Bank of America Buys Subprime Lender Countrywide Financial
By Foreclosure-Fighter staff writer
Subprime lending giant Countrywide Financial Corporation has made headlines consistently over the past twelve months. Once a seriously successful mortgage lender, the company originated billions of dollars in subprime loans and was hit hard by the housing slump.
Last week, rumors circulated about Countrywide's ability to stay afloat financially as its debt rose, and many major news sources hinted that the company was on the verge of bankruptcy. But new reports indicate that, as of last Friday, Countrywide is being "rescued" by Bank of America.
The LA Daily News revealed that Bank of America plans to buy Countrywide for $4.1 billion in stock, making the Bank the largest mortgage company in the nation. The move has met with strong media reactions.
In a statement quoted in several news sources, a Countrywide spokesperson suggested that the company's loan originating and servicing services will be "enhanced" by the Bank of America buyout.
Less positively-worded descriptions have called Countrywide the nation's largest mortgage cesspool, indicating that Bank of America has set itself up for big financial losses down the road. But again, these views are only speculation at this point.
Emediawire.com reports that Bank of America can be expected to renegotiate the terms of the buyout if Countrywide begins doing worse than the Bank expected. Some sources claim that Bank of America's decision to buy out Countrywide was initially inspired by serious losses on earlier investments.
Evidently, BOA invested about $2 billion in Countrywide stocks last August, and has since seen the value of that investment plummet to less than half of its original worth. And many reports have noted the risky nature of Bank of America's purchase.
Experts estimate that, for BOA to turn a profit on its recent acquisition, the U.S. economy will have to avoid a recession for 18 months, the housing market will have to pick up again and Countrywide will have to hold its current status steady.
The acquisition of Countrywide was not Bank of America's only significant action in recent days. Early this week, the company reportedly announced plans to scale back on its investment banking endeavors and lay off several hundred employees.
Layoffs of Countrywide employees should also be expected in California, according to economists, but no official announcements have been made from company executives.
Sources indicate that Bank of America plans to operate Countrywide using the Countrywide brand name until at least 2009, when the two companies can be expected to fully combine.