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Equity Investment Provides For A Life Line

Thomas Frankito alluded to an arrangement between Bank of America and Countrywide in his blog post entitled "Bank of America Looking at Countrywide", back on January 30, 2007.

Clearly there were signs of strain to those in the industry. Those who understood the make up of Countrywide's portfolio of loans and the ensuing challenges they would face in the coming months. Here we are nearly eight months later and Bank of America exercises its right to invest in the embattled mortgage lender, to the tune of 2 billion dollars, according to The Wall street Journal. Not much is being said about discussions between the two business concerns. In point of fact there has been no information on discussions prior to the equity investment or relative to future business dealings between the two.

Can those of us in the industry breath a sigh of relief? hard to say as it is yet to early in the game. The option arm product fallout has not seen its zenith yet. what we can glean from this, is hope for consumer confidence to begin to turn the corner. Confidence that will send a positive signal to wall street and result in more sound real estate investment for owner occupants, investors and most of all sellers. It is my hope that this is the beginning of the stemming of the bloodletting of Countrywide. Perhaps this alliance will spur other efforts to reposition the mortgage giant. We cannot afford as a nation, nor less we forget th global ramifications of the failure of a concern such as Countrywide, as alluded to by Brain Brady in Bailing Out Countrywide- Is it 1980 All Over Again?.

This infusion of cash, I for one think "It's A Good Thing", to quote Martha Stewart. This one is to be watched very closely.

Posted by William Collins, Broker Associate on 08/23/2007 10:59 AM

Comments (9)

Mortgage Mess in the ActiveRain Channel

equity investment, mortgages, countrywide, bank of america, sellers, investors, buyers, real estate

Originally posted at: Central New Jersey Real Estate: Equity Investment Provides For A Life Line

9 Comments on Equity Investment Provides For A Life Line

AUG

2007

It's playing out exactly as I thought it would:

The Fed lowered the discount rate and exotended the maturity from 1-30 days (liquidity)

BofA led the banks in the 11B line of credit

Bof A buys a convertible preefrred offering.

B of A will own CFC in 2008.

I hate to be political about this, but this is such a Republican sort of way to look at this problem....let's help out the big guys and let the little guys burn! What about the folks at the other lenders who are having to close up shop? More importantly, what about the folks who are sitting there between a rock and a hard spot looking at rates that they can't afford and not having the equity to refinance out of these rates!

Bob Mitchell

ValueList Real Estate Services, Inc.

Bob,

Thanks for the post. There is certainly no easy solution to this national dilemma. Clearly, there needs to be a nationally coordinated effort to address the end user, the average Joe & Jane struggling with mortgages payments and facing foreclosure.

Bob,

"Bailing out" Countrywide IS a huge help to the little guys. Do you realize that Countrywide's overall production is over 2/3rd from brokers and mortgage bankers? 46% of their new loans come through their correspondent lending channel. In other words, Countrywide is the single LARGEST source of liquidity for small and medium-sized mortgage banks and brokers.

You are comparing individual homeowners with businesses and I frankly can't even follow that line of thought. The point here is that by keeping Countrywide liquid, they keep small mortgage bankers and brokers liquid. This is simple economics and pretty much non-political. If all you see is a benefit to Countrywide then perhaps you don't understand the conduit nature of their operation.

While I don't agree with Brian that this is an impending buyout of Countrywide by Bank of America, he has more evidence on his side of the argument. Certainly, this is not Bank of America being a "Boy Scout" to their good buddy over at Countrywide.....no....this isn't a 2billion dollar "gift". Still, buying Countrywide at $18 was a smart investment overall which should yield dividends for the bank simply by bolstering Countrywide. It also protects from someone else competitive to the bank from gaining a position on Countrywide and if it DOES help restore liquidity to the mortgage backed secuirties market sooner then that's good for everyone...including the bank who is the 5th largest originator nationally.

So it makes sense on multiple levels and one has to concede that a buyout of Countrywide is certainly more plausible now then it was a week ago. Being the largest single holder of their stock at 16% is a much different leveraging position then the bank had back in January when news reports came out that the two were talking merger/buyout.

This is like watching LOST.....I'm not sure where it's going and there are mysteries and conjecture at every turn....

Ken,

Thanks for the contribution, it sheds light on the inner workings of the mortgage industry. Insight that most Realtors and non real estate professionals have yet to acquire. Your input helps to put the business relationship between mortgage bankers/brokers and the correspondent lending channel, in perspective. Now there's a subject for a post!

I have to agree with Bob and Ken. This is a traditional supply-side solution to the problem (Bob) AND it works (Ken).

Very interesting dialogue you've initiated William. This post is good information for agents such as myself who need to keep an eye on the mortgage side for our clients. Your posts and the interaction between those "in the know" helps keep us all on our toes.

Chrissy,

Thanks for the comment. This community is about empowering each other to be more knowledgeable and profitable. We do this by sharing information, asking questions and initiating communication.

Chrissy,

Thanks for the comment. This community is about empowering each other to be more knowledgeable and profitable. We do this by sharing information, asking questions and initiating communication.

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