As many people may already know, Countrywide Home Loans was purchased by Bank of America back in 2008. With this purchase Bank of America has become one the largest lending and mortgage servicing institutions in the country. The agreement to purchase Countrywide Financial Corp. was in an all-stock transaction worth approximately $4 billion.
Right before the merger occurred, Countrywide Home Loans was having extreme market difficulties with its more than $408 billion in mortgage originations and had a servicing portfolio of about $1.5 trillion, with a total of 9 million loans. The Calabasas, California-based lender had operated more than 1,000 locations and approximately15,000 employees, but they were in trouble and rumors of bankruptcy were circulating at the time.
This buyout was a lifeline for Countrywide as the institution was on the verge of collapse due to significant losses, defaulting loans, and many lawsuits from their predatory lending practices. Without the takeover, there is no way that Countrywide would have been able to survive.
Former CEO, Ken Lewis said this on a phone call with investors:
We’ve asked you to join us today to talk about the acquisition of Countrywide. For years I’ve talked about the importance of the mortgage product to the consumer relationship. I’ve also been asked on many occasions about acquisitions and Countrywide more specifically.
I have consistently told you that while I like the mortgage product as a cornerstone of the customer relationship, I didn’t necessarily like mortgage companies because of valuations. I’ve also consistently said that arithmetic would have to be very compelling to make it work.
Today’s announcement presents a unique opportunity to acquire the mortgage capabilities and scale that are critical to our customer relationships at a time when valuations are in fact very compelling. Our extensive due diligence supports our overall valuation and pricing of the transaction.
During the time when Countrywide was up for sale, Bank of America was looking to expand the amount of financial services they offered to their customers. Because Countrywide offered so many services and had a huge net worth, Bank of America was eager to seal the deal.
Here is what Kenneth D. Lewis, former CEO of Bank of America had to say about the deal:
“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Bank of America Chairman and Chief Executive Officer Kenneth D. Lewis said. “Countrywide customers will gain access to a broad set of consumer products including credit cards and deposit services. Home ownership is a fundamental pillar of the U.S. economy and over time it will be a key area of growth for Bank of America.”
Prior to the takeover of Countrywide, Bank of America spent about $100 billion in mergers to expand their lending capacity and to help expand their title to “the largest bank in the U.S.”
Since the merger, BofA has settled many Countrywide lawsuits totaling hundreds of millions of dollars. Here are a few of them;
Each and every loan that Countrywide serviced was transferred over to Bank of America over the last couple of years. Bof A is now the owner of all the mortgages and everything that was under the Countrywide umbrella. For those who were trying to get a modification on their home loan during this time, the feedback we have recieved here on LoanSafe.org proves that the transfer made the process very difficult for many borrowers while others did not see any difference in service. Homeowners were forced to start over and submit new applications as the merge completed.
While BofA has had some issues with the merger, we at LoanSafe.org believe that once they get through the mortgage mess and brand troubles, the bank will sail smoothly into the top mortgage originator position for many years to come.