Comments on: Banks Must Write Down Loans to Prevent a Mass Homeowner Exodus

By: » Blog Archive » Bank of America to buy Countrywide Financial Paying $4 billion, entirely in stock, to become nation’s top mortgage lender By Alistair Barr & Steve Goldstein, MarketWatch

Thu, 16 Oct 2008 10:33:57 +0000

[...] NEW YORK (MarketWatch) — Bank of America Corp. said Friday it’s purchasing Countrywide Financial Corp. for $4 billion, effectively doubling down on a previous investment in the troubled firm and catapulting the buyer into the top spot among mortgage lenders and loan servicers in the U.S. The stock-swap deal will put an end to the independence of the troubled California lender headed by Angelo Mozilo, and represents an increase from the Charlotte, N.C., bank’s August investment of about $2 billion. “We believe this is the right decision for our shareholders, customers and employees,” said Mozilo, chairman and chief executive of Calabasas, Calif.-based Countrywide (CFC: CFC Sponsored by: BAC 23.82, -2.71, -10.2%) stock in exchange for each share they own. At Thursday’s close, that values Countrywide at $7.16 a share — lower than the $7.75 closing price after news leaked of a possible deal. Countrywide’s shares fell 13%, dropping $1.04 early Friday, to $6.71. Bank of America shares slipped 49 cents, or 1.25%, to $38.83. The purchase is expected to close in the third quarter, to be neutral to Bank of America earnings per share in 2008 and to contribute to the buyer’s bottom line in 2009, excluding merger and restructuring costs. Bank of America expects to take a $1.2 billion restructuring charge related to buying Countrywide, though the charge is related to standard merger costs and not to additional write-downs. See full story It said it would recognize $670 million in after-tax cost savings in the transaction, fully realized by 2011. In terms of integration, Bank of America will run Countrywide separately in 2008 and once the sale closes, it will fully integrate the company in 2009. Thursday rally signaled deal Countrywide shares had soared 51% to close at $7.75 Thursday, after The Wall Street Journal reported the two financials were in advanced talks. “To say there was huge unusual activity in Countrywide Financial ahead of (Thursday’s) news that Bank America was close to finalizing a deal to buy the troubled mortgage giant would be as surprising as seeing Dennis Kucinich end his presidential run,” Optionmonster.com’s Jon Najarian wrote in a research note Thursday. He said his firm tracked over 304,000 calls traded against 248,000 puts, adding that “the interesting thing here is that the bulk, some 76% of these calls, were bought before the announcement.” The news also buoyed other leaders in the troubled mortgage industry, including Washington Mutual (WM: WM WM, , ) , shares of which jumped 15% to $14.16. Bank of America’s shares, meanwhile, rose 1.5% to $39.30. For Bank of America, an acquisition is risky but could generate big gains if the mortgage markets were to stabilize, analysts said. The bank is a leader in retail deposits and is a big commercial lender and credit-card issuer, but it hasn’t expanded as much in mortgages. “The potential payoff if things improve is very big for Bank of America,” said Kathleen Shanley, analyst at Gimme Credit, in an interview before the deal was announced. “Countrywide is the largest mortgage franchise in the country, and it’s a huge servicer. But we don’t know how long the mortgage downturn will last and how bad the mortgage losses will ultimately be.” Countrywide has been hit hard by surging home-loan delinquencies and foreclosures. The company’s shares have slumped nearly 90% in the past year, and earlier this week the company was forced to deny market speculation that it was close to filing for bankruptcy. For its part, Bank of America has already stepped in to aid Countrywide. In August, the bank invested $2 billion in the mortgage lender by buying preferred securities that could be converted into stock at $18 a share in the future. But since then, the mortgage crisis has spread and deteriorated into a global credit crunch. Countrywide’s shares traded above $25 after the August deal. Without a deal, Countrywide was set to face serious credit and liquidity problems, Shanley said. Countrywide debt due in 2016 was trading at roughly 41 cents on the dollar before news of a potential deal broke Thursday, while the company’s bank debt was changing hands at about 70 cents on the dollar, she said. Countrywide used to package up the home loans it originated as mortgage-backed securities and sell them to institutions such as hedge funds, insurers, and pension funds. But surging delinquencies and foreclosures handed hefty losses to some of these investors, and the secondary mortgage market froze up in the summer. That left Countrywide without its main source of cash to keep offering new mortgages. The company borrowed more than $10 billion from banks and started funding a lot of its loans with retail deposits from its thrift unit, Countrywide Bank. It also borrowed a lot of money from the government through the Federal Home Loan Bank of Atlanta, and sold conforming mortgages to government-sponsored enterprises like Fannie Mae (FNM: Fannie Mae News, chart, profile, more But those lifelines began dwindling in recent months, putting Countrywide in the position of seeking more of the financial support it needed from other sources. http://loanworkout.org/2008/04/banks-must-write-down-loans-to-prevent-a-mass-homeowner-exodus [...]

By: Natalie

Natalie — Wed, 14 May 2008 05:31:57 +0000

I bought my house in 2005 for $329,000 I put 20% down and have 816 credit score. My house is now worth $182,000. I have very sick Dad, that I need to sell, so I can go and take care of him. I can not sell, I can not refinance, and I can not rent for the amount of my mortgage. I would be moving to a small town, so I would not be able to pay the left over portion of the mortgage. If I sold the house I would be left owing the bank an additional $85,000 not including Realtor fees and the amount that I put into the house after purchasing and my down payment of $67,000. Even if I could refinance why would I, it would not help my situation. I still could not resell my house and leave, maybe in 10 to 15 years which does not help me now. So I refinance and pay $5,000 to $10,000 to refinance at the 50% higher price than the one next door.

I am so distraught and feel so trap that I have tried suicide 3 time. unfortunately not successful, the 3 time I was extremely close but not close enough.

I have worked so hard for everything I have, which is now worth nothing. So not all people that are going to lose their home were irresponsible.

The banks are big contributers to the falling prices, every time a new foreclosure come on the market, they mark it lower than the last. So if they are going to create the new price, they should write down the loan, as they reset the price. I can not wait 10 to 15 years for my house to hopeful be worth what I once payed.

The banks state they do not want to write down loans, as if the price keeps falling they will be asked to write them down again. Well if they wrote them down they would not have the foreclosures. And as they are the ones killing the prices that would stop, which would then stabilize the market.

By: razor

razor — Wed, 07 May 2008 17:06:12 +0000

What about homeowners who have dilligently prepaid their mortgages in hopes of actually paying off their house and owning it free and clear. I’ve been prepaying my mortgage for years to save on total interest at the end of the day. I have significant equity in my home and to see people walk away makes me sick. It makes me feel like a fool! If any plan is put in place to write down principal it should apply to everyone, not just those who gambled big and got in over their heads! I want my principal written down too!

By: Tiffany Taylor-Rodriguez

Tiffany Taylor-Rodriguez — Fri, 02 May 2008 06:58:13 +0000

I think that at the end of the day, we are going to have to let the chips fall where they may… We can’t save everyone who can’t afford to make their payments.

By: Dolce

Dolce — Sun, 20 Apr 2008 05:48:19 +0000

Tom,
I am with you…
We are in So Cal as well; we didn’t buy to impress, we bought for better schools & more room for the growing kids and in-need mother moving in; we didn’t do sub-prime, we did a conventional loan; we went stated because that’s what you have to do when you own a business and don’t get a W2, and we didn’t exaggerate our income (that’s fraud as far as I know); we put money down; we had the six months of savings and small college fund set aside. We made prudent decisions – at the time the decisions were made.
The housing market devastated our business. My husband eventually took a job (and is darn lucky he was able to, many of our friends are unsuccessfully looking), I still run the business but make 1/2 what I used to, we’ve gone through all our savings and even the college money (kid is a senior this year so that really hurt), and we borrow money every month to stay current. The thinking was “it will get better”… you just don’t throw in the towel at the first sign of trouble, right?
Our house, like yours, is worth $200K less than what we paid. We could do a short sale and go rent for much less but I really would rather stay – we just don’t make the money we did two years ago. The ironic thing is that our current budget would allow us to buy the house next door for $200K less than our current loan balance, but of course carrying this loan we’d never qualify. So, unless some miracle happens yesterday we will be losing our home and the bank that lent us money will lose far more when that happens than they would by reducing principal and letting us stay. And our neighborhood will be more negatively affected by having yet another foreclosure on the block. This is not fun stuff and we are not taking it lightly.
For those of you out there saying we all got what we deserved – I am happy you aren’t where we are and sad that some of you have such hatefulness running through your veins.
It surprises me that nobody has commented on the social toll this takes on the community either. Do you think a neighborhood full of families waiting to move grows close? Do you think people strive to display pride of ownership when they are on their way out? Do parents become involved in their kids’ classrooms when they probably won’t be there in a few months? There is so much more being lost than money. It just breaks my heart.

By: Dolce

Dolce — Sun, 20 Apr 2008 05:06:29 +0000

Loans were to easy to get, too many people got loans they wouldn’t have if loans were not so easy to get, home prices became inflated because of increased competition in the housing market due to the availability of funds. When the price of homes in an area exceeds the median income of an area it is just not logical that the trend can continue. Who is responsible? Banks that made the funds so easily available, yes, and people who saw everyone around them buying houses or bigger houses or second houses (and in alot of cases stuff other than houses) and wanting to do it too. It’s like someone said earlier – the parents left the liquor cabinet unlocked and the teenagers (knowing better but seeing all their friends do it) drank up. We’ll all feel better after the hangover is gone. And in time it will be. Nothing lasts forever…

By: alan

alan — Fri, 18 Apr 2008 05:38:18 +0000

Ding, ding, Proud Homeowner, correct answer. Tom, you are a tiny minority, fiscally responsible with head screwed on correctly on the shoulders.

Do go over loansafe forums and story after story is from people who shouldn’t have been buying anything, they are fiscally illiterate and irresponsible. Bailing out people like that is exercise in futility, that’s like putting tweaker in the rehab for two weeks with the hope of straightening out for life, but we all know 95% of the time that crack head is going into relapse within next 12 months.

That’s exactly how I feel about these debt addicts: crack heads by their own choice. True there were street corner pimps and narco barons but those crack heads should look first and foremost in the mirror to see who is to blame for their own sad state of affairs.

By: Tom

Tom — Wed, 16 Apr 2008 05:27:04 +0000

Brother,

We’re all paying, one way or another. Have you gotten gas or bought a gallon of milk lately? It’s getting harder and harder to find that 12 pack of sodas for $2.99 also.

I have an upside down house in SoCal, its a real doozy. Currently listed for sale, short-sale for almost $200k less than the amount owed – and no I never took out any home equity loans either. The bank seems anxious to sell it, in fact my short sale rep at the loan servicer says every application she submits is approved. Problem is, prices are still probably higher than they should be – there are too many homes on the market – and no one is all that interested in buying them afraid of losing their own precious equity in the short-term. Foreclosure costs the banks/investors more money in the long run in the form of legal fees and a lower sale price in a vanilla world, but the complexities of the securities issues with their servicing agreements, bond insurance companies, hedgefunds etc. add webs of complications to be untangled. The bank loses in both ventures, they just stand to lose less if they come to some sort of agreement; sooner rather than later would probably be the best bet of shoring up the economy at an accelerated pace.

Nonetheless, the damage has already been done and the banks need to get proactive with their borrowers in need and quit waiting for more government handouts. This reminds me of a line from an 8-ball pinball machine from the 80’s: “Quit talking, and start chalking!”

By: Proud Homeowner

Proud Homeowner — Tue, 15 Apr 2008 15:31:31 +0000

From Ann – “many of the homeowners who are going into foreclosure are due to their arm resets.” You could not be more wrong on this. Scratch the surface of these ‘borrower as victim’ stories and the truth is there. The vast majority of these homeowners are defaulting for the same reasons as homeowners have always been defaulting – job/income loss, health related medical expenses, and divorce are just three reasons. We don’t even have to talk about fiscal irresponsibility. Go to good buddy Moe’s other website – loansafe.org – and read the stories. Even there you’ll see story after story of people in trouble long before their ARMs ever reset. Some of them have failed on multiple workouts and even loan modifications. They are in over their heads, always have been, and probably will never change their behavior. Do some research and you will find that not even modification is the answer – a majority will end up in default within a few years of the modification and/or workout. I also suspect that if you give them principle reductions they will find a way to borrow against that restored equity. As a matter of fact, one of these foolish people has plans to get a loan as soon as her modification comes through so she can do isome “home mprovement.” You can’t fix/help these people. All you can hope for is that if they fall hard enough and far enough, the message will finally get through. You can stop their enablers though – the banks, brokers, realtors, etc. The true tradegy of this entire mess is this: Homeownership in this country is approximately 67-69%, of those 27% own their homes outright, and only 2% are actually in foreclosure with another 5% having delinquent mortgages – so a very small number of people (with the help of banks, etc.) have managed to trash our economy. I resent the crap out of that and blame you all – from the bottom to the top and I am willing to “cut off my nose to spite my face” to see that you all pay.

By: Garry

Garry — Tue, 15 Apr 2008 13:50:43 +0000

are banks insured for default up to 50% on loans below 80% if so they have no reason to work with the homeowner they can forclose and sale the house for half the value and recover close to 100% is this true