Bank of America's acquisition of Countrywide Financial
rescues America's biggest mortgage lender and expands the
financial services empire of the country's largest consumer
bank. However, the acquisition of Countrywide underlines
the severity of the financial challenges that have besieged
the US mortgage industry. Countrywide led from the front
in fueling the subprime crisis by offering loans to high-risk
borrowers. It is the central point of subprime crisis because
of its massive size, has issued more than nine million loans
worth $1.5 tn, and holds a nationally regulated thrift with
$55 bn in deposits.
Countrywide led from the front
in fueling the subprime crisis by offering loans to high-risk
borrowers. It is the central point of subprime crisis because
of its massive size, has issued more than nine million loans
worth $1.5 tn, and holds a nationally regulated thrift with
$55 bn in deposits.
It is now apparent that Countrywide's development was
mainly due to the sloppy lending practices. By the end of
2007, when the borrower defaults soared, the company was
already very late in recognizing the need to amend its business
practices. Subsequently, the crisis compelled it to write-off
$11.5 bn credit line and report a decline of around 50%
in the loans that it had funded, from $42.8 bn to $23.5
bn. The troubled mortgage lender has more than 1,000 field
offices and 15,000 sales force, and a $4 bn all-stock deal
gives Countrywide 0.1822 share of Bank of America for each
share they own. Analysts say that the move could build a
bulwark against the mortgage-default crisis and save Countrywide
from collapse. |
