Country Wide Mortgage Review

Country wide Mortgage was the largest single mortgage lender in the United States. Recently acquired by Bank of America, Countrywide Mortgage suffered deep and irreparable losses due to subprime lending practices during the housing bubble of the past several years. Countrywide is also is the subject of numerous lawsuits alleging it abused bankruptcy and foreclosure proceedings and kept sloppy records making these proceedings unduly complex and in some cases nearly impossible.

Country wide Mortgage lost $1.2 billion in the third quarter of 2007 and another $422 million in the fourth quarter. During that same time period, their stock price plummeted by 80%. Nevertheless, CEO Angelo Mozilo was awarded $1.9 million and $20 Million in stock awards for his performance that year. When Countrywide was sold to Bank of American in early 2008, Mozilo was set to receive an additional $112 million in severance as a condition of the sale.

Under heated attack from the press and widespread charges of fraud and abusive lending, Mozilo eventually gave back a portion of his severance package, but he is by no means out of the woods. The controversy over his part in the failure of Countrywide continues, and the FBI has confirmed that Countrywide is one of a number of major lending companies under federal investigation right now for mortgage fraud.

Bank of America offered to acquire Countrywide for only $4 billion earlier this year, but is now backing away from that deal as quietly as possible. In early May of 2008 Standard & Poor’s cut the status on credit default swaps for Countrywide’s senior debt to junk. Meanwhile first quarter profit for Countrywide in 2008 plunged another 74%. In early May of 2008, Countrywide Mortgage stock was trading for 35% less than Bank of America’s initial low-ball offer.

Bank of America recently stated that is reconsidering whether or not to back the $38 billion in bad debt that will be on Countrywide’s books at the time the sale is closed. If Bank of America decides not to back the bad debt, then their rescue of Country wide Mortgage amounts to no rescue at all. In such a scenario, the taxpayer would likely end up footing the bill for Countrywide’s alleged malfeasance, and that bill is staggering.

Even so, why should Bank of America buy out Countrywide under current conditions? No doubt part of their reluctance is due to the lack of transparency about the true extent of the bad debt Countrywide currently holds. $38 billion is a lot of bad debt, but the ongoing FBI investigation and the lawsuits alleging bad record keeping and corporate incompetence suggest that the actual debt might be much larger. Since Bank of America is currently the only buyer offering to absorb Countrywide, it has no reason to rush into the deal under these conditions. It can afford to stand back and wait and possibly buy Countrywide for even less money later or maybe not at all, ever.

While Countrywide is technically still writing mortgages, its health and its future are in such serious question that it is hard to imagine a circumstance under which it would be the lender of choice.