and profitability will become even stronger as a result of the shakeout that we are seeing in our industry.  This expectation is based on the many significant competitive advantages we possess, including our financial strength, our scale, our powerful brand, and most importantly our extraordinarily talented and knowledgeable workforce.  At the end of the day, it is human capital----people---that make the difference between companies like Countrywide who are the leaders in their industry, and those who lag behind.  
  
  Below is an overview of our second quarter financial results.
  
  Countrywide Q2 2007 Performance Highlights
  
  ·         Consolidated net earnings totaled $485 million
  ·         Earnings per diluted share were $0.81
  ·         Total mortgage loan funding was $133 billion
  ·         Pre-tax earnings in our Mortgage Banking segment were $320 million
  ·         Servicing portfolio reached $1.415 trillion
  ·         Pre-tax earnings for the Banking segment were $129 million
  ·         Total assets at Countrywide Bank reached $90 billion
  ·         Pre-tax earnings for the Insurance segment were $99 million
  ·         Pre-tax earnings for the Capital Markets segment were $110 million
  
  
  Priorities for Remainder of 2007
  
  Notwithstanding our strength, competitive advantages and long-term optimism, we all need to understand that the remainder of this year will be extremely challenging. In order for us to accomplish our objectives and successfully navigate the current market conditions, we will need to focus on several priorities which you will be hearing more about in the coming weeks, including:
  
  ·         Continuing to strengthen our “manufacturing” processes, and in particular ensuring that every loan we make fully conforms to all of our guidelines and requirements
  ·         Managing our expenses, reducing costs and improving productivity
  ·         Continuing to deliver world-class service to our customers and business partners at every point of contact, since they are our lifeblood
  ·         Executing flawlessly with great attention to detail
  
  
  

  Brian Hale, Senior Managing Director & President:
  
  CMD at Mid-Year
  CMD achieved strong results in the first two quarters of 2007, despite increasing challenges in the market.  Our industry faced higher interest rates, further credit tightening and a meltdown in the non-prime and Alt A markets, forcing more than 30 competitors out of business within the first 90 days of this year.  However, Countrywide has never been stronger financially or more prepared to compete in this tough environment .  In fact, as the graph below illustrates,CMD outpaced our competition in both Q4 2006 and Q1 2007, returning us to the #1 retail mortgage lender position for the first time since the early 1990s.  Although we are currently #1, with the non-prime volume retraction I expect it to be a close horse race among Countrywide, Wells Fargo and B of A quarter-by-quarter for the next year.

  
  

  
  
  CMD Financial Highlights through 2Q 2007  

  • Total Funding Volume of $59.3 billion reflecting a $5.5 billion increase over plan.
  • Led by strong performance of Business-to-Consumer (B2C), Refinance Fundings were $27.4 billion, nearly twice the refi business we did in the first half of 2006 and exceeding plan by $6.7 billion.  
  • Purchase Volume of $24.6 billion was marginally ahead of plan.
  • Strategic Business Alliances’ (SBA) Total Corporate Relocation Volume of $932 million exceeded our plan by 27 percent.  
  • Total Revenues were $1.6 billion, compared to a plan of $1.5 billion.  However, on a percentage of revenue per loan basis, we were below plan.
  • Total Expenses were $30 million below plan.  This achievement is attributed to the challenging expense reduction initiatives adopted in 2006 and maintained in 2007.
  • Total EarningsContribution was $387 million, a 35 percent improvement over plan.

  
  Outlook and Priorities for Remainder of 2007
  The current market is one of the most difficult I have experienced in my 30 years in the business.  Many do not expect improvement in property values over the next 12 to 18 months.  In fact, some market areas could worsen significantly.  Lower property values result in lower loan amounts, reduced refi volume and fewer homes sales.  Higher interest rates and regulatory mandated tighter credit standards reduce the number of qualified borrowers.  We will continue to see irrational pricing behaviors as lenders compete to maintain volume in a shrinking market, further pressuring our revenues.  Most recently, Countrywide, along with all lenders, has experienced an unexpected and significant increase in losses on HELOCs, attributable in part to declining property values. The market for selling our HELOCs has weakened and we expect significant reduction of home equity and second lien volume.  
  
  However, as I stated earlier, Countrywide has never been on stronger financial footing than today or more prepared to compete.  For the remainder of the year, our priority remains continued profitable retail market share growth.  The following initiatives are critical to obtain this goal:  

  • Grow Distributed Retail Network - As the industry continues to consolidate, many talented mortgage professionals will become available.  These market dynamics position us to aggressively grow our sales force, branch network and business partner relationships.  Unfortunately, we are not growing our Home Loan Consultant (HLC) sales force as fast as we need to.  Currently we have 5,900 HLCs, which is a shortfall of 200 from plan.  The good news is that while virtually no other major mortgage lender is growing its sales force, we are. We had a net HLC sales force growth of 281.   Part of our retail growth strategy includes integration of Full Spectrum® Lending’s CMD-dedicated teams into Distributed Retail.  This new alignment positions us to effectively capitalize on non-prime opportunities, while improving the value proposition we offer to our business partners.
  • Revenue Improvement – With the recent and continued revenue compression, we need to focus on opportunities to improve our revenues.  Areas of focus are:  product mix, fee collection, PE management, LPMI (Lender Paid Mortgage Insurance, sometimes referred to as TAMI), reverse mortgage and non-prime.  
  • Portfolio Retention Optimization - Our $1.4 trillion portfolio gives us a unique ability to grow while the industry shrinks around us.  We will leverage Fastrack and FAST Close products and processes, including perfecting our marketing, sales and Regional Operations Center (ROC) fulfillment processes.  Also, our dispatch lead management, the creation of Tier One Specialty ROCs and expansion of loan modification capabilities to include first mortgages from the Countrywide Bank portfolio will all play key roles to optimize our portfolio retention.  We are expanding the Customer Connection Program (CCP), leveraging B2C’s technology to drive portfolio leads to qualified Distributed Retail originators.
  • Manufacturing Quality- Countrywide’s reputation for excellence -- an invaluable asset -- is impacted by the manufacturing quality we achieve throughout the lifecycle of each loan.  Everyone in CMD contributes to manufacturing quality:  
  • Originators present mortgage options that best serve the needs of customers.
  • Operations professionals apply our processes and controls to deliver product that can be sold in the Secondary Market with the best possible execution.
  • Support teams enable sales and operations to perform at their peak.

  Ultimately our success hinges on our ability to fund more quality loans than our competitors.  For all of us, manufacturing quality must be the essence of what we do, not just an initiative.

  Expense Management - With a tough market ahead of us, we will seek new ways to manage and reduce expenses and continue to do more with less.  We all felt the squeeze last year as we tightened our expense management controls.  The sacrifice was well worth it and the results were significant.  I urge you to make expense management a personal priority.  Every dollar we save enables us to invest in our business and to fuel further growth in key areas, paving the way for future success.  

  Bank Integration - Our regulatory environment continues to become increasingly complex, with conflicting laws in various states.  To reduce this burden, over time we will move most Countrywide Home Loans operations under the legal umbrella of Countrywide Bank.  This will equip us to conduct business efficiently and without cost of compliance with varying regulations. Our Minnesota integration is the first execution of this strategy.  New state legislation in Minnesota could have restricted CMD’s ability to do business. By moving our Minnesota business under the Bank, we are able to continue to provide mortgage solutions to Minnesota customers without interruption.  Let me be clear.  Although we will be part of the Bank, we will not be bank-like.  Our continued focus on mortgage lending will provide a crucial advantage for us over our big bank competitors.

  Leadership Development - Maximizing the quality and performance of our people will become increasingly important throughout 2007 and beyond.  CMD is leading the corporation with our initiative to identify and develop leaders for our future.  Watch for more information on this strategic initiative.

  Mergers and Acquisitions / Joint Ventures - We’ll continue to explore mergers and acquisitions of all shapes and sizes.  Our SBA division has cultivated more than 900 strategic joint ventures, marketing services agreements, space rental agreements, brokered-in relationships and branch roll-up relationships with homebuilders, real estate professionals and financial institutions.  In addition to recent high-profile relationships (including Highland Homes, a top 25 national builder located in Texas), SBA currently is negotiating more than a dozen potential major partnerships.  We are closing and will continue to close deals

The article is presented by
Valentin Georgiev
Loan Officer
Countrywide Home Loans
tel: 312-286-5555

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