X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

(Read more on the debt and equity markets.)

CALABASAS, CA-Bank of America has agreed to buy struggling home lender Countrywide Financial Corp. for $4 billion in an all-stock transaction, a deal that bails out the financially troubled home loan giant and makes Charlotte, NC-based BofA the country’s largest home mortgage originator. Bank of America’s statement this morning regarding the acquisition says that, “Origination of subprime loans is not planned for the combined company,” a reference to the subprime home mortgage collapse that ultimately sank Countrywide while sending financial shock waves throughout the commercial real estate financing world and the rest of the capital markets.

The deal also ends speculation that Countrywide might file for bankruptcy, but it leaves unanswered the question of what will happen to Angelo Mozilo, Countrywide’s CEO, who at one time was scheduled to retire but chose to stay on. Bank of America CEO Kenneth Lewis addressed that question this morning in a conference call with financial analysts, saying, “I would want [Mozilo] to stay until the deal gets done, and then I would guess that he would want to go and have some fun, but I will talk to him next week about his personal desires.”

Mozilo founded Countrywide in 1969 and built it into the country’s largest home loan originator, but the company’s venture into subprime lending has resulted in huge losses, including a net loss of $1.2 billion for the third quarter ended Sept. 30. Only a year earlier, before the subprime collapse, the company had reported quarterly net income of $648 million.

The acquisition of Countrywide will make Bank of America not only the nation’s largest mortgage lender but also its largest loan servicer. Countrywide originated $408 billion in mortgages in 2007 and has a servicing portfolio of about $1.5 trillion with nine million loans.

Under the terms of the acquisition agreement, shareholders of Countrywide would receive .18 of a share of Bank of America stock in exchange for each share of Countrywide. The deal is expected to close in the third quarter, subject to approval of the companies’ shareholders and customary regulatory approvals. After closing, Bank of America plans to operate Countrywide separately under the Countrywide brand with integration occurring no sooner than 2009.

BofA’s Lewis, in his comments on the deal, noted that it “reflects the issues within the housing and mortgage industries,” which have turned topsy-turvy since the subprime mortgage mess began to unfold last year. When the subprime troubles first began to reveal themselves, some industry observers suggested that the risky loans would affect only the housing market, but the problems quickly spread throughout the capital markets.

Within weeks, borrowers looking for financing on some classes of commercial real estate found themselves having to pay a full percentage point more for loans–at higher interest rates and without other favorable terms such as interest-only clauses. The subprime troubles have been blamed for a host of subsequent problems, including wider interest-rate spreads over Treasuries and a general economic slowing.

Most recently, a year-end report on the Orange County office market cited the subprime meltdown as the chief factor in the office market’s negative net absorption of nearly one million sf for 2007. One of the companies that vacated some of that space was one of the country’s largest subprime lenders, New Century Financial Corp., a once high-flying firm that occupied 267,000 sf in one Orange County office building and was committed to an additional 190,000 sf before it went bankrupt last year.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.