Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Nye Lavalle
Bank May Buy Troubled Giant in Home Loans

By GRETCHEN MORGENSON and ERIC DASH
Countrywide Financial, the troubled lender that became a symbol of the excesses that led to the subprime mortgage crisis, is close to a deal to be acquired by Bank of America for about $4 billion in stock, according to people briefed on the transaction.

The boards of each company met Thursday to approve the deal, which is expected to be announced Friday, these people said. Shareholders, however, may be disappointed with the $4 billion price, which is about $500 million less than Countrywide’s value on Thursday.

As the nation’s largest mortgage lender, Countrywide helped fuel the housing boom by offering loans to high-risk borrowers. But as home prices began dropping last year and borrower defaults soared, Countrywide’s lending practices came under the spotlight of legislators, regulators and consumer advocates.

With financial pressures mounting, Countrywide’s stock price collapsed in 2007, falling 80 percent, wiping out $20 billion in stock market value. Earlier this week, Countrywide’s shares plummeted further as speculation about a possible bankruptcy filing roiled the market, a rumor the company denied.

The company’s shares soared 51 percent, to $7.75 Thursday on news of a possible sale. The shares are down 83 percent from $45.26 last January.

Both Bank of America, headed by Kenneth D. Lewis, and Countrywide, overseen by Angelo R. Mozilo, declined to comment on the report of a deal.

Mr. Mozilo will remain chief executive until the deal is completed in the third quarter, these people said, and will then serve on a transition team. He will remain with the combined company on an interim basis.

While a sale of Countrywide, based in Calabasas, Calif., is not expected to affect borrowers, it would underscore the complexities and financial challenges that have engulfed the mortgage industry — from lax lending standards to loose regulatory oversight and the intersection of Main Street homeownership with Wall Street financial engineering.

“Bank of America has always wanted a larger presence in mortgage banking and Ken Lewis has also said that they would wait to buy until blood is running in the streets,” said Charles Peabody, an analyst at Portales Partners in New York. “Mozilo must have thought there was a chance Countrywide wouldn’t survive.”

Almost 150 mortgage lenders failed last year and 43 were acquired by healthier institutions, according to Mortgagedaily.com. Banks and brokerage firms have also suffered steep losses, and several chief executives have been forced out. As defaults have surged, investors who once flocked to risky mortgage loans for their higher yields have shunned them. Troubles in the housing market have also generated larger concerns about the economy as a whole and the possibility that the country may enter a recession.

News of the possible sale came a day after Countrywide disclosed that 7.2 percent of the loans in its servicing portfolio were delinquent last month, up from 4.6 percent in December 2006. Foreclosures also more than doubled last month, to 1.44 percent of unpaid principal balances versus 0.70 percent in December 2006.

For Bank of America, one of the nation’s largest banks, buying Countrywide is a bet that it can salvage its $2 billion investment in a preferred stock issued by the company last August; Bank of America paid $18 a share for a 16 percent stake.

But Countrywide’s problems have only worsened, leaving Bank of America with big losses. On Thursday, shares of Bank of America rose 56 cents, to $39.30.

Although the terms of the deal are unclear, if the sale goes through Bank of America would be taking on significant legal liabilities stemming from Countrywide’s lending practices.

Countrywide Credit Industries opened for business in New York City in 1969, the creation of Mr. Mozilo, a butcher’s son from the Bronx, and David Loeb, a founder of a mortgage banking firm. The company became the nation’s largest lender in the early 1990s. By last year, it had become a $500 billion home loan lender with 900 offices and $200 billion in assets. Mr. Loeb died in 2003.

In addition to originating mortgages, Countrywide is the largest servicer of them, overseeing the administration of $1.4 trillion worth of loans. The company also has a bank overseen by the Office of Thrift Supervision; an insurance unit; a subsidiary that provides borrowers with loan closing services like appraisals and flood certifications; and a broker-dealer that trades securities. It employs 51,000 people.

Countrywide showed spectacular growth in both earnings and share price over the years. But in recent months it became clear that its growth was fueled by increasingly loose lending practices. Last year, even as defaults rose, the company was slow to recognize that it needed to change its business practices and lend more conservatively.

As recently as late July, for example, Countrywide’s product list showed that it would lend $500,000 to a borrower rated C-minus, the second-riskiest grade. The company would lend even if the borrower had been 90 days late on a current mortgage payment twice in the last 12 months or had filed for personal bankruptcy protection.

Last August, as financial markets froze on fears that the subprime mortgage woes were spreading into other parts of the economy, Countrywide was forced to draw down all of its $11.5 billion credit line.

“Countrywide has been a rogue lender with a rogue leader,” said Martin Eakes, chief executive of the Center for Responsible Lending, a consumer advocacy group.

Through acquisitions, Bank of America has transformed itself from a small regional bank into a national powerhouse. In 2003, for example, it paid $48 billion for FleetBoston Financial, which gave it the most branches, customers and checking accounts of any United States bank. In 2005, Bank of America became the biggest credit card issuer when it bought MBNA for $35 billion.

By purchasing Countrywide, Bank of America would combine its 5,800 branches with the mortgage lender’s coast-to-coast network, helping Mr. Lewis achieve his goal of becoming the biggest player in every major consumer finance category.

If the deal goes through, Bank of America would brush up against a federal cap that prevents a bank holding company from controlling more than 10 percent of the nation’s deposits. Because Countrywide Bank is a federally insured savings and loan, the rule does not apply.

Mr. Mozilo could be entitled to an exit package of roughly $72 million if he leaves after a deal.

That would be on top of the $410 million in pay, including $285 million in option gains, that Mr. Mozilo has taken home since he became Countrywide’s chief executive in 1999.

Selling Countrywide to Bank of America gets Mr. Mozilo out of a tightening financial vise. But doing so at a stock price below $10 is certainly not what he probably envisioned. Indeed, just last March, as the subprime crisis was starting to unfold, Mr. Mozilo crowed that Countrywide would benefit from the spreading mess. “This will be great for Countrywide,” he told an interviewer, “because at the end of the day, all of the irrational competitors will be gone.”

Andrew Ross Sorkin contributed reporting.
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Wow!  That is about $4 BILLION MORE than I would have paid!!  But a billion dollars isn't worth what it used to be.

I wonder if they can actually CLOSE the deal before Countrywide goes Bankrupt?
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