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Bank of America Chief Executive Ken Lewis stopped by The Times this week to discuss with editors and reporters his company's approach to the housing crisis and its takeover of troubled mortgage lender Countrywide Financial Corp. Here are some highlights.
Acquiring Countrywide Financial
Jon Healey, L.A. Times: Talk about absorbing Countrywide. In the past month or so, I think three state attorneys general have indicated they want a piece of you. How's that going to affect the closure of this transaction and how does that ultimately cloud the future?
Ken Lewis: Well, the transaction has closed — it closed on July 1 — so that's done. And secondly, when we did our due diligence, we expected some states doing what they have done. And there's always another side to every story, and we — to the extent that there are other sides — we plan to tell them. It's interesting that as we look back at Countrywide, for most of their existence, they have been put on the positive pedestal, in the sense that they were providers of homeownership....
It seems as we look at it retrospectively, they kind of went into a shell and didn't say much about what they were doing right and didn't push back. And we couldn't say much because we didn't own them. But to the extent there are other stories other than just bad ones, we plan to tell the other side of the story well. And so, we don't think in every instance that Countrywide was the bad guy. And to the extent that is the case, you'll hear about that going forward .
Healey: What sorts of things is Countrywide being blamed for they didn't actually do? Because there's sort of a perception on the market that it was one of the companies in the lead on playing fast and loose with risk and trying to push buyers recklessly into loans they weren't qualified for and that they really didn't understand.
Lewis: Yeah, we would have to just look at every — that's one of the things that we'll do in these lawsuits. We'll look at each individual case and determine whether we think that is the case or not. But encouragement to tell a lie doesn't justify telling a lie, and so we'll see with those instances. It's hard to talk about these things in a broad sense other than the way I just talked about them because you've got to get into the individual circumstances, look at the documentation and hear the other side from the person that's being accused of pushing somebody into a bad loan.
So we just don't think that every single case that it was Countrywide doing the bad stuff, so to speak.
Healey: When you go about integrating Countrywide into its new home, are there practices, strategies, business models that you feel simply have to change there, that it isn't consistent with the Bank of American approach?
Lewis: Yes, there are quite a few. First of all, we stopped making subprime loans in 2001. We didn't think it was good for our company ... so that has ceased and will continue to cease. We didn't do Alt-A [loans] and pick-a-payment loans as well, and those were discontinued. And so the products will be the much more the traditional sort of products — there will be no [negative amortization] loans, for instance — and so it will be different. We think because of our position in marketplace, that we can redefine the world's banking market into a much more conservative lending body .
Bad loans and the declining housing market
Healey: What's driving the sharp increase in defaults on home equity and the differential between home equity and credit cards?
Lewis: Well, I think there's probably a correlation, just the economy deteriorating like it has, and so if you're not playing your credit card loan, then you're probably at some point not paying your home equity loan. And the difference in the severity issue is the fact that the declines in home prices cause there to be no value for the lending institution to go after.
Healey: So is there a correlation between the propensity to default on a home equity loan and whether the house is under water?
Lewis: Yeah, because people are walking away from both now.
Peter Y. Hong, L.A. Times: Are auto loans following, or are people continuing with the car payment?
Lewis: There's slight deterioration, but nothing like home equity and credit cards.
E. Scott Reckard, L.A. Times: How do you collect on a home equity loan, assuming they want to stay in the house?
Lewis: Well, if they're walking, obviously you don't, and you take a 100% loss, which historically is really unusual. But it's mainly outreach and calling and seeing if they'll come in, seeing if you can restructure something. But it's a conversation.
Acquiring Countrywide Financial
Jon Healey, L.A. Times: Talk about absorbing Countrywide. In the past month or so, I think three state attorneys general have indicated they want a piece of you. How's that going to affect the closure of this transaction and how does that ultimately cloud the future?
Ken Lewis: Well, the transaction has closed — it closed on July 1 — so that's done. And secondly, when we did our due diligence, we expected some states doing what they have done. And there's always another side to every story, and we — to the extent that there are other sides — we plan to tell them. It's interesting that as we look back at Countrywide, for most of their existence, they have been put on the positive pedestal, in the sense that they were providers of homeownership....
It seems as we look at it retrospectively, they kind of went into a shell and didn't say much about what they were doing right and didn't push back. And we couldn't say much because we didn't own them. But to the extent there are other stories other than just bad ones, we plan to tell the other side of the story well. And so, we don't think in every instance that Countrywide was the bad guy. And to the extent that is the case, you'll hear about that going forward .
Healey: What sorts of things is Countrywide being blamed for they didn't actually do? Because there's sort of a perception on the market that it was one of the companies in the lead on playing fast and loose with risk and trying to push buyers recklessly into loans they weren't qualified for and that they really didn't understand.
Lewis: Yeah, we would have to just look at every — that's one of the things that we'll do in these lawsuits. We'll look at each individual case and determine whether we think that is the case or not. But encouragement to tell a lie doesn't justify telling a lie, and so we'll see with those instances. It's hard to talk about these things in a broad sense other than the way I just talked about them because you've got to get into the individual circumstances, look at the documentation and hear the other side from the person that's being accused of pushing somebody into a bad loan.
So we just don't think that every single case that it was Countrywide doing the bad stuff, so to speak.
Healey: When you go about integrating Countrywide into its new home, are there practices, strategies, business models that you feel simply have to change there, that it isn't consistent with the Bank of American approach?
Lewis: Yes, there are quite a few. First of all, we stopped making subprime loans in 2001. We didn't think it was good for our company ... so that has ceased and will continue to cease. We didn't do Alt-A [loans] and pick-a-payment loans as well, and those were discontinued. And so the products will be the much more the traditional sort of products — there will be no [negative amortization] loans, for instance — and so it will be different. We think because of our position in marketplace, that we can redefine the world's banking market into a much more conservative lending body .
Bad loans and the declining housing market
Healey: What's driving the sharp increase in defaults on home equity and the differential between home equity and credit cards?
Lewis: Well, I think there's probably a correlation, just the economy deteriorating like it has, and so if you're not playing your credit card loan, then you're probably at some point not paying your home equity loan. And the difference in the severity issue is the fact that the declines in home prices cause there to be no value for the lending institution to go after.
Healey: So is there a correlation between the propensity to default on a home equity loan and whether the house is under water?
Lewis: Yeah, because people are walking away from both now.
Peter Y. Hong, L.A. Times: Are auto loans following, or are people continuing with the car payment?
Lewis: There's slight deterioration, but nothing like home equity and credit cards.
E. Scott Reckard, L.A. Times: How do you collect on a home equity loan, assuming they want to stay in the house?
Lewis: Well, if they're walking, obviously you don't, and you take a 100% loss, which historically is really unusual. But it's mainly outreach and calling and seeing if they'll come in, seeing if you can restructure something. But it's a conversation.
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