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For customers, more stability but less choice

Sale of Countrywide to Bank of America draws conflicted appraisals.

January 12, 2008|Kathy M. Kristof | Times Staff Writer

Consumer advocates and mortgage experts didn't know whether to cheer or jeer the announcement that Bank of America had agreed to purchase troubled Countrywide Financial Corp.

On one hand, the takeover would reduce competition by consolidating two of the nation's biggest lenders. Bank of America is already the nation's largest bank. If the deal goes through, more than $1 in every $10 deposited in the U.S. will be under the BofA umbrella.

On the other hand, experts agreed that the combination was better than having Countrywide go under, at least as far as loan availability was concerned. Countrywide has also been the target of severe criticism over business practices that have led to foreclosures and dozens of lawsuits. Some believe Bank of America will do better.

"It's good news and bad news," said Jeff Lazerson, president of Mortgage Grader, an online loan shopping service. "The good news is there is a bigger gorilla out there that is going to throw them a lifeline. That's going to mean a lot less chaos for borrowers who have their loans serviced by Countrywide. And Bank of America is a good operator who knows what they're doing.

"From a standpoint of choice, it's not good," Lazerson said. "You will have more of a monopoly going on. There are going to be very few big banks left in this country making loans."

It is already difficult for borrowers to find so-called jumbo loans -- those of more than $417,000 -- Lazerson said.

A dearth of lenders in this market has led to higher interest rates for such loans, Lazerson noted. Whereas jumbo mortgages have typically carried interest rates about 0.25 of a point higher than those under $417,000, the differential is now closer to 0.875 of a point, he said. And that's for borrowers who can find a lender willing to make such a loan.

Borrowers who don't have a 20% down payment, good credit and a steady job may not be able to get a home loan at all because so few lenders are willing to take any risks, he added. In that environment, losing a major player is worrisome. Countrywide originated $408 billion in mortgages in 2007.

Aaron Szabo, a Palmdale mortgage broker, noted that BofA had withdrawn from wholesale mortgage lending -- loans made through independent brokers -- and he predicted it eventually would do the same with Countrywide's operation.

"It means brokers would not be able to offer that [Countrywide product] to their clients," making loans more expensive and less available, he said. "It could make it more difficult for more buyers to get into the homes they want."

Added Norma P. Garcia, senior attorney with Consumers Union in San Francisco: "Consumers definitely benefit from competition. To the extent that this reduces the number of competitors out there, there is some concern."

But Garcia said less competition isn't always bad.

"If you have fewer competitors engaging in more responsible lending practices, I think you are better off than having more competitors who are not doing the right thing," she said.

Countrywide has been widely criticized for originating sub-prime loans that have proved unaffordable and are now fueling a wave of foreclosures. The Greenlining Institute, a Berkeley-based advocacy group focused on foreclosures, said that as a condition of approval Bank of America should be required to pledge to meet higher standards.

Bank of America Chief Executive Kenneth Lewis "and the BofA have a great brand name and a good home-lending reputation," Robert Gnaizda, general counsel for the group, said in a statement. He must "immediately assume responsibility for Countrywide's fraudulent and misleading practices."


Times staff writer Peter Y. Hong contributed to this report.



Terms of the deal

Here are details of Bank of America's planned acquisition of Countrywide Financial:

Price: $4.1 billion. Countrywide shareholders will get 0.1822 share of Bank of America stock for each share of Countrywide. (BofA already invested $2 billion in Countrywide last summer and will record a $1.2-billion restructuring charge).

Close: The deal is expected to be completed in the third quarter of this year.

Combined strength: With the acquisition of Countrywide, Bank of America is expected to originate 25% of the nation's home loans and service 17% of them.

Retail offices: Countrywide: 1,000-plus, 200 with bank operations. Bank of America: 6,100 branches and 17,000 ATMs.

Market share: Bank of America is No. 1 in deposits and credit cards, Countrywide in mortgages.

Approvals: Banking regulators and Countrywide stockholders must OK deal; approval is expected.

Effect on profit: No effect on BofA earnings in 2008; expected to add 3% in 2009.

Source: Times research

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