Chairman and Chief Executive Angelo Mozilo, however, said the groundwork to return to profitability in the fourth quarter has been set out, sending shares sharply higher in premarket trading.
The write-downs entailed an $830.9 million write-down in the value of mortgage servicing rights, $716.7 million in the write-down of mortgages and mortgage-backed securities and a $718.6 million loss on the sale of loans and securities. Partially offsetting that was $1.18 billion in hedging gains.
In addition the company's loan-loss reserves surged to $934 million from $38 million amid continued weakness on prime home-equity loans. Some analysts have been questioning if lenders maintained adequate underwriting standards when making such loans.
The latest quarter's results also included $57 million in restructuring charges related to last month's announcement that Countrywide expected to reduce its work force by as much as 12,000 jobs, or 20%, by year-end in reaction to slumping mortgage production.
Countrywide posted negative revenue of $50 million, compared with revenue of $2.82 billion a year earlier. Recording negative revenue was due to including loan-sale losses, credit-loss provisions and other write-downs in its revenue data.
Unlike most major financial firms, Countrywide hadn't given many hints on how the summer's credit crunch impacted its portfolio of loans -- outside of its monthly loan data -- leaving a wide range of analyst expectations and investor fear of just how bad the results could be. Since early August, just before the height of the credit-crunch hit, Countrywide's shares have fallen from a high of $29.64 to as low as $12.07 on Thursday, a level last seen in December 2002. Shares closed at $13.07 and shot up to $15.73 in premarket trading.
Mr. Mozilo said during the quarter Countrywide "stabilized its liquidity, strengthened its capital position, significantly tightened its loan program and underwriting guidelines, and began the process of right-sizing operations for today's lower volume mortgage market."