The Federal Reserve held an unusual hearing Monday in Los Angeles on Bank of America Corp.'s proposed $4-billion takeover of troubled Calabasas mortgage lender Countrywide Financial Corp. But it was the Fed itself that came in for some of the harshest criticism.
U.S. Rep. Maxine Waters (D-Los Angeles) and others said the Fed needed to atone for failing to rein in the loose credit policies that brought down scores of lenders, took No. 1 mortgage maker Countrywide to the brink of collapse and knocked the economy for a loop.
Given “so troubling a history,” Waters said, “the Federal Reserve bears a heavy responsibility to prove its commitment and competence in the review of the Bank of America-Countrywide transaction.”
Acquiring Countrywide would give Bank of America, the nation’s largest retail bank, 25% of the mortgage market and an easy shot at growing larger as rivals constrict to deal with foreclosures, said Robert Gnaizda, policy director of the Greenlining Institute, a consumer advocacy group. He said he believed that Bank of America could capture 40% of the market within a few years.
Speakers at the hearing said the Fed shouldn’t approve the takeover without requiring industry-leading efforts to keep struggling borrowers in their homes. Several also urged the Fed not to approve the takeover until Bank of America provided more details of a foreclosure-relief plan.
“The outcome of this merger will not only impact working families and neighborhoods, but also the strength of the national economy,” said Kevin Stein, associate director of the San Francisco-based California Reinvestment Coalition.
Waters was among several participants who took aim at the hefty compensation of Countrywide co-founder and Chief Executive Angelo Mozilo, who cashed in $450 million in stock options before Countrywide hit the skids and its share price tumbled.
Orson Aguilar, executive director of the Greenlining Institute, suggested that Bank of America or Mozilo donate half of the $450 million -- $225 million -- to foreclosure-relief efforts.
Bank of America declined to comment on the suggestion, and a Countrywide spokesman did not respond to an inquiry.
Battered by $1.6 billion in losses in the second half of last year, Countrywide agreed in January to sell itself to Charlotte, N.C.-based Bank of America for $4 billion in stock.
Bank of America would base the combined mortgage business in Calabasas if the deal were approved by the Fed, which reviews bank takeovers to determine whether they are in the public interest.
Participants at the hearing lauded Bank of America for its promises to the Fed to refinance or modify $40 billion in mortgages to help 265,000 homeowners over two years, to double its community development lending and to increase its charitable giving by 33%.
Housing and community groups that have worked with the bank also praised its follow-through on past commitments to community development.
Bank of America’s Community Reinvestment Act rating, a regulatory gauge of its service in low-income neighborhoods, has been “outstanding” for six years in a row.
But participants said there was a lot to make up for at Countrywide, including complaints of promoting risky adjustable-rate loans, steering people with good credit into expensive sub-prime loans and botching loan collection and foreclosure proceedings so that struggling borrowers were frustrated, not assisted.
A Countrywide spokesman didn’t respond to a request for comment.
Liam McGee, Bank of America’s head of consumer and small-business lending, said the bank had been working with congressional Democrats on a plan to provide more Federal Housing Administration-insured loans to borrowers. The banks would first have to write down the value of the loans, restoring the homeowners’ equity.
McGee said the bank would offer tenants in foreclosed properties a choice: stay two months in the home after foreclosure or be paid $2,000 if they leave within a month.
Bank of America’s president for California, Janet Lamkin, said the bank was working on a comprehensive approach to addressing problems in areas where foreclosures are rampant, such as the Inland Empire.
In those areas, Bank of America might try to help nonprofits convert seized houses to uses that benefit the community, McGee said in an interview.
The hearing continues for a second and final day today at the Los Angeles branch of the Federal Reserve Bank of San Francisco, 950 S. Grand Ave. in downtown Los Angeles.