Bank of America agreed on Friday to purchase Countrywide Financial, the leading mortgage lender in the US, for $4.1 billion in stock. This follows a $2 billion investment by Bank of America in August 2007 which was intended to ease pressures on Countrywide from mounting foreclosures and delinquencies. The deal, already approved by both boards, is now in the hands of regulators who will determine if the acquisition violates any antitrust laws.
The buyout answers the big question about who will assume responsibility for collecting payments and servicing the more than 9 million U.S home loans serviced by Countrywide Financial. BOA is no stranger to the mortgage industry. In the first 9 months of 2007, the lender was the top mortgage originator whose focus has been to increase share of mortgages to borrowers who have solid credit as opposed to the subprime loans currently being scrutinized as part of the mortgage industry meltdown.
The merger will take approximately 2 years to complete, but in the meantime BOA will continue to operate Countrywide operations under the Countrywide Financial brand name.
The jury is still out on whether or not this deal will make a dent in the problems caused by the subprime lending practices at Countrywide, but it seems to be a step in the right direction. We'll have to keep an eye on Bank of America in the coming months to see whether or not there will be a significant ease in the mortgage crisis as a result of the merger.
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