Bank of America Corp.’s plan to acquire troubled mortgage lender Countrywide Financial Corp. was welcomed by mortgage industry professionals Friday, who said a merger is preferable to other alternatives including a government bailout of Countrywide or bankruptcy.

Some also wonder whether Bank of America is making the right move, assuming it can close the deal, which must be approved by regulators.

“I have mixed feelings — I think it’s great because the government will not be forced into a bailout if this actually goes through,” said Larry Bettag, Midwest region vice president for Denver, Colo.-based Cherry Creek Mortgage Co. “Putting those two together, it’s going to be a monster company.”

Paul McFadden, a mortgage planner and licensed loan originator with Exact Financial Group of Renton, Wash., said that while he does not originate loans for Countrywide, the company’s failure would have caused problems for everyone in the industry.

“The buyout, I think, is a good thing, because on its own, Countrywide wasn’t going to survive,” McFadden said. Last summer, when American Home Mortgage closed its doors, other lenders tightened up their standards. “I think if Countrywide had not made it, all the other lenders would have reacted” by tightening underwriting further.

The all-stock transaction is expected to close in the third quarter, after an agreement was approved by both companies’ boards.

News of the merger failed to cheer Wall Street investors Friday, as the $4 billion deal was overshadowed by a New York Times report that brokerage firm Merrill Lynch needs to raise that much to offset $15 billion in losses on bad mortgage investments.

Bank of America has not been immune to the housing downturn, announcing in October plans to close down its wholesale lending division and lay off 3,000 workers (see Inman News story). With BofA also exiting correspondent lending, one question about the merger is what the bank will do with Countrywide’s wholesale and correspondent lending businesses.

Wholesale lenders fund loans that are originated by independent mortgage brokers, which are often bundled together as collateral for mortgage-backed securities that are sold to investors. Correspondent lenders purchases mortgage loans from other lenders such as banks, savings and loans, credit unions and builders.

“If they cut the mortgage broker out of the picture, that creates a potential problem for us,” said Robert Ashby, president of Solid Rock Mortgage Corp., a mortgage brokerage in Pembroke Pines, Fla. “It’s probably not that big a deal, because we can go somewhere else to get the loans.”

McFadden said that he has 40 to 50 lenders to work with, and that if Bank of America shuts down Countrywide’s wholesale loan division, he would not be affected.

Bettag said Countrywide has been “a big competitor” to Cherry Creek Mortgage. But Cherry Creek is also a correspondent to Countrywide, selling prime loans to the lender.

“We source a lot of our ‘A’ paper to them, and we actually grew by a hair last year in a market where everyone else blew up,” Bettag said. “So we’re curious to see how (the merger) will change the playing field.”

In a press release, Bank of America said it “will benefit from Countrywide’s broader mortgage capabilities, including its extensive retail, wholesale and correspondent distribution networks.” That suggests Charlotte, N.C.-based BofA intends to allow Countrywide to continue funding loans originated by mortgage brokers, and buying loans from other banks.

Bank of America said it plans to continue to operate Countrywide separately under the Countrywide brand until at least 2009.

“I wondered when Bank of America got out of wholesale (lending), whether there might be behind-the-scenes maneuvering to acquire Countrywide,” McFadden said, noting that competitor Washington Mutual has kept its hand in that game.

Another question about the merger is whether Bank of America will lay off more Countrywide employees in areas where the two companies have redundancies.

Countrywide employed 50,600 workers at the end of December, down 17.8 percent from 61,586 in July, after laying off nearly 12,000 loan originators.

In a presentation to investors in December, Bank of America Chief Executive Officer Ken Lewis said consumer real estate was “a significant growth opportunity” for the bank.

In 2007, Lewis said, Bank of America became the largest direct-to-consumer consumer real estate lender in the U.S., gaining market share through a “no-fee” mortgage loan and cross-selling home-equity loans to existing customers.

“We have not had the share of this business that our presence would imply,” Lewis said, noting that only 9 percent of Bank of America customers hold a mortgage from the bank. Bank of America estimates that it’s originated only 12 percent of all loans held by its customers.

Bank of America customers hold more than $4 trillion in loans from other institutions, Lewis said, and the bank’s strategy “is to reduce that number.”


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