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Big Bank Set To Buy Big Pile of Trouble- by Greg Strid

Bank of America is inching closer to purchasing Countrywide
Financial, the poster child for all that went wrong with
subprime mortgage lending over the past several years.
Granted, no cash will change hands; Bank of America will
pay $4 billion in stock. This is on top of $2 billion in preferred
stock that Bank of America invested in Countrywide last August.

Countrywide has been America’s largest mortgage lender,
gleefully lending copious amounts of credit to those least
likely to handle it responsibly. Not only did Countrywide lend
irresponsibly, they did so deceitfully, creating mortgage
documents loaded with hidden penalties and restrictions.
Countless lenders, from coast to indebted coast, engaged in
these practices, creating a prime source of hot air that inflated
the housing bubble.

According to Mortgagedaily.com, close to 150 mortgage
lenders went belly-up last year. With delinquent loans and
foreclosures in its rotting portfolio surging, and credit lines
tapped out, Countrywide was very close to declaring bankruptcy
(although this was adamantly denied by its unnaturally-tanned,
smooth-talking CEO, Angelo R.Mozilo).

People who have lost their homes due to unscrupulous sales
tactics by Countrywide’s mortgage sales force, along with
legions of investors burned by investing in securities backed by
these now worthless mortgages are planning their revenge.
Buying Countrywide exposes Bank of America to a tidal wave of
litigation. It seems that even if Countrywide’s underlying
businesses of loan origination and servicing are salvageable, the
risks and litigation costs associated with this investment far
outweigh the possible returns.

©Greg Strid 2008

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