Friday, September 16, 2011

BofA To Unload Or Shutdown Countrywide Unit That Buys 'Bucket Shop-Generated' Crappy Home Loans

In Los Angeles, California, the Los Angeles Times reports:

  • Bank of America Corp. plans to jettison another piece of the troubled Countrywide mortgage empire — a lending arm that buys home loans from smaller institutions to then package into mortgage-backed securities on Wall Street.

  • The beleaguered banking giant has shopped the business around and is in serious talks with one potential acquirer, according to spokesman Dan Frahm. If it can't strike a deal, Bank of America would shut down the business, jeopardizing 1,400 jobs, including 700 in Westlake Village and Thousand Oaks.


  • With this, Bank of America has decided to get out of correspondent lending, a low-margin business that buys loans made by smaller institutions. Though these loans accounted for more than half of BofA's mortgage volume, the bank now wants to concentrate on those made directly with consumers.

  • Analysts believe that BofA might be hard-pressed to sell the business, which is usually composed of riskier loans than those that the Charlotte-based bank would have made directly with customers. During the boom years, such purchased loans were a huge source of raw [sewage] material for the mortgage-related securities that later proved toxic.

  • "Correspondent systems tend to be bucket shops that generate rotten loans," said Rochdale Securities analyst Richard X. Bove. "It is unlikely that there would be many buyers for this system."


  • One of the stated reasons behind BofA's acquisition of Countrywide was the superior systems the Calabasas company was said to have developed for all aspects of the home lending business, including correspondent lending. But after recording tens of billions in losses related to Countrywide, Bank of America has wound up selling or shutting down many mortgage operations.

  • The bank previously exited wholesale mortgage lending, which is making loans through brokers; and the reverse mortgage business, which allows older people to remain in their homes while drawing down the home equity to live on.

  • It also sold Balboa Insurance, a legacy Countrywide unit. Balboa provides insurance policies that are forced upon homeowners who let their own fire insurance lapse, often because they are headed for foreclosure.

For more, see Bank of America puts Countrywide lending unit up for sale (Bank of America is looking to rid itself of a low-margin Countrywide unit that buys loans from smaller mortgage companies. Hundreds of jobs could be at stake).

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