As Countrywide Financial Corp.'s stock price cratered and bankruptcy rumors swirled, Bank of America Corp. remained convinced that the largest U.S. home-loan company had a valuable franchise despite years of aggressive lending that left it buried in losses.
Kenneth D. Lewis, chairman of the nation's largest consumer bank, had been well-disposed toward Countrywide since the summer, when teams of his employees first examined the operations and books of the Calabasas-based mortgage colossus.
"People kept coming back and saying, 'This is really -- at the grass-roots level -- a very well-run mortgage company,' " Lewis said in an interview last week in Westlake Village, where he had flown from his bank's Charlotte, N.C., base to meet with Countrywide employees. "Its systems are good and its people are good."
Countrywide agreed last week to a $4-billion takeover by Bank of America. Countrywide would become a Bank of America unit and could retain its name depending on a review of how the public perceives the brand, bank officials said.
Talking optimistically about his troubled takeover target, Lewis said Countrywide was successfully reshaping itself as a more prudent lender, one poised to benefit from refinancings as interest rates fall.
The deal, expected to close in the third quarter, marks a reversal for Lewis, who had often expressed distaste for the mortgage industry's potential for questionable lending and unwieldy accounting. He had vowed repeatedly not to buy a home lender.
When Lewis became Bank of America's boss in 2001, the company quit making sub-prime mortgages to shaky borrowers (although its investment banking arm recently lost billions of dollars on sub-prime-related securities).
The bank also recently stopped making mortgages, even prime ones, through brokers, and instead became No. 1 in retail, or direct-to-consumer, mortgages by pushing no-fee loans through its vast branch system.
By contrast, working through brokers has been Countrywide's biggest revenue producer. Countrywide will remain in that "wholesale" end of the mortgage business as well as the retail side but will no longer fund the sub-prime loans whose meltdown toppled the company, Lewis said.
"It's going to be a more conservative and a more simple world going forward," he said.
Having shifted its strategies to making more traditional loans, which it can sell to government-sponsored mortgage investors Fannie Mae and Freddie Mac, Countrywide already has largely realigned its operation with his vision, Lewis said.
