Bank of America puts Countrywide lending unit up for sale
Bank of America Corp. plans to jettison another piece of the troubled Countrywide mortgage empire — a lending arm that buys home loans from smaller institutions to then package into mortgage-backed securities on Wall Street.
The beleaguered banking giant has shopped the business around and is in serious talks with one potential acquirer, according to spokesman Dan Frahm. If it can’t strike a deal, Bank of America would shut down the business, jeopardizing 1,400 jobs, including 700 in Westlake Village and Thousand Oaks.
The decision to sell the unit comes as Bank of America has been shedding businesses it considers nonessential. Chief Executive Brian Moynihan is trying to raise capital and focus the company, the nation’s largest retail bank, on selling multiple products to its core customers.
With this, Bank of America has decided to get out of correspondent lending, a low-margin business that buys loans made by smaller institutions. Though these loans accounted for more than half of BofA’s mortgage volume, the bank now wants to concentrate on those made directly with consumers.
Analysts believe that BofA might be hard-pressed to sell the business, which is usually composed of riskier loans than those that the Charlotte-based bank would have made directly with customers. During the boom years, such purchased loans were a huge source of raw material for the mortgage-related securities that later proved toxic.
“Correspondent systems tend to be bucket shops that generate rotten loans,” said Rochdale Securities analyst Richard X. Bove. “It is unlikely that there would be many buyers for this system.”
Further, RBC Capital Markets analyst Paul Miller said that correspondent lending is a high-volume, low-margin enterprise that banks often shut down and start up again depending on the vagaries of the mortgage market. At the moment, Miller said he “didn’t think the correspondence business is worth anything.”
Analysts didn’t know how much Bank of America was looking to sell the unit for or who the bank was in talks with. A spokesman for BofA declined to comment.
Bank of America is the nation’s second-largest correspondent lender, with a 23% share to leader Wells Fargo & Co.’s 26.2% of the market, according to Inside Mortgage Finance. BofA became a dominant player in the correspondent lending business through its acquisition of Countrywide Financial Corp. in 2008.
One of the stated reasons behind BofA’s acquisition of Countrywide was the superior systems the Calabasas company was said to have developed for all aspects of the home lending business, including correspondent lending. But after recording tens of billions in losses related to Countrywide, Bank of America has wound up selling or shutting down many mortgage operations.
The bank previously exited wholesale mortgage lending, which is making loans through brokers; and the reverse mortgage business, which allows older people to remain in their homes while drawing down the home equity to live on.
It also sold Balboa Insurance, a legacy Countrywide unit. Balboa provides insurance policies that are forced upon homeowners who let their own fire insurance lapse, often because they are headed for foreclosure.
