The CFC Story Is Over, Now a New Saga Begins ...
For Angelo Mozilo, founder, chairman and CEO of Countrywide Financial, the story is over but a new one is beginning for his "baby" of almost 40 years. As this column went to press, the news had broken that Bank of America would buy the once-venerated CFC for just $4 billion, twice what it paid for a 16% stake back in the summer of 2007.
Countrywide will be no more. Even though BoA said it will initially keep the brand name going, chances are it won't. Why? Because the Countrywide name - once the most valuable name in the business because it suggested quality and professionalism - has been trashed.
Regulators and AGs wide and far are investigating the company's loan practices and the Securities and Exchange Commission is probing Mr. Mozilo's sale of $400 million worth of stock over the past three years. (Mr. Mozilo is set to make another $112 million in severance when he departs.)
The general media - in particular The New York Times - has treated CFC like a whipping boy for the mortgage crisis, saying the company made bad loans and didn't care about lending standards - all in the name of greed. (Readers of this publication know that the mortgage and housing crisis was not Countrywide's doing, though it did play an important role by following other lenders - most notably Ameriquest and New Century - down the rabbit hole of subprime, but that's a column for another day.)
Only a crazy person would keep the Countrywide name. And BoA chairman and CEO Ken Lewis is hardly crazy though when he paid $2 billion for the 16% stake in CFC back in August, and that investment initially rose in value (not for too long) and then sunk like a cannonball through water, his board was probably wondering about his sanity.
Or maybe not. BoA's board signed off on the $4 billion purchase. Details were sketchy. It appeared that BoA was buying the entire company, not just the thrift but it was hard to tell by what was publicly disclosed in late January. Rumours were floating around that it was a "nontraditional" change of control, meaning that perhaps maybe something else was afoot.
One veteran investment banker suggested that the asset value of CFC's servicing rights are not on the balance sheet of its thrift but housed elsewhere. I have no idea what that means but he suggested it was significant. I don't have a clue. Maybe it is, and maybe it isn't.
For those of you who work on the servicing side of the industry, CFC's "change in control" is a key issue. It services $1.5 trillion in home mortgages, ranking first with a market share of 16%. If you mix in BoA's receivables, the new combined mortgage unit will have a servicing market share of 21.31%, according to figures compiled by the Quarterly Data Report. That's a lot of lumber to have in one place. That's one heck of a competitor.
CFC is also the nation's fourth largest subservicer in the U.S., but chances are its subservicing business could suffer in the year ahead. If you were a company using CFC for your servicing chores, wouldn't you consider placing those accounts somewhere else?
As press time, CFC had just lost its chief information officer, Richard K. Jones - a 12-year veteran of the lender/servicer - to technology giant Fiserv Inc. (Mr. Jones will serve in a similar capacity at Fiserv.) Mr. Jones is the first high-level CFC executive to depart. He won't be the last. I've interviewed more than a handful of CFC employees and former employees over the past 20 years. I get the sense that they are indeed a proud bunch who have an independent streak almost as strong as Mr. Mozilo's. Will they stick around under a combined BoA/CFC? Time will tell but it's certainly going to get interesting over the next nine months. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/