Countrywide Financial
Encyclopedia
Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:
During the year ended December 31, 2005, for example, the Mortgage Banking segment generated 59% of the company's pre-tax earnings.
On January 11, 2008, Bank of America
announced that it planned to purchase Countrywide Financial for $4.1 billion in stock. On June 5, 2008, Bank of America Corporation announced it had received approval from the Board of Governors of the Federal Reserve System to purchase Countrywide Financial Corporation. Then, on June 25, 2008, Countrywide announced it had received the approval of 69% of its shareholders to the planned merger with Bank of America. On July 1, 2008, Bank of America Corporation completed its purchase of Countrywide Financial Corporation.
In 1997, Countrywide had spun off Countrywide Mortgage Investment as an independent company called IndyMac Bank
. Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run
.
In its 2006 annual report to the SEC, CFC disclosed that 19% of its subprime loans were delinquent.
and Angelo Mozilo
. Loeb died in 2003. The initial public offering
was less than successful, with company stock trading over the counter
at less than $1 per share. In 1985 Countrywide stock was re-listed on the New York Stock Exchange
under the ticker symbol CFC.
Countrywide's stock has been described as the "23,000% stock" by Fortune magazine. Between 1982 and 2003, Countrywide delivered investors a 23,000.0% return, exceeding the returns of Washington Mutual
, Wal-Mart
, and Warren Buffett
's Berkshire Hathaway
.
, mainly in the form of mortgage-backed securities. In 2006, 45% of those mortgages were conventional non-conforming loan
s, loans too large to sell to Fannie Mae.
The company generally performs the ongoing servicing functions related to the mortgage loans that it produces. It also provides various loan closing services, such as title
, escrow
and appraisal
.
The Mortgage Banking segment consists of three distinct sectors: Loan Production, Loan servicing
and Loan Closing Services.
Consumer Markets and Full Spectrum Lending offer loans directly to consumers. Loans produced by these two retail division are originated, funded, and sold by Countrywide. Consumer Markets offers a wide variety of products, whereas Full Spectrum Lending focuses primarily on products appropriate for customers with less than prime-quality credit.
Wholesale Lending offers loans to consumers whose loans are originated by another mortgage broker. These loans are funded and sold by Countrywide, but originated by other lenders.
Correspondent Lending purchases mortgage loans from other lenders, which include mortgage bankers, commercial banks, savings and loan associations, home builders and credit unions. These loans may be sold by Countrywide to end-investors on the secondary market, but are originated and funded by other lenders.
Loan servicing
typically retains a fraction of the payment made (typically 25 - 45 basis points of the unpaid principal balance) as a "servicing fee".
Loan servicing also generates income in the form of interest on monies received and held prior to paying scheduled advances to the trustee, fees charged for late payments, force-placed insurance, document requests, legal fees, payoff statements, etc.
services, automated credit reporting products, flood determination services and residential title
services for the six major counties of Southern California.
and Countrywide Warehouse Lending. Formerly, the bank was known as Countrywide Bank, N.A., a nationally chartered bank that was regulated jointly by the Office of the Comptroller of the Currency
and the Federal Reserve, but it converted its charter to a federally chartered thrift that is regulated by the Office of Thrift Supervision
. Countrywide Bank is the 3rd largest Savings and Loan institution and is the fastest growing bank in United States history. Assets from deposits are currently approaching $125 billion.
Countrywide Bank primarily originates and purchases mortgage loans and home equity lines of credit for investment purposes. The majority of these loans are sourced through its mortgage banking subsidiary, Countrywide Home Loans. The Bank obtains retail deposits, primarily certificates of deposit
, through the Internet, call centers and more than 200 financial centers, many of which were located in Countrywide Home Loans' retail branch offices as of April 1, 2007.
Countrywide Warehouse Lending provides warehouse lines of credit to mortgage bankers, who use these funds to originate loans. These mortgage bankers are primarily customers of Countrywide Home Loans' Correspondent Lending division and the Capital Markets divisions; the mortgage bankers use warehouse lines of credit from Countrywide Warehouse Lending to help originate loans, then sell those loans to Countrywide through Correspondent Lending or Capital Markets.
loan originator. CFC also operates broker dealers in Japan and the United Kingdom, an introducing broker dealer of futures contracts, an asset manager and a broker of mortgage servicing rights. With the exception of its commercial mortgage activities, the company transacts only with institutional customers, such as banks, other depository institutions, insurance companies, asset managers, mutual funds, pension plans, other broker dealers and governmental agencies. Customers of its commercial real estate finance business are the owners or sponsors of commercial properties, who can be individuals or institutions.
Countrywide Asset Management Corporation manages the acquisition and disposition of loans from third parties, as well as loans originated by Countrywide Home Loans, on behalf of Countrywide Home Loans. These are typically delinquent or otherwise illiquid residential mortgage loans, which have primarily been originated under Federal Housing Administration (FHA)
and Veterans Administration (VA)
programs. The Company attempts to rehabilitate the loans, using the servicing operations of Countrywide Home Loans, with the intent to securitize those loans that become eligible for securitization. The remaining loans are serviced through foreclosure and liquidation, which includes the collection of government insurance and guarantee proceeds relating to defaulted FHA and VA program loans.
Securities trading activities include the trading of debt securities in the secondary market after the original issuance of the security. Underwriting
activities encompass the assumption of the risk of buying a new issue of securities from the issuer and reselling the securities to investors, either directly or through dealers. Capital Markets primarily underwrites mortgage-related debt securities.
Balboa Life and Casualty Group underwrite property, casualty, life and credit insurance
in all 50 states through the Balboa Life and Casualty Group. Its products include Lender-Placed Property and Auto, which includes lender-placed auto insurance and lender-placed, real-property hazard insurance; Voluntary Homeowners and Auto, which underwrites retail homeowners insurance and home warranty plans for consumers, and Life and Credit, which underwrites term life, credit life and credit disability insurance
products.
Balboa Reinsurance Company provides a mezzanine layer of reinsurance
coverage for losses between minimum and maximum specified amounts to the insurance companies that provide private mortgage insurance (PMI) on loans in its servicing portfolio. It provides this coverage with respect to substantially all of the loans in the Company's portfolio that are covered by PMI, which generally includes all conventional loans with an original loan amount in excess of 80% of the property's appraised value. In return for providing this coverage, it earns a portion of the PMI premiums.
Following the acquisition of Woolwich by Barclays plc, this relationship developed further, with GHL acquiring the Barclays mortgage portfolio, through a transfer of ownership of the Barclays mortgage operation in Leeds to GHL in 2003.
By 2005, GHL operation processed more than 11.3 billion pounds sterling ($20.3 billion) in loans, all of which are subserviced for Barclays
, PLC
, the joint venture partner. As of December 31, 2005, Global's subservicing portfolio was 59 billion pounds sterling ($102 billion).
In November 2005, Barclays announced that it intended to terminate the third party administration arrangement with GHL and bring the mortgage originations and servicing operations back in-house. This resulted in Countrywide buying out Barclays' remaining 30% stake in GHL. Barclays brought the operation back in-house in February 2006.
Since then Global's presence in the UK has been confined to providing support to Barclays and Prudential Assurance, who continue to use the proprietary originations, servicing and arrears processing systems developed for GHL and Countrywide by Countrywide Technology Group (CWTG).
A second venture in the UK, Valuation Services, provided one of the first electronic residential property valuation services to third parties in the United Kingdom through a majority-owned joint venture. This was sold to First American in 2007.
Offshore Services commenced operations in India in 2004. Set up to exploit the strategic advantage of employing systems specialists based in the sub-continent, it provides business process and technology services to the Parent Company and its subsidiaries in both the United States and the United Kingdom.
Additionally, Countrywide is one of many companies that conducts in-depth background searches of new employee applicants. The background search goes beyond typical employment, education, and criminal history searches, and enables a company to view the applicant's credit, and public record documents such as lawsuits and divorce records.
Although it must be authorized by the applicant, Countrywide explicitly does not consider applicants who deny authorization for a search.
This policy has led to otherwise qualified applicant complaints and dispute filings which claim this policy is discriminatory, invasive, and compromises the applicant's privacy.
Countrywide maintains a policy of not filing the legally required Internal Revenue Service
Form 1099 to independent brokers. The validity of this is questionable however.
Countrywide subprime documents show a policy of lending to families with as little as $1000 of disposable income, often compromising their ability to pay living expenses.
Economist Stan Liebowitz writes that the Fannie Mae Foundation singled out Countrywide Financial as a "paragon" of a nondiscriminatory lender who works with community activists, following "the most flexible underwriting criteria permitted." The chief executive of Countrywide is said to have bragged that in order to approve minority applications, "lenders have had to stretch the rules a bit." Countrywide's commitment to low-income loans had grown to $600 billion by early 2003.
, Gustav
& Rita
, Countrywide told loan customers in the affected areas that they could take a break on payments without any late fees, and the payments would be added back to the end of the loan. They now contend that Countrywide forced the loan customers to pay the missed payments in a lump sum, along with late fees they were told they didn't have to pay, within 30 days or face foreclosure.
reported that numerous Washington, DC politicians over recent years had received mortgage financing at noncompetitive rates because the corporation considered the officeholders "FOA's"—"Friends of Angelo". The politicians extended such favorable financing included the chairman of the Senate Banking Committee, Christopher Dodd
, the chairman of the Senate Budget Committee and Kent Conrad
. The article also noted Countrywide's political action committee
had made large donations to Dodd's campaign.
Senator Dodd proposed that the federal government buy up to $400 Billion in defaulted mortgages. Citizens for Responsibility and Ethics in Washington (CREW
) has called for House and Senate to investigate Senators Conrad and Dodd.
It was reported that James Johnson
, former CEO of Fannie Mae and an adviser to presidential candidate Barack Obama
, had received loans under the "Friends of Angelo".
Johnson announced he would step down from the vice-presidential vetting position on June 11, 2008 in order to avoid being a distraction to Obama's campaign.
In June 2008 The Wall Street Journal
reported that Franklin Raines
, a former CEO of Fannie Mae, received below market rates loans at Countrywide Financial because the corporation considered the officeholders "FOA's"—"Friends of Angelo" (Countrywide Chief Executive Angelo Mozilo
). He received loans for over $3 million while CEO of Fannie Mae.
On July 16, 2008, The Washington Post
reported that Franklin Raines had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters." Subsequent attempts to connect Obama's campaign with Franklin Raines were characterized by The Washington Post as "a stretch".
, filed a civil lawsuit in Cook County
Circuit Court
against Countrywide Financial Corporation on June 25, 2008. The lawsuit cites information gathered from documents obtained via a subpoena in the fall of 2007. Madigan's office claims the "mortgage lender engaged in "unfair and deceptive" practices to get homeowners to apply for risky mortgages far beyond their means."
California
Attorney General, Jerry Brown
, followed suit by filing a similar lawsuit on June 25, 2008, accusing the lender of breaking the state's laws against false advertising
and unfair business practices. The lawsuit also claims the defendant mislead many consumers by misinforming them about the workings of certain mortgages such adjustable-rate mortgages, interest-only loan
s, low-documentation loans and home-equity loans while telling borrowers they would be able to refinance before the interest rate on their loans adjusted.
In August 2008, Connecticut
Attorney General Richard Blumenthal
also brought suit against Countrywide, alleging that deceptive lending practices had ripped off Connecticut homeowners.http://www.courant.com/business/nationworld/ats-ap-countrywide-lawsuitaug06,0,6712837.story
The suit was settled in October 2008 after Bank of America acquired Countrywide. The settlement involves the modifying of troubled 'predatory loans' up to $8.4 billion dollars. The states currently involved in the settlement are Arizona, California, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas, and Washington. Other states may also join the settlement.
There is also a shareholder class action lawsuit for investors in asset-backed securities from Countrywide.
. Fannie Mae or Freddie Mac can only buy loans which conform to the standards of government sponsored enterprises. Non-conforming mortgages securities must be sold in the private, secondary market to alternative investors. On August 3, 2007, this secondary market essentially stopped trading most of the non-conforming securities.
Secondary mortgage market disruptions had happened previously, but, the new disruption appeared more serious, both larger in range and likely duration.
Alt-A mortgages (loans given to apparently creditworthy borrowers without much or any documentation) completely stopped at ratings lower than AAA.
Difficulties extended to much of AAA-rated mortgage-backed securities. Only securities with conforming mortgages were trading.
Countrywide Financial issued a statement that its mortgage business has access to a nearly $50 billion funding cushion.
After the collapse of American Home Mortgage
on August 6, attention returned to Countrywide Financial which at the time had issued about 17% of all mortgages in the United States.
Only days later Countrywide Financial disclosed to the U.S. Securities and Exchange Commission (SEC) that these disruptions in the secondary mortgage markets could hurt it financially:
This raised speculation that Countrywide was a potential bankruptcy risk.
On August 10, a run on the bank began as the secondary mortgage market shut down, curtailing new mortgage funding.
The perceived risk of Countrywide bonds rose. Fitch, Moody's and Standard and Poors credit ratings agencies downgraded Countrywide 1 or 2 grades, some to near junk status. The cost of insuring its bonds rose 22% overnight.
This also limited its access to short-term debt called commercial paper. This is often cheaper than bank loans. Some institutional investors admitted trying to sell Countrywide paper.
Fifty other mortgage lenders had already filed for Chapter 11 bankruptcy, and Countrywide Financial was cited as a possible bankruptcy risk by Merrill Lynch and others on August 15. This combined with news that its ability to issue new commercial paper might be severely hampered put severe pressure on the stock. Its shares fell $3.17 to $21.29, which was its biggest fall in a single day since the crash of 1987 - the shares had fallen 50% so far that year. On August 15, 2007, Merrill Lynch advised its clients to sell their stock in Countrywide.
On Friday August 17, many depositors sought to withdraw their bank accounts.
Countrywide also planned to make 90% of its loans conforming.
By this point stock shares had lost about 75% of their peak value and speculation of bankruptcy broadened.
At the same time the Federal Reserve Bank
lowered the discount rate 0.5% in a last-minute, early morning conference call. The Fed accepted about $17.2 billion in repurchase agreement
s for mortgage backed securities to aid in liquidity. This also helped calm the stock market and investors promptly responded positively with the Dow posting gains.
Additionally, the firm was forced to restate income it had claimed from accrued but unpaid interest on "exotic" mortgages where the initial pay rate was less than the amortization rate. In 2007 it became apparent much of this interest had become uncollectable.
In a letter dated August 20, Federal Reserve agreed to waive banking regulations at the request of Citigroup and Bank of America. The Fed agreed to exempt both banks from rules that limited the amount that federally-insured banks can lend to related brokerage companies to 10% of bank capital. Until then, banking regulation was that banks with federally insured deposits should not be put at risk by brokerage subsidiaries' activities. On August 23, Citibank and Bank of America said that they and two other banks accessed $500 million in 30-day financing at the Fed's discount window
. The same day, Countrywide Financial obtained $2 billion of new capital from Bank of America Corp. For this the Bank of America brokerage arm would get convertible preferred stock.
On November 26, 2007, Countrywide stock was hammered on the NYSE, dropping over 10% to a level of $8.64/share; less than half the share's value in August when the firm faced bankruptcy rumors
and a fraction of its value in 2006. One proximate cause were reports that the Atlanta Federal Home Loan Bank had extended a large amount of its credit to Countrywide to offset its inability to raise funds in the private market. Senator Chuck Schumer called for an investigation as to the prudence of the FHLBB's action in this regard.
From 2005 to 2007 Angelo R. Mozilo
sold much of his CFC stock realizing $291.5 million in profits. A class action suit was filed on behalf of shareholders alleging securities violations.
In September 2008, Countrywide sends letters to its mortgage customers to inform that one of their employees had stolen identity information that contained social security numbers and birth dates. Countrywide apologizes in the letter and offers free credit monitoring for 90 days.
's $4 billion takeover of Countrywide Financial began with a December phone call from Countrywide Chief Executive Angelo Mozilo
to his Bank of America counterpart, Kenneth D. Lewis. And on January 11, 2008, Bank of America
announced it had agreed to buy Countrywide for $4 billion in an all-stock transaction. The stock's value settled at about $5½ per share following the announcement; it had been as low as $4.43 before the Bank of America deal was announced.
After more than six months of financial deterioration at Countrywide—despite a $2 billion infusion of cash from Bank of America in August—Mozilo said he was ready to throw in the towel, according to Lewis.
At the same time, having watched Countrywide dramatically retool its operations in a bid to survive, Bank of America executives began to believe Countrywide's big U.S. mortgage business might be worth having.
"The ability to get that kind of size and scale became more appealing as we saw the business model change to a model we could accept," Lewis said. "We considered the lawsuits, the negative publicity that Countrywide had. We weighed the short-term pain versus what we think will be a very good deal for our shareholders."
Bank of America deployed 60 analysts from its headquarters in Charlotte, N.C., to Countrywide's headquarters in Calabasas, Calif. After four weeks analyzing Countrywide's legal and financial predicament, and modeling how its loan portfolio was likely to perform, Bank of America offered an all-stock deal valued at $4 billion for Countrywide—a fraction of the company's $24 billion market value a year ago. Countrywide shareholders approved the deal on June 25, 2008 and it closed July 2, 2008. Bank of America announced on June 26, 2008 that the takeover of Countrywide Financial Corp. will result in the loss of 7,500 jobs over the next two years.
The deal is a landmark in the housing crisis, given Countrywide's prominence as the nation's largest mortgage lender, at least until recently.
with insider trading
and securities fraud
, and former COO David Sambol and former CFO Eric Sieracki with securities fraud for failing to disclose Countrywide's lax lending standards in Countrywide's 2006 annual report. Despite these charges, Countrywide, and then its successor Bank of America, were awarded the Property Management contract with the Veterans Administration. A July 22, 2008 memo from Judith Caden, VA Director of Loan Guaranty Service issued this proclamation in Circular 26-08-10. Bank of America still retains this position with VA.
- Mortgage Banking, which originates purchases, securitizesSecuritizationSecuritization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...
, and services mortgagesMortgage loanA mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion. In 2006 Countrywide financed 20% of all mortgages in the United States, at a value of about 3.5% of United States GDP, a proportion greater than any other single mortgage lender. - Banking, which operates a federally chartered thriftSavings and loan associationA savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...
that primarily invests in mortgage loans and home equity lines of credit primarily sourced through its mortgage bankMortgage bankA Mortgage bank specializes in originating and/or servicing mortgage loans.A mortgage bank is a state-licensed banking entity that makes mortgage loans directly to consumers...
ing operation. - Capital Markets, which operates as an institutional broker-dealerBroker-dealerA broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers....
that primarily specializes in trading and underwritingUnderwritingUnderwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
mortgage-backed securities. - Global Operations, which provides mortgage loan application processing and loan servicingLoan servicingLoan servicing is the process by which a mortgage bank or subservicing firm collects the timely payment of interest and principal from borrowers...
.
During the year ended December 31, 2005, for example, the Mortgage Banking segment generated 59% of the company's pre-tax earnings.
On January 11, 2008, Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
announced that it planned to purchase Countrywide Financial for $4.1 billion in stock. On June 5, 2008, Bank of America Corporation announced it had received approval from the Board of Governors of the Federal Reserve System to purchase Countrywide Financial Corporation. Then, on June 25, 2008, Countrywide announced it had received the approval of 69% of its shareholders to the planned merger with Bank of America. On July 1, 2008, Bank of America Corporation completed its purchase of Countrywide Financial Corporation.
In 1997, Countrywide had spun off Countrywide Mortgage Investment as an independent company called IndyMac Bank
IndyMac Bank
OneWest Bank is a federal savings bank with 82 retail branches in southern California and approximately $14 billion in deposits as of February 2010....
. Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
.
2005
For year-ending Dec 31, 2005, amounts in thousands of dollars:- Total Assets: $235,085,370
- Total Revenues: $13,016,708
- Total Expenses: $5,868,942
- Net Earnings: $2,528,090
- Pre-tax Earnings by Segment:
- Mortgage Banking: $2,434,525
- Banking: $1,074,480
- Capital Markets: $451,629
- Insurance: $183,716
- Global: $35,353
- Other: $(31,937)
2006
For year-ending Dec 31, 2006, amounts in thousands of dollars:- Total Assets: $85,946,230
- Total Revenues: $5,417,128
- Total Expenses: $5,082,993
- Net Earnings: $1,674,846
- Pre-tax Earnings by Segment:
- Mortgage Banking: $2,062,399
- Banking: $1,080,384
- Capital Markets: $253,500
- Insurance: $120,133
- Global: $28,642
- Other: $(10,923)
In its 2006 annual report to the SEC, CFC disclosed that 19% of its subprime loans were delinquent.
2007
For year-ending Dec 31, 2007, amounts in thousands of dollars:- Total Assets: $211,730,061
- Total Revenues: $6,061,437
- Total Expenses: $6,764,975
- Net Earnings: $(703,538)
- Pre-tax Earnings by Segment:
- Mortgage Banking: $(1,517,083)
- Banking: $(268,752)
- Capital Markets: $14,957
- Insurance: $600,542
History
Countrywide was founded in 1969 by David S. LoebDavid S. Loeb
David S. Loeb was the co-founder of both Countrywide Financial Corp and IndyMac Bank along with former protégé and longtime business partner Angelo Mozilo...
and Angelo Mozilo
Angelo Mozilo
Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...
. Loeb died in 2003. The initial public offering
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
was less than successful, with company stock trading over the counter
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
at less than $1 per share. In 1985 Countrywide stock was re-listed on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
under the ticker symbol CFC.
Countrywide's stock has been described as the "23,000% stock" by Fortune magazine. Between 1982 and 2003, Countrywide delivered investors a 23,000.0% return, exceeding the returns of Washington Mutual
Washington Mutual
Washington Mutual, Inc. , abbreviated to WaMu, was a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States' largest savings and loan association until its collapse in 2008....
, Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
, and Warren Buffett
Warren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
's Berkshire Hathaway
Berkshire Hathaway
Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies. The company averaged an annual growth in book value of 20.3% to its shareholders for the last 44 years,...
.
Mortgage banking
The Mortgage Banking segment produces mortgage loans through a variety of channels on a national scale. Nearly all of the mortgage loans the company produces in this segment are sold into the secondary marketSecondary market
The page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....
, mainly in the form of mortgage-backed securities. In 2006, 45% of those mortgages were conventional non-conforming loan
Non-conforming loan
A non-conforming loan is a loan that fails to meet bank criteria for funding.Reasons include the loan amount is higher than the conforming loan limit , lack of sufficient credit, the unorthodox nature of the use of funds, or the collateral backing it. In many cases, non-conforming loans can be...
s, loans too large to sell to Fannie Mae.
The company generally performs the ongoing servicing functions related to the mortgage loans that it produces. It also provides various loan closing services, such as title
Title (property)
Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership...
, escrow
Escrow
An escrow is:* an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of...
and appraisal
Real estate appraisal
Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
.
The Mortgage Banking segment consists of three distinct sectors: Loan Production, Loan servicing
Loan servicing
Loan servicing is the process by which a mortgage bank or subservicing firm collects the timely payment of interest and principal from borrowers...
and Loan Closing Services.
Loan production
The role of Loan Production is to originate and fund new loans, and to acquire already-funded loans through purchases from other lenders. Loan Production produces mortgage loans through four divisions of Countrywide Home Loans: Consumer Markets, Full Spectrum Lending, Wholesale Lending and Correspondent Lending.Consumer Markets and Full Spectrum Lending offer loans directly to consumers. Loans produced by these two retail division are originated, funded, and sold by Countrywide. Consumer Markets offers a wide variety of products, whereas Full Spectrum Lending focuses primarily on products appropriate for customers with less than prime-quality credit.
Wholesale Lending offers loans to consumers whose loans are originated by another mortgage broker. These loans are funded and sold by Countrywide, but originated by other lenders.
Correspondent Lending purchases mortgage loans from other lenders, which include mortgage bankers, commercial banks, savings and loan associations, home builders and credit unions. These loans may be sold by Countrywide to end-investors on the secondary market, but are originated and funded by other lenders.
Loan servicing
Loan servicing services loans, i.e., collects payments from the borrower, handles escrow accounts, tax and/or insurance payments (if applicable), then remits "advances" to the investor's trustee as specified in the Pooling and Servicing Agreement (PSA).Loan servicing
Loan servicing
Loan servicing is the process by which a mortgage bank or subservicing firm collects the timely payment of interest and principal from borrowers...
typically retains a fraction of the payment made (typically 25 - 45 basis points of the unpaid principal balance) as a "servicing fee".
Loan servicing also generates income in the form of interest on monies received and held prior to paying scheduled advances to the trustee, fees charged for late payments, force-placed insurance, document requests, legal fees, payoff statements, etc.
Loan closing services
LandSafe and its subsidiaries offer loan closing services, including real estate appraisalReal estate appraisal
Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
services, automated credit reporting products, flood determination services and residential title
Title (property)
Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership...
services for the six major counties of Southern California.
Banking
The Banking segment consisted of Countrywide Bank, FSBFederal Savings Bank
A federal savings bank is a savings and loan association federally chartered in the United States. They are chartered and regulated by the Treasury Department's Office of Thrift Supervision....
and Countrywide Warehouse Lending. Formerly, the bank was known as Countrywide Bank, N.A., a nationally chartered bank that was regulated jointly by the Office of the Comptroller of the Currency
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...
and the Federal Reserve, but it converted its charter to a federally chartered thrift that is regulated by the Office of Thrift Supervision
Office of Thrift Supervision
The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...
. Countrywide Bank is the 3rd largest Savings and Loan institution and is the fastest growing bank in United States history. Assets from deposits are currently approaching $125 billion.
Countrywide Bank primarily originates and purchases mortgage loans and home equity lines of credit for investment purposes. The majority of these loans are sourced through its mortgage banking subsidiary, Countrywide Home Loans. The Bank obtains retail deposits, primarily certificates of deposit
Certificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
, through the Internet, call centers and more than 200 financial centers, many of which were located in Countrywide Home Loans' retail branch offices as of April 1, 2007.
Countrywide Warehouse Lending provides warehouse lines of credit to mortgage bankers, who use these funds to originate loans. These mortgage bankers are primarily customers of Countrywide Home Loans' Correspondent Lending division and the Capital Markets divisions; the mortgage bankers use warehouse lines of credit from Countrywide Warehouse Lending to help originate loans, then sell those loans to Countrywide through Correspondent Lending or Capital Markets.
Capital markets
The Capital Markets segment primarily operates as a registered securities broker dealer, a residential mortgage loan manager and a commercial mortgageCommercial mortgage
A commercial mortgage is a mortgage loan made using commercial real estate as collateral to secure repayment.A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, not residential property. In addition, commercial...
loan originator. CFC also operates broker dealers in Japan and the United Kingdom, an introducing broker dealer of futures contracts, an asset manager and a broker of mortgage servicing rights. With the exception of its commercial mortgage activities, the company transacts only with institutional customers, such as banks, other depository institutions, insurance companies, asset managers, mutual funds, pension plans, other broker dealers and governmental agencies. Customers of its commercial real estate finance business are the owners or sponsors of commercial properties, who can be individuals or institutions.
Countrywide Asset Management Corporation manages the acquisition and disposition of loans from third parties, as well as loans originated by Countrywide Home Loans, on behalf of Countrywide Home Loans. These are typically delinquent or otherwise illiquid residential mortgage loans, which have primarily been originated under Federal Housing Administration (FHA)
Federal Housing Administration
The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...
and Veterans Administration (VA)
United States Department of Veterans Affairs
The United States Department of Veterans Affairs is a government-run military veteran benefit system with Cabinet-level status. It is the United States government’s second largest department, after the United States Department of Defense...
programs. The Company attempts to rehabilitate the loans, using the servicing operations of Countrywide Home Loans, with the intent to securitize those loans that become eligible for securitization. The remaining loans are serviced through foreclosure and liquidation, which includes the collection of government insurance and guarantee proceeds relating to defaulted FHA and VA program loans.
Securities trading activities include the trading of debt securities in the secondary market after the original issuance of the security. Underwriting
Underwriting
Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
activities encompass the assumption of the risk of buying a new issue of securities from the issuer and reselling the securities to investors, either directly or through dealers. Capital Markets primarily underwrites mortgage-related debt securities.
Insurance
The Insurance segment activities include offering property, casualty, life and credit insurance as an underwriter and as an insurance agency, and providing reinsurance coverage to primary mortgage insurers, through two business units: Balboa Life and Casualty Operations, and Balboa Reinsurance Company.Balboa Life and Casualty Group underwrite property, casualty, life and credit insurance
Credit insurance
Credit insurance is a term used to describe both business credit insurance and consumer credit insurance, e.g., credit life insurance, credit disability insurance Credit insurance is a term used to describe both business credit insurance (a.k.a. trade credit insurance) and consumer credit...
in all 50 states through the Balboa Life and Casualty Group. Its products include Lender-Placed Property and Auto, which includes lender-placed auto insurance and lender-placed, real-property hazard insurance; Voluntary Homeowners and Auto, which underwrites retail homeowners insurance and home warranty plans for consumers, and Life and Credit, which underwrites term life, credit life and credit disability insurance
Disability insurance
Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary's earned income against the risk that a disability will make working uncomfortable , painful , or impossible...
products.
Balboa Reinsurance Company provides a mezzanine layer of reinsurance
Reinsurance
Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...
coverage for losses between minimum and maximum specified amounts to the insurance companies that provide private mortgage insurance (PMI) on loans in its servicing portfolio. It provides this coverage with respect to substantially all of the loans in the Company's portfolio that are covered by PMI, which generally includes all conventional loans with an original loan amount in excess of 80% of the property's appraised value. In return for providing this coverage, it earns a portion of the PMI premiums.
Global operations
The primary activities of the Global Operations segment was Global Home Loans (GHL): a UK third party administrator (TPA) formed out of a joint venture between Countrywide and Woolwich plc in 1998. Activities included Loan Processing and Subservicing, providing mortgage loan application processing and mortgage loan subservicing in the United Kingdom.Following the acquisition of Woolwich by Barclays plc, this relationship developed further, with GHL acquiring the Barclays mortgage portfolio, through a transfer of ownership of the Barclays mortgage operation in Leeds to GHL in 2003.
By 2005, GHL operation processed more than 11.3 billion pounds sterling ($20.3 billion) in loans, all of which are subserviced for Barclays
Barclays plc
Barclays PLC is a global banking and financial services company headquartered in London, United Kingdom. As of 2010 it was the world's 10th-largest banking and financial services group and 21st-largest company according to a composite measure by Forbes magazine...
, PLC
Public limited company
A public limited company is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions....
, the joint venture partner. As of December 31, 2005, Global's subservicing portfolio was 59 billion pounds sterling ($102 billion).
In November 2005, Barclays announced that it intended to terminate the third party administration arrangement with GHL and bring the mortgage originations and servicing operations back in-house. This resulted in Countrywide buying out Barclays' remaining 30% stake in GHL. Barclays brought the operation back in-house in February 2006.
Since then Global's presence in the UK has been confined to providing support to Barclays and Prudential Assurance, who continue to use the proprietary originations, servicing and arrears processing systems developed for GHL and Countrywide by Countrywide Technology Group (CWTG).
A second venture in the UK, Valuation Services, provided one of the first electronic residential property valuation services to third parties in the United Kingdom through a majority-owned joint venture. This was sold to First American in 2007.
Offshore Services commenced operations in India in 2004. Set up to exploit the strategic advantage of employing systems specialists based in the sub-continent, it provides business process and technology services to the Parent Company and its subsidiaries in both the United States and the United Kingdom.
Countrywide Financial's former management
- Angelo R. MoziloAngelo MoziloAngelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...
, cofounder, chairman of the boardChairman of the BoardThe Chairman of the Board is a seat of office in an organization, especially of corporations.Chairman of the Board may also refer to:*Chairman of the Board , a 1998 film*Chairmen of the Board , a 1970s American soul music group...
, chief executive officerChief executive officerA chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization... - David S. LoebDavid S. LoebDavid S. Loeb was the co-founder of both Countrywide Financial Corp and IndyMac Bank along with former protégé and longtime business partner Angelo Mozilo...
, cofounder, President and Chairman from 1969 to 2000 - David Sambol, president, chief operating officerChief operating officerA Chief Operating Officer or Director of Operations can be one of the highest-ranking executives in an organization and comprises part of the "C-Suite"...
, director - Eric P. Sieracki, chief financial officerChief financial officerThe chief financial officer or Chief financial and operating officer is a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management...
, executive managing director - Jack Schakett, executive managing director, chief operating officer
- Kevin Bartlett, executive managing director, chief investment officer
- Andrew GissingerAndrew GissingerAndrew Gissinger III is a former professional football player who became the president and Chief Operating Officer of Countrywide Home Loans.Today, Gissinger owns and manages a private equity company...
, executive managing director, chief production officer, Countrywide Home Loans - Sandor E. Samuels, executive managing director, chief legal officerChief Legal OfficerA chief legal officer is the highest-ranking corporate officer concerning legal affairs of a corporation or agency. Chief legal officers typically hold the title of general counsel.- Skill requirements :...
and assistant secretary - Ranjit Kripalani, executive managing director and president, Capital Markets
- Laura K. Milleman, senior managing director, chief accounting officer
- Marshall Gates, senior managing director, chief administrative officerChief administrative officerA chief administrative officer is responsible for administrative management of private, public or governmental corporations. The CAO is one of the highest ranking members of an organization, managing daily operations and usually reporting directly to the chief executive officer. In some companies,...
- Timothy H. Wennes, senior managing director, president and chief operating officer, Countrywide Bank FSB
- Anne D. McCallion, senior managing director, chief of financial operations and planning
- Steve Bailey, senior managing director of loan administration, Countrywide Home Loans
Bank of America Home Loans Management
- Barbara J. Desoer, President of Bank of America Home Loans and Insurance
Employee and contract labor issues
In 2003, Countrywide was the subject of a class-action lawsuit alleging overtime violations. Countrywide was charged with working employees 10–15 hours per day, 6 to 7 days per week without compensating them for overtime wages. The lawsuit was settled in May 2005, with the payment of $30 million in compensation to 400 account executives.Additionally, Countrywide is one of many companies that conducts in-depth background searches of new employee applicants. The background search goes beyond typical employment, education, and criminal history searches, and enables a company to view the applicant's credit, and public record documents such as lawsuits and divorce records.
Although it must be authorized by the applicant, Countrywide explicitly does not consider applicants who deny authorization for a search.
This policy has led to otherwise qualified applicant complaints and dispute filings which claim this policy is discriminatory, invasive, and compromises the applicant's privacy.
Countrywide maintains a policy of not filing the legally required Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
Form 1099 to independent brokers. The validity of this is questionable however.
Minority and subprime borrowers
Countrywide agreed to a settlement with New York state attorney general Elliot Spitzer to compensate black and Hispanic borrowers improperly steered by Countrywide salespeople to higher-cost loans. The company also agreed to improve training and oversight of its loan officers and to pay New York state $200,000 to cover costs of the investigation.Countrywide subprime documents show a policy of lending to families with as little as $1000 of disposable income, often compromising their ability to pay living expenses.
Economist Stan Liebowitz writes that the Fannie Mae Foundation singled out Countrywide Financial as a "paragon" of a nondiscriminatory lender who works with community activists, following "the most flexible underwriting criteria permitted." The chief executive of Countrywide is said to have bragged that in order to approve minority applications, "lenders have had to stretch the rules a bit." Countrywide's commitment to low-income loans had grown to $600 billion by early 2003.
Hurricanes Katrina, Gustav & Rita complaints
Some customers have complained that after the devastating hurricanes KatrinaHurricane Katrina
Hurricane Katrina of the 2005 Atlantic hurricane season was a powerful Atlantic hurricane. It is the costliest natural disaster, as well as one of the five deadliest hurricanes, in the history of the United States. Among recorded Atlantic hurricanes, it was the sixth strongest overall...
, Gustav
Hurricane Gustav
The name Gustav has been used for five tropical cyclones in the Atlantic Ocean:* 1984's Tropical Storm Gustav - Spent most of its existence as a tropical depression hovering over Bermuda, no major damage was reported....
& Rita
Hurricane Rita
Hurricane Rita was the fourth-most intense Atlantic hurricane ever recorded and the most intense tropical cyclone ever observed in the Gulf of Mexico. Rita caused $11.3 billion in damage on the U.S. Gulf Coast in September 2005...
, Countrywide told loan customers in the affected areas that they could take a break on payments without any late fees, and the payments would be added back to the end of the loan. They now contend that Countrywide forced the loan customers to pay the missed payments in a lump sum, along with late fees they were told they didn't have to pay, within 30 days or face foreclosure.
"Friends of Angelo" VIP program
In June 2008 Conde Nast PortfolioCondé Nast Portfolio
Portfolio.com is a website published by American City Business Journals that provides news and information for small to mid-sized businesses. It was formerly the website for the monthly business magazine Condé Nast Portfolio, published by Condé Nast from 2007 to 2009.Portfolio.com is continually...
reported that numerous Washington, DC politicians over recent years had received mortgage financing at noncompetitive rates because the corporation considered the officeholders "FOA's"—"Friends of Angelo". The politicians extended such favorable financing included the chairman of the Senate Banking Committee, Christopher Dodd
Christopher Dodd
Christopher John "Chris" Dodd is an American lawyer, lobbyist, and Democratic Party politician who served as a United States Senator from Connecticut for a thirty-year period ending with the 111th United States Congress....
, the chairman of the Senate Budget Committee and Kent Conrad
Kent Conrad
Kent Conrad is the senior United States Senator from North Dakota. He is a member of the North Dakota Democratic-NPL Party, the North Dakota affiliate of the Democratic Party...
. The article also noted Countrywide's political action committee
Political action committee
In the United States, a political action committee, or PAC, is the name commonly given to a private group, regardless of size, organized to elect political candidates or to advance the outcome of a political issue or legislation. Legally, what constitutes a "PAC" for purposes of regulation is a...
had made large donations to Dodd's campaign.
Senator Dodd proposed that the federal government buy up to $400 Billion in defaulted mortgages. Citizens for Responsibility and Ethics in Washington (CREW
Citizens for Responsibility and Ethics in Washington
Citizens for Responsibility and Ethics in Washington is a nonprofit 501 organization that describes itself as "dedicated to promoting ethics and accountability in government and public life by targeting government officials – regardless of party affiliation – who sacrifice the common good to...
) has called for House and Senate to investigate Senators Conrad and Dodd.
It was reported that James Johnson
James A. Johnson (businessman)
James A. Johnson is a United States Democratic Party political figure, and the former CEO of Fannie Mae. He was the campaign manager for Walter Mondale's failed 1984 presidential bid and chaired the vice presidential selection committee for the presidential campaign of John Kerry...
, former CEO of Fannie Mae and an adviser to presidential candidate Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
, had received loans under the "Friends of Angelo".
Johnson announced he would step down from the vice-presidential vetting position on June 11, 2008 in order to avoid being a distraction to Obama's campaign.
In June 2008 The Wall Street Journal
The Wall Street Journal
The Wall Street Journal is an American English-language international daily newspaper. It is published in New York City by Dow Jones & Company, a division of News Corporation, along with the Asian and European editions of the Journal....
reported that Franklin Raines
Franklin Raines
Franklin Delano "Frank" Raines is an American business executive. He is the former chairman and chief executive officer of the Federal National Mortgage Association, commonly known as Fannie Mae, who served as White House budget director under President Bill Clinton...
, a former CEO of Fannie Mae, received below market rates loans at Countrywide Financial because the corporation considered the officeholders "FOA's"—"Friends of Angelo" (Countrywide Chief Executive Angelo Mozilo
Angelo Mozilo
Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...
). He received loans for over $3 million while CEO of Fannie Mae.
On July 16, 2008, The Washington Post
The Washington Post
The Washington Post is Washington, D.C.'s largest newspaper and its oldest still-existing paper, founded in 1877. Located in the capital of the United States, The Post has a particular emphasis on national politics. D.C., Maryland, and Virginia editions are printed for daily circulation...
reported that Franklin Raines had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters." Subsequent attempts to connect Obama's campaign with Franklin Raines were characterized by The Washington Post as "a stretch".
Lawsuits
The office of Attorney General of Illinois, Lisa MadiganLisa Madigan
Lisa Madigan has been the 41st Attorney General of the US state of Illinois since 2003, when she became the first female attorney general for Illinois...
, filed a civil lawsuit in Cook County
Cook County, Illinois
Cook County is a county in the U.S. state of Illinois, with its county seat in Chicago. It is the second most populous county in the United States after Los Angeles County. The county has 5,194,675 residents, which is 40.5 percent of all Illinois residents. Cook County's population is larger than...
Circuit Court
Circuit court
Circuit court is the name of court systems in several common law jurisdictions.-History:King Henry II instituted the custom of having judges ride around the countryside each year to hear appeals, rather than forcing everyone to bring their appeals to London...
against Countrywide Financial Corporation on June 25, 2008. The lawsuit cites information gathered from documents obtained via a subpoena in the fall of 2007. Madigan's office claims the "mortgage lender engaged in "unfair and deceptive" practices to get homeowners to apply for risky mortgages far beyond their means."
California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
Attorney General, Jerry Brown
Jerry Brown
Edmund Gerald "Jerry" Brown, Jr. is an American politician. Brown served as the 34th Governor of California , and is currently serving as the 39th California Governor...
, followed suit by filing a similar lawsuit on June 25, 2008, accusing the lender of breaking the state's laws against false advertising
False advertising
False advertising or deceptive advertising is the use of false or misleading statements in advertising. As advertising has the potential to persuade people into commercial transactions that they might otherwise avoid, many governments around the world use regulations to control false, deceptive or...
and unfair business practices. The lawsuit also claims the defendant mislead many consumers by misinforming them about the workings of certain mortgages such adjustable-rate mortgages, interest-only loan
Interest-only loan
An interest-only loan is a loan in which, for a set term, the borrower pays only the interest on the principal balance, with the principal balance unchanged...
s, low-documentation loans and home-equity loans while telling borrowers they would be able to refinance before the interest rate on their loans adjusted.
In August 2008, Connecticut
Connecticut
Connecticut is a state in the New England region of the northeastern United States. It is bordered by Rhode Island to the east, Massachusetts to the north, and the state of New York to the west and the south .Connecticut is named for the Connecticut River, the major U.S. river that approximately...
Attorney General Richard Blumenthal
Richard Blumenthal
Richard Blumenthal is the junior United States Senator from Connecticut and a member of the Democratic Party. Previously, he served as Attorney General of Connecticut....
also brought suit against Countrywide, alleging that deceptive lending practices had ripped off Connecticut homeowners.http://www.courant.com/business/nationworld/ats-ap-countrywide-lawsuitaug06,0,6712837.story
The suit was settled in October 2008 after Bank of America acquired Countrywide. The settlement involves the modifying of troubled 'predatory loans' up to $8.4 billion dollars. The states currently involved in the settlement are Arizona, California, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas, and Washington. Other states may also join the settlement.
There is also a shareholder class action lawsuit for investors in asset-backed securities from Countrywide.
Secondary market disruption
When Countrywide finances mortgage loans, they usually package them for sale to large investors as mortgage-backed securitiesMortgage-backed security
A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...
. Fannie Mae or Freddie Mac can only buy loans which conform to the standards of government sponsored enterprises. Non-conforming mortgages securities must be sold in the private, secondary market to alternative investors. On August 3, 2007, this secondary market essentially stopped trading most of the non-conforming securities.
Secondary mortgage market disruptions had happened previously, but, the new disruption appeared more serious, both larger in range and likely duration.
Alt-A mortgages (loans given to apparently creditworthy borrowers without much or any documentation) completely stopped at ratings lower than AAA.
Difficulties extended to much of AAA-rated mortgage-backed securities. Only securities with conforming mortgages were trading.
Countrywide Financial issued a statement that its mortgage business has access to a nearly $50 billion funding cushion.
After the collapse of American Home Mortgage
American Home Mortgage
American Home Mortgage Investment Corporation was the 10th largest retail mortgage lender in the United States and was structured as a real estate investment trust .It has filed for bankruptcy....
on August 6, attention returned to Countrywide Financial which at the time had issued about 17% of all mortgages in the United States.
Only days later Countrywide Financial disclosed to the U.S. Securities and Exchange Commission (SEC) that these disruptions in the secondary mortgage markets could hurt it financially:
- "Since the company is highly dependent on the availability of credit to finance its operations, disruptions in the debt markets or a reduction in our credit ratings could have an adverse impact on our earnings and financial condition, particularly in the short term… Current conditions in the debt markets include reduced liquidity and increased credit risk premiums for certain market participants. These conditions, which increase the cost and reduce the availability of debt, may continue or worsen in the future…. There can be no assurance, however, that the Company will be successful in these efforts, that such facilities will be adequate or that the cost of debt will allow us to operate at profitable levels."
This raised speculation that Countrywide was a potential bankruptcy risk.
On August 10, a run on the bank began as the secondary mortgage market shut down, curtailing new mortgage funding.
The perceived risk of Countrywide bonds rose. Fitch, Moody's and Standard and Poors credit ratings agencies downgraded Countrywide 1 or 2 grades, some to near junk status. The cost of insuring its bonds rose 22% overnight.
This also limited its access to short-term debt called commercial paper. This is often cheaper than bank loans. Some institutional investors admitted trying to sell Countrywide paper.
Fifty other mortgage lenders had already filed for Chapter 11 bankruptcy, and Countrywide Financial was cited as a possible bankruptcy risk by Merrill Lynch and others on August 15. This combined with news that its ability to issue new commercial paper might be severely hampered put severe pressure on the stock. Its shares fell $3.17 to $21.29, which was its biggest fall in a single day since the crash of 1987 - the shares had fallen 50% so far that year. On August 15, 2007, Merrill Lynch advised its clients to sell their stock in Countrywide.
Announcement of problems and bailouts
On Thursday, August 16, 2007 the company expressed concerns over liquidity because of the decline of the secondary market for securitized mortgage obligations. Countrywide also announced its intent to draw on the entire $11.5 billion credit line from a group of 40 banks including JPMorgan Chase.On Friday August 17, many depositors sought to withdraw their bank accounts.
Countrywide also planned to make 90% of its loans conforming.
By this point stock shares had lost about 75% of their peak value and speculation of bankruptcy broadened.
At the same time the Federal Reserve Bank
Federal Reserve Bank
The twelve Federal Reserve Banks form a major part of the Federal Reserve System, the central banking system of the United States. The twelve federal reserve banks together divide the nation into twelve Federal Reserve Districts, the twelve banking districts created by the Federal Reserve Act of...
lowered the discount rate 0.5% in a last-minute, early morning conference call. The Fed accepted about $17.2 billion in repurchase agreement
Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
s for mortgage backed securities to aid in liquidity. This also helped calm the stock market and investors promptly responded positively with the Dow posting gains.
Additionally, the firm was forced to restate income it had claimed from accrued but unpaid interest on "exotic" mortgages where the initial pay rate was less than the amortization rate. In 2007 it became apparent much of this interest had become uncollectable.
In a letter dated August 20, Federal Reserve agreed to waive banking regulations at the request of Citigroup and Bank of America. The Fed agreed to exempt both banks from rules that limited the amount that federally-insured banks can lend to related brokerage companies to 10% of bank capital. Until then, banking regulation was that banks with federally insured deposits should not be put at risk by brokerage subsidiaries' activities. On August 23, Citibank and Bank of America said that they and two other banks accessed $500 million in 30-day financing at the Fed's discount window
Discount window
The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions...
. The same day, Countrywide Financial obtained $2 billion of new capital from Bank of America Corp. For this the Bank of America brokerage arm would get convertible preferred stock.
On November 26, 2007, Countrywide stock was hammered on the NYSE, dropping over 10% to a level of $8.64/share; less than half the share's value in August when the firm faced bankruptcy rumors
and a fraction of its value in 2006. One proximate cause were reports that the Atlanta Federal Home Loan Bank had extended a large amount of its credit to Countrywide to offset its inability to raise funds in the private market. Senator Chuck Schumer called for an investigation as to the prudence of the FHLBB's action in this regard.
From 2005 to 2007 Angelo R. Mozilo
Angelo Mozilo
Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...
sold much of his CFC stock realizing $291.5 million in profits. A class action suit was filed on behalf of shareholders alleging securities violations.
In September 2008, Countrywide sends letters to its mortgage customers to inform that one of their employees had stolen identity information that contained social security numbers and birth dates. Countrywide apologizes in the letter and offers free credit monitoring for 90 days.
'Protect Our House' PR campaign
In September 2007, after months of negative publicity and the announcement of a reduction of 20% of its workforce, Countrywide launched a public relations campaign aimed at demoralized employees. Employees were expected to sign a pledge to "demonstrate their commitment to our efforts" and "to tell the Countrywide story to all". Those who signed the pledge received a green rubber Protect Our House wristband.Takeover
The endgame in Bank of AmericaBank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
's $4 billion takeover of Countrywide Financial began with a December phone call from Countrywide Chief Executive Angelo Mozilo
Angelo Mozilo
Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...
to his Bank of America counterpart, Kenneth D. Lewis. And on January 11, 2008, Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
announced it had agreed to buy Countrywide for $4 billion in an all-stock transaction. The stock's value settled at about $5½ per share following the announcement; it had been as low as $4.43 before the Bank of America deal was announced.
After more than six months of financial deterioration at Countrywide—despite a $2 billion infusion of cash from Bank of America in August—Mozilo said he was ready to throw in the towel, according to Lewis.
At the same time, having watched Countrywide dramatically retool its operations in a bid to survive, Bank of America executives began to believe Countrywide's big U.S. mortgage business might be worth having.
"The ability to get that kind of size and scale became more appealing as we saw the business model change to a model we could accept," Lewis said. "We considered the lawsuits, the negative publicity that Countrywide had. We weighed the short-term pain versus what we think will be a very good deal for our shareholders."
Bank of America deployed 60 analysts from its headquarters in Charlotte, N.C., to Countrywide's headquarters in Calabasas, Calif. After four weeks analyzing Countrywide's legal and financial predicament, and modeling how its loan portfolio was likely to perform, Bank of America offered an all-stock deal valued at $4 billion for Countrywide—a fraction of the company's $24 billion market value a year ago. Countrywide shareholders approved the deal on June 25, 2008 and it closed July 2, 2008. Bank of America announced on June 26, 2008 that the takeover of Countrywide Financial Corp. will result in the loss of 7,500 jobs over the next two years.
The deal is a landmark in the housing crisis, given Countrywide's prominence as the nation's largest mortgage lender, at least until recently.
SEC charges
On June 4, 2009, the U.S. Securities and Exchange Commission charged former CEO Angelo MoziloAngelo Mozilo
Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...
with insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
and securities fraud
Securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a practice that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws....
, and former COO David Sambol and former CFO Eric Sieracki with securities fraud for failing to disclose Countrywide's lax lending standards in Countrywide's 2006 annual report. Despite these charges, Countrywide, and then its successor Bank of America, were awarded the Property Management contract with the Veterans Administration. A July 22, 2008 memo from Judith Caden, VA Director of Loan Guaranty Service issued this proclamation in Circular 26-08-10. Bank of America still retains this position with VA.
See also
- United States housing bubbleUnited States housing bubbleThe United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...
- 2007 Subprime mortgage financial crisis
- New Century Financial
External links
- "What the Countrywide deal means for your mortgage", CNN Money, January 11, 2008
- Timeline of events leading to Countrywide Financial's buyout by Bank of America, San Diego Union Tribune, January 11, 2008
- Housing, 2009, "Home Retention Plans" Housing Crisis: Overview of Countrywide Homeownership Retention Program