Third state files suit against Countrywide as BofA merger closes
Bank of America Corp. said today that it completed its purchase of Countrywide Financial Corp. and that the combined companies will offer more conservative loan products and engage in workouts or loan modifications with 265,000 troubled borrowers in the next two years.

While Countrywide was known for making risky loans during the housing boom, in a regulatory filing Bank of America said the combined companies will no longer offer some types of nontraditional mortgages, including option-ARM (adjustable-rate mortgage) loans, and will curtail others, such as low-documentation loans. The combined loss mitigation staffs of the two companies will be maintained at 3,900 employees for at least a year, with the goal of conducting workouts or loan modifications on $40 billion in mortgages in the next two years.

Bank of America’s lawyers will also be busy handling the fallout from the housing bust. The Florida attorney general announced today that it had filed suit against Countrywide Financial, alleging deceptive and unfair trade practices, following similar moves by Illinois and California (see story).

Going forward, Bank of America said the companies will focus on conforming loans underwritten to standard guidelines of government-sponsored enterprises and the government, including FHA and VA loans; nonconforming loans with terms expected to produce no greater risk of default than conforming loans; interest-only fixed-rate and ARM loans subject to a 10-year minimum interest-only period; and fixed-period ARMs that provide borrowers low initial rates with fixed payments with protections against steep payment increases.

The combined consumer mortgage, home equity and insurance business will be headquartered in Calabasas, Calif. — where Countrywide was based — and be headed by Bank of America executive Barbara Desoer, the bank’s chief technology officer. The company will phase out the Countrywide brand name by mid-2009, Bank of America said, and lay off 7,500 employees in areas where there are redundancies.

Standard & Poor’s Ratings Service said today it raised its ratings on Countrywide Financial from junk to investment status, based on the expectation that Bank of America will honor Countrywide’s outstanding debts. Standard & Poor’s said the merger makes Bank of America the nation’s largest originator and servicer of mortgages (it was previously fifth and sixth, respectively). But with housing prices expected to drop through early 2009, Standard & Poor’s ratings outlook for both companies remains negative. "Although we acknowledge the long-term advantages associated with the Countrywide acquisition, we anticipate that the transaction will incrementally add to credit losses," analysts said.

Freddie Mac expects remediation plan from RMIC
Freddie Mac said it has given Republic Mortgage Insurance Co. 60 days to submit a plan for restoring its ratings after Moody’s Investor Services downgraded the company from A1 to Aa3.

The three biggest private mortgage insurers — Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co. and Radian Guaranty Inc. — have all suffered similar downgrades, but Freddie Mac decided to continue to allow them to insure loans. Freddie Mac will no longer purchase loans insured by a fourth company, Triad Guaranty Inc., after July 15 (see story). Private mortgage insurance is typically required when home buyers make down payments of less than 20 percent.

CIT Group sells lending business to Lone Star
CIT Group Inc. is selling its home lending business, including loan servicing centers in New Jersey and Oklahoma that employ 300 people, to Lone Star Funds for $1.5 billion in cash. Lone Star is also assuming $4.4 billion in outstanding debt and other related liabilities. CIT, which expects its home lending unit will post a $2.5 billion second-quarter pretax loss, is also selling its $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance Inc. for $300 million.

"These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class, and advances our strategic transformation into a company focused entirely on commercial finance," said CIT Chairman and CEO Jeffrey M. Peek, in a regulatory filing.

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