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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Gov't Seen to Favor Countrywide Buyout

WASHINGTON (AP) — A buyout of hobbled mortgage lender Countrywide Financial likely would be approved by regulators, analysts say, because otherwise the company could file for bankruptcy, injecting further uncertainty into the home-loan market.

Bank of America Corp. is in talks to acquire Countrywide, The Wall Street Journal and The New York Times reported Thursday online, citing unidentified people familiar with the deal. The transaction would put the country's largest mortgage lender, which has experienced a surge in home-loan defaults and has seen its share price plummet, in the hands of the largest U.S. bank by market capitalization.

A Bank of America-led buyout is "the one and only hope that (Countrywide) has" to avoid bankruptcy, according to Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co. Egan-Jones warned earlier this week that Countrywide could "falter" unless it receives an infusion of $4 billion in capital within the next two weeks.

"I cannot imagine that the regulators want Countrywide to go under," said Bert Ely, a banking industry consultant in Alexandria, Va. "I think they're actually quite nervous about that."

A combination of Bank of America and Countrywide would require approval from the Federal Reserve, and possibly other agencies. Banking regulators declined to comment on the reports.

Federal law bars banks from making acquisitions that would increase a bank's market share to 10 percent of U.S. deposits, and Bank of America is nearing that point at 9.88 percent. However, experts disagreed about whether deposits held by Countrywide's federally regulated thrift, Countrywide Bank, would count toward that limit.

In addition, banking industry experts say Bank of America could easily lower the total amount of money held in deposits by lowering interest rates and losing deposits to competitors.

Federal bank regulators "are not looking to clean up messes like the largest mortgage originator in the country going under," said Bart Nater, a San Francisco-based senior analyst with consulting firm Celent.

Regulators are likely to be far more concerned with whether Countrywide fails — and the economic ramifications of such a large collapse — than with consolidation in the mortgage industry, Nater said.

For the first nine months of 2007, Countrywide was the largest U.S. mortgage lender, while Bank of America ranked fifth, according to trade publication Inside Mortgage Finance. Its publisher, Guy Cecala called the potential deal "by far the most palatable way to resolve Countrywide's problems."

A failure at Countrywide, Cecala said, would have severe ripple effects, including forcing the industry and regulators to figure out who would take on the responsibility of collecting payments for millions of U.S. home loans.

It wasn't clear how quickly a deal might be struck for Countrywide, which has been roiled this week by rumors that a bankruptcy filing was imminent. The Journal reported that negotiations between the two companies could fall apart.

Bank of America, which took on a 16 percent stake in Countrywide over the summer, told The Associated Press it does not comment on market rumor or market speculation. Countrywide did not immediately return calls or e-mails seeking comment.

Countrywide shares climbed $2.63, or 51.4 percent, to close at $7.75 Thursday, while Bank of America shares rose 56 cents, or 1.5 percent, to $39.30.

The New York Stock Exchange said Thursday it asked Countrywide to issue a public statement indicating whether there are any corporate developments that can explain the "unusual" trading activity. The exchange said the Countrywide declined to comment.

Countrywide's stock has plummeted in recent days to record lows amid intensifying anxiety among investors over a continuing surge in defaults and foreclosures afflicting the Calabasas, Calif., lender and others in the mortgage industry.

Last August, the mortgage lender drew on an $11.5 billion line of credit to steady itself.

Bank of America aided Countrywide by buying $2 billion in the form of nonvoting, convertible preferred stock yielding 7.25 percent annually. The shares can be converted into common shares of Countrywide at $18 per share, with certain restrictions.

If Bank of America should convert the shares, it would hold between 16 percent and 17 percent of Countrywide shares. Like other lenders, Countrywide has tightened its credit guidelines and stopped selling some types of adjustable rate loans.

Last month, when asked whether he saw any opportunities to make yet another deal to expand his financial services empire, Bank of America chief executive Ken Lewis casually answered, "Nothing that comes to mind." When asked specifically about Countrywide, Lewis said he would have "to eat about seven years of my words" if he ever made a deal in the mortgage industry.

AP Business Writers Alex Veiga in Los Angeles and Ieva Augstums in Charlotte contributed to this report.

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Can someone explain to me WHY Bank of America would want to CONVERT its PREFERRED issue into common at $18 per share when the stock is trading at an OVERPRICED $7.75.

When the NYSE asks a company to explain whether it has an announcement that might EXPLAIN otherwise UNEXPLAINED trading activity and the company remains SILENT, this means??

I would think that some existing Countrywide shareholders floated these rumors to create a market for their shares as everyone RUNS FOR THE EXITS!  It would seem to me that Bank of America probably gets the whole company in bankruptcy anyway, when the bankruptcy reorganization EXTINGUISHES all of the common shareholder's interests.  And this doesn't COST Bank of America ANYTHING!

My GUESS is that these rumors will amount to NOTHING and Bank of America will WAIT and purchase the few savory pieces from the bankrupt estate.  That will better SHIELD and insulate Bank of America from the liability that Countrywide is about to face as a consequence of the massive national fraud.    
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Hmm...What if CFC just asked Mozilo to give back the $127 million or whatever it was that he cashed out last year from stock holdings? Oh ..Wait..Never mind...

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I am with you Mike but if you can have the government bail you out instead... mozilo is like a very very rich welfare mother

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sweet money for Mozilo

Mr. Mozilo is expected to remain as chief executive of Countrywide until the deal closes, probably in the third quarter, The Times said. After that, he would serve on a transition team and would remain with the combined company on an interim basis.

He could be entitled to an exit package of roughly $72 million. 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.

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Can Mozilo fulfill his duties wearing an orange jumpsuit while in prison?
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Is Bank of America doubling down on a bad bet?
Blogging Buy Outs, NY 

The New York Times reports that Bank of America (NYSE: BAC) will buy Countrywide Financial (NYSE: CFC) for $4 billion in stock -- or $7.16 a share -- $500 million below CFC's current market value of $7.75 a share, or $4.5 billion. Although this outcome is better than a bankruptcy filing or a government bailout, Bank of America may be letting its ego get in the way of sound business strategy.

Yesterday I told that I thought Bank of America -- which in August bought 16% of Countrywide by buying $2 billion in preferred shares yielding 7.25% with an option to buy 111 million shares of its stock at $18 -- was doubling down on a bad bet. Since then, Countrywide's stock has fallen 63% from $21 to $7.75 -- wiping out $1.3 billion worth of that 16% stake's value. To me this proves that Countrywide's CEO Angelo Mozillo was wrong when he said last March that the subprime mess would be "great for Countrywide because at the end of the day, all of the irrational competitors will be gone."

While this deal will end Countrywide's irrational existence, Bank of America is likely to survive. For Bank of America shareholders, the question is whether the value of Countrywide's assets -- a $1.4 trillion loan servicing portfolio, a bank, an insurance company, a subsidiary that provides borrowers with loan closing services like appraisals and flood certifications; and a broker-dealer that trades securities -- exceed the cost of its liabilities.

These include bad loans which will need to be written off and big legal liabilities. For instance, 7.2% of the loans in Countrywide's servicing portfolio were delinquent last month, up from 4.6% in December 2006. Foreclosures also more than doubled last month, to 1.44% of unpaid principal balances versus 0.70% in December 2006.

And Countrywide is in the middle of some significant lawsuits. The Wall Street Journal reports that Countrywide is facing borrower suits and investigations by federal and state agencies for alleged lending and loan-servicing abuses, as well as shareholder suits stemming from its financial decline. I have no estimate of how much it will cost to settle these suits.

I don't know how this will play out. The answer depends on how big the write-downs will be for Bank of America, how much it has to pay to settle lawsuits, and how long it takes for the housing and mortgage markets to recover. I think that Bank of America is betting that the eventual recovery of that mortgage industry will leave it in a dominant position whose economic value will more than offset its $6 billion+ bet on Countrywide.

In pre-market, Countrywide investors are heavily disappointed with the deal -- valuing it at $6.72, 13.3% below yesterday's close and 6% below the deal value. Bank of America shares are down 25 cents in pre-market.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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That's right..I forgot... I was going to get in touch with Peter Cohan...."To do" for Monday....

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