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Bank of America Acquires Countrywide for $4 Billion

Bank of America announces it will acquire Countrywide in a stock deal valued at $4 billion.

Countrywide, the nation's largest mortgage lender, had few options after losses related to the subprime mortgage crisis. Analysts believe the company faced bankruptcy if it didn't work out a deal to be acquired.

Shares in Countrywide hit record lows in recent days on persistent rumors that a bankruptcy was imminent, a condition brought on by the widespread spike in mortgage defaults and foreclosures, especially in subprime loans — those made to borrowers with weak credit.

By buying Countrywide, Bank of America is keeping the industry and regulators from the messy task of figuring out who will take on the responsibility of collecting payments for the millions of U.S. home loans serviced by Countrywide.

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Transcript

MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

The nation's largest mortgage lender, Countrywide, is being rescued. Countrywide, perhaps best known these days for being the poster child of the subprime mortgage crisis, will be acquired by Bank of America. The stock deal, valued at $4 billion, now makes Bank of America the nation's largest mortgage lender and saves Countrywide from bankruptcy.

NPR's Elaine Korry reports from San Francisco.

ELAINE KORRY: It looks like a case of in for a penny, in for a pound. Last August, Bank of America, the nation's number-two retail banker sank $2 billion into Countrywide. Now, for twice that down payment, B of A could walk away with the entire company. In a conference call this morning, Bank of America CEO Ken Lewis said that was too good a chance to pass up.

Mr. KENNETH LEWIS (CEO, Bank of America): So we view this as a one-time opportunity to acquire the best mortgage platform in the business. The time and the value is very attractive.

KORRY: Lewis stressed all of Countrywide's positives - its 9 million mortgages and 700 loan offices in virtually every state, plus, a balance sheet of roughly $200 billion in assets - all that sounds good until, of course, you look at Countrywide's stunning negatives.

Mr. SEAN EGAN (Managing Director, Egan-Jones Rating Company): If you do the math, you're looking at losses that are north of $20 billion.

KORRY: And that's Sean Egan, managing director of Philadelphia-based Egan-Jones Rating Company. Egan says mighty Bank of America can afford to absorb those losses, but the question remains - why would it want to?

Mr. EGAN: It's certainly not a good business deal, in my opinion. I think they're buying a pig in a poke.

KORRY: Martin Weiss heads Weiss Research in Florida, one of the state's hardest hit by the subprime meltdown. Weiss notes that Countrywide's new business is down by 50 percent and the firm could be facing widespread litigation for its lending practices. On top of that, the cultures of the two firms couldn't be more different.

Steve Cochrane is a senior managing director with Moody's Economy.com.

Mr. STEVE COCHRANE (Senior Managing Director, Moody's Economy.com): Here we see Bank of America, which has been rather cautious, rather conservative in their lending policies over the past couple of years versus Countrywide where they've been very aggressive.

KORRY: Cochrane says Bank of America can benefit from Countrywide's innovations and the breadth of their operations. But he says it will be a tough challenge to reign in some of Countrywide's more flamboyant practices, as well as to align different customer service styles and loan-pricing formulas. Some analysts are suggesting that federal regulators may have nudged B of A to act, and act quickly because the alternative - that Countrywide would fail - was unthinkable.

Again, Martin Weiss.

Mr. MARTIN WEISS (Founder, Weiss Research): The U.S. government would like to see Countrywide get saved by someone because, otherwise, it would be almost impossible for the average homeowner to get financing in this country.

KORRY: A spokesman for the U.S. Treasury denied the agency played a role in arranging a rescue for Countrywide. The deal will not be completed until, at least, the third quarter of this year. No matter what happens, one player is bound to walk away happy. According to SEC documents, Countrywide founder and CEO Angelo Mozilo stands to profit handsomely. Mozilo reportedly could earn $115 million in severance pay plus paid country club dues and free rides on the company jet whether he resigns or he's fired.

Elaine Korry, NPR News. Transcript provided by NPR, Copyright NPR.

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