Countrywide in sale talks with Bank of America

January 11, 2008|By New York Times News Service

Countrywide Financial, the troubled lender that became a symbol of the excesses that led to the subprime mortgage crisis, is negotiating a sale to Bank of America, according to people briefed on the matter, a move that would rescue it from an increasingly uncertain future.

As the nation's largest mortgage lender, Countrywide helped fuel the housing boom by offering loans to high-risk borrowers. But as home prices began dropping last year and borrower defaults soared, Countrywide's lending practices came under the spotlight of legislators, regulators and consumer advocates.

With financial pressures mounting, Countrywide's stock price collapsed in 2007, falling 80 percent, wiping out $20 billion in stock market value. Earlier this week, Countrywide's shares plummeted further as speculation about a possible bankruptcy filing roiled the market, a rumor the company denied.

The company's shares, which had an intraday low of $4.43 on Wednesday, soared 51 percent to $7.75 yesterday on news of a possible sale. The shares are down 83 percent from their high of $45.26 a year ago.

Both Bank of America, headed by Kenneth D. Lewis, and Countrywide, overseen by Angelo R. Mozilo, declined to comment on the reports of a deal.

While a sale of Countrywide, which is based in Calabasas, Calif., is not expected to affect borrowers, it would underscore the complexities and financial challenges that have engulfed the mortgage industry - from lax lending standards to loose regulatory oversight and the intersection of Main Street homeownership with Wall Street financial engineering.

"Bank of America has always wanted a larger presence in mortgage banking, and Ken Lewis has also said that they would wait to buy until blood is running in the streets," said Charles Peabody, an analyst at Portales Partners, a research firm in New York. "Mozilo must have thought there was a chance Countrywide wouldn't survive."

Almost 150 mortgage lenders failed last year, and 43 were acquired by healthier institutions, according to Mortgagedaily.com. Banks and brokerage firms around the world have also suffered steep losses, and several chief executives have been forced out.

As defaults have surged, investors who once flocked to risky mortgage loans for their higher yields have shunned them. Troubles in the housing market have also generated larger concerns about the economy as a whole.

News of the possible sale came a day after Countrywide disclosed that 7.2 percent of the loans in its servicing portfolio were delinquent last month, up from 4.6 percent in December 2006. Foreclosures also more than doubled last month, to 1.44 percent of unpaid principal balances versus 0.70 percent in December 2006.

For Bank of America, one of the nation's largest banks, buying Countrywide is a bet that it can salvage its $2 billion investment in preferred stock issued by the company last August. Bank of America paid $18 a share for a 16 percent stake in the lender.

But Countrywide's problems have only worsened, leaving Bank of America with big losses. Yesterday, shares of Bank of America rose 56 cents, to $39.30.

"Countrywide has been a rogue lender with a rogue leader," said Martin Eakes, chief executive of the Center for Responsible Lending, a consumer advocacy group. "Bank of America would be a responsible home for fixing the problems that Countrywide has created."

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