Troubled Lender in Negotiations with Bank of America

by Peter Vernon on Bank of America Foreclosures

With rumors of a bankruptcy floating in the past week, mortgage lender Countrywide Financial is in serious talks with Bank of America.

As the largest mortgage lender in the United States, Countrywide has become the center of attention due to the major role it played in the subprime market crisis. Amidst accusations of predatory lending practices, Countrywide suffered a major blow when the number of defaults started soaring in 2006. Last year, the company lost $20 billion in market value when its stock price dropped by 80 percent.

According to sources who witnessed the transaction, the Bank of America has agreed to a $4 billion price tag – $500 million short of Countrywide’s current market value. The all-stock transaction might benefit Countrywide’s stockholders if the bank’s stock prices increase. The news of a possible acquisition has already improved the lender’s stock prices by 51 percent.

The rumored acquisition has also resulted to further scrutiny of the mortgage industry. Poor lending guidelines and lack of regulation have always been blamed for the industry’s current troubles. The Wall Street will not escape scrutiny as well especially with rumors of possible financial engineering.

The decision of the Bank of America to acquire Countrywide comes in the wake of its desire to increase its presence in the mortgage banking industry. With the financial problems that Countrywide is experiencing, the Bank of America will certainly have its hands full. In addition to possible losses, legal liabilities for Countrywide’s aggressive lending practices will have to be faced.

In 2006, nearly 1.2 million foreclosure filings were recorded. Experts believe that the total filings for 2007 will surpass the previous year’s record. The worsening housing market conditions have dramatically affected the national economy and some analysts believe that the nation is headed for recession.

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