The less-than-stellar mortgage lending industry got a huge show of support yesterday when Bank of America agreed to buy Countrywide Financial for $4 Billion. Obviously this won’t solve problems but it goes a long way in showing that someone believes the housing and mortgage market will eventually recover.
According to a Wall Street Journal article (quoting numbers from Inside Mortgage Finance), Countrywide and Bank of America controlled approximately 25% of the mortgage market during the first 9 months of 2007. That puts their market share at slightly more than twice their nearest competitor which is at a distant 11%. I’m curious to see if this plays out negatively as Bank of America seeks regulatory approval for the acquisition.
Given the state of the mortgage market, the acquisition will probably win Bank of America some bonus points as it teeters just below the 10% limit on U.S. deposits as regulators look to relax this restriction. Bank of America will also be getting a relatively large (I’m assuming some Countrywide members are already BofA account holders) base of potential new business - they’ll be able to offer their new members banking and credit card services which could be a huge selling point. I’ve also read rumors of tax breaks but nothing firm so far.
I think we’ll see some other large mortgage lenders at least enter into discussions, if not get bought out, by suiters. While the mortgage lending market doesn’t look great for most of America, it’s a prime acquisition target while prices are low.
Tags: bank of america, countrywide, housing market, mortgage lending
so whats interesting about this one is that i know a lot of the larger banks acquired smaller banks in order to “work around” some of the current mortgage limitations that the banks would have independently. for example, if a buyer wanted to get mortgage exceeding 417,000 in price - they would supceptable to the “jumbo-loan” category; due to this they split up the mortgage in first and second mortgage categories, but even more interestingly they, in essence, “outsource” the second mortage to their smaller aquired banks in order to avoid having their customers get hit with a PMI…. at least thats the way i understand it. i’m curious to see what impact - if it goes through - the stimulus package will have on the way deals are currently laid out now. (the stimulus package being discussed in congress is recommended an increase of the jumbo loan from 417 to a much higher amount (600 to 700) through the end of the year)….