Countrywide Financial Corp. - Retail & Wholesale

Update - 2009-04-17: In just ten days, the most-recognized brand name in mortgage lending will be no more. Countrywide brokers received the announcement today:

"On April 27, 2009, Countrywide, America's Wholesale Lender will further align with Bank of America's Mortgage, Home Equity & Insurance Services group. At that time Wholesale Lending clients will see a change from the Countrywide brand to a new Bank of America brand. Additionally, on the same day, it is anticipated that Countrywide Bank, FSB will be fully merged with Bank of America, N.A."

Loan docs will bear the name of Bank of America, N.A., and the wholesale web site is being relaunched as "Bank of America Home Loans Wholesale Lending." Borrowers with applications pending will receive separate disclosures. FHA- and VA-approved brokers will likewise receive information in a separate communication.

So long, Countrywide.

Update - 2008-04-24: If the buyout is approved by Regulators, there will be no more Countrywide. In a quote from the bank's chief executive Ken Lewis, printed in the Charlotte Observer April 23:

"We will change the name to Bank of America"

Original Listing - 2008-01-11: In a firesale acquisition that rescues Countrywide from the brink of bankruptcy, Bank of America throws another 4 billion up against the wall.

From the official press release:

"BofA has announced that it plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009."

As quoted from CNN.com, "Bank of America came to the rescue of embattled mortgage lender Countrywide Financial Corp."

For some people the nightmare may be just beginning. In an article out today in the Orange County Register:

Q: What if I'm applying for a home loan with them?

A: That's a little trickier to answer. Depending on where you are in the process, your loan could be completed, it could take longer to approve or it might not be approved at all.

We have reaction from many posters in our Forum. One interesting thread asks the question, "Is $4 Billion Too Much for CW." Be sure to visit the Forum for the most up-to-date reactions and opinions.

It's taken most of today to get bits and dots of information. We like this one. The big hunt is to come up with rationale. Here's one concept as published in CNNmoney.com:

"That's because Bank of America (BAC, Fortune 500), which is solidly profitable, will be able to use some of Countrywide's losses to offset its own taxable income. The tax break could total about half a billion dollars over the first five years, according to an estimate by tax guru Robert Willens, who left Lehman Brothers Friday after a 20-year run and will be in business as Robert Willens LLC starting next week. The losses could be worth considerably more to Bank of America starting in the sixth year, depending on how big Countrywide's losses are when Bank of America formally acquires it."

In an email distributed by Todd Dal Porto, who perhaps in his final announcement as Senior Managing Director and President (as his title states):

"BofA has announced that it plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009."

Integration definition: From a famous television series, Jean-Luc Picard (BofA) says to Tangelo: "I am Locutus of Borg. Resistance is futile. Your life as it has been is over. From this time forward, you will service us." - Locutus of Borg.

We will add more to this listing as the days moves forward, and readers respond. This Implode may represent a tipping point.

Update to Ailing: - 2008-01-08: In the last two days, Countrywide shares have shed about 25% of their value [after hours note: today - down 28.4%]. In an article from Bloomberg today:

"Jan. 8 (Bloomberg) -- Countrywide Financial Corp. dropped the most in two decades on the New York Stock Exchange amid speculation the largest U.S. mortgage lender will file for bankruptcy.

"The rumor was they would file for Chapter 11 this week," said Michael Mainwald, head of equity trading at Lek Securities Corp. in New York. "That spooked all the financials."

Investors drove Countrywide shares down 79 percent last year on concern the lender was suffering from a cash shortage. The company tapped emergency credit lines and got a bailout from Bank of America Corp. as the worst housing slump in 16 years fueled speculation that Countrywide might seek bankruptcy court protection."

Original Ailing Post: Countrywide Subprime (Full Spectrum Lending):

Many have written in to inform us that Countrywide has chosen to exit subprime all subprime that they could not passs on to GSEs. This has resulted in the closure of numerous Full Spectrum offices according to our sources below.

Perhaps the most vocal source of this change has been Angelo Mozilo. Reuters noted:

Chief Executive Angelo Mozilo said on Tuesday the largest U.S. mortgage lender is "out" of the subprime business, apart from offering home loans eligible for purchase by government-sponsored enterprises.

Furthermore, readers have written in with tips regarding specific shutdowns such as the closure of the Full Spectrum Lending Indianapolis office:

I just heard from a good friend that works for Countrywide that they laid off the entire Full Spectrum business unit here in Indianapolis today. From what I hear, it may be a nationwide move. I imagine this is in response to their announced exit from subprime.

And Greensboro, North Carolina:

[Regarding] the Countrywide/Full Spectrum office in Greensboro, NC. It is a 40-60 a month office. It is closing tomorrow [September 19]. All existing/active deals in this office are moving to the Raleigh office with shut down of that office expected by the end of this month.

Not to mention this news article, which describes the closure of the San Antonio office:

Countrywide Financial Corporation has shuttered its San Antonio office that specialized in subprime lending.

As always, if you can provide additional information, clarifications or corrections to this entry, please let us know.

Original listing from 2007-08-17

It would be remiss of us not to list Countrywide as "ailing". Late last week (Aug 16.), Countrywide drew on an $11.5 billion "emergency" credit line to fund its operations. Earlier in the week, it had announced liquidity problems, reversing the position of a week earlier that it had adequate access to capital.

Countrywide had already dramatically cut back its programs, and is shifting "90%" of its origination to its banking operations. Needless to say, it will not look like the company it has in the past couple years if it survives. By some accounts, Countrywide had gone from a business based approximately 70% on traditional loans around 2003, to one 70% based on subprime and other sorts of marginal loans recently. Looks like it will need to return to its roots to make it.

However, concerns abound as to whether it will pull through, e.g.:

For Joe Mason, an economist and professor of finance at Drexel, the 30-day window is not long enough.

"[Lenders] are going to have to roll that over in 30 days, max," he said. "The problems will take a lot more than 30 days to work out."

Mason also cited Bagehot's rule, a basic banking principle which he explained as the need to distinguish between illiquid and insolvent organizations. "You want to lend to illiquid but not insolvent institutions," he said. Lending to insolvent institutions just enables them to dig themselves an even deeper hole.

To him, that's what seems to be happening.

"I would argue that Countrywide is insolvent. Their only asset is their pricing platform, their business algorithm, and that's not working. The next biggest asset they have is the toner for their copiers."

We would agree: if Countrywide's business did indeed become chiefly based on the sorts of loans that are now seeing accelerating delinquencies, they will find themselves seeing rising losses and expenses at a time of dwindling origination profits—perhaps to terminal effect.

We note that Countrywide has more than 10,000 REOs nationwide as of this writing, with an asking price of $2.2 billion. Assuming an average cost of about $50k in value losses and expenses to dispose of each of these properties, this "portfolio" would represent a potential write-down in excess of $500 million. Q1 2007 net income was $433 million. Recent trends suggest this loss area will only grow over the next year.