Will BofA Bail on Countrywide?

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Could Bank of America act like a troubled homeowner and hand the keys to Countrywide Financial back to the lender?


That’s the speculation on Wall Street as Countrywide shares fell 10.4%, to 5.36, on May 5. That’s well below the $7-a-share price indicated when Bank of America agreed in January to buy the nation’s largest mortgage company for $4.1 billion, BusinessWeek.com reports.


Things in mortgage land have gotten much worse in just the past five months. On Apr. 29, Countrywide reported an $893 million loss for this year’s first quarter, reflecting $3 billion in credit-related charges. The company wrote off $1.5 billion in losses on its residential loan portfolio, for example. That was 10 times the amount written off in the same quarter last year. Other charges were related to ongoing liabilities in mortgage securities the company has sold.


Two days later, the companies revealed in a Securities & Exchange Commission filing that Bank of America might not assume all of Countrywide’s debt. The filing said Countrywide has $97 billion in total debt. Some $11 billion is expected to be paid at the merger’s closing and $47 billion in borrowings from the Federal Home Loan Bank would also be repaid by Countrywide’s ongoing banking business. For the remaining $39 billion, however, the filing said Bank of America was still evaluating alternatives and it could make “no assurance that any of such debt would be redeemed, assumed, or guaranteed.”


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