CFC+BOA=$1.9T of MSRs

When Bank of America finally swallows Countrywide Financial Corp. it will have a $1.9 trillion servicing portfolio and a market share of 21%. Some executives are already calling it "The Death Star" of servicing.

Then again, the target date for the sale actually closing is at least nine months away. As Mortgage Servicing News went to press this month, there was intense speculation about the deal, including doubts that it will close at the initial purchase price of $4 billion ($7 a share).

Moreover, CFC's foreclosure practices are now under investigation in a handful of states, which could cause headaches for Bank of America.

CFC - the nation's largest residential servicer with $1.459 trillion in housing receivables and a market share of 16% - saw its foreclosure rate spike to 1.44% at the end of December, a stunning 105% increase from the same period a year ago. Based on unpaid principal balances, that means $21 billion of loans that it owns the servicing rights to are pending foreclosure. (Based on number of loans serviced, the rate is 1.04% or almost 94,000 loans.)

Meanwhile, delinquencies in its gargantuan servicing portfolio increased to 7.2% at year-end, a 56% rise from Dec. 31, 2006. The company would not break out subprime delinquencies separately.

CFC has a "strategic alliance" agreement with Fannie Mae and services billions of dollars worth of agency loans for the GSE. Fannie Mae has recourse agreements with CFC, which means the seller/servicer can be forced to buy bank delinquent mortgages depending on the severity of the late payments.

CFC is headquartered in Calabasas, Calif., but its servicing operations are spread between three locations: Chandler, Ariz.; Plano, Texas; and Simi Valley, Calif.

Over the past five years the company has purposely moved back office operations out of California because it's cheaper to employ workers and lease office space elsewhere.

At press time, both BoA and CFC were not talking about details of the deal.

A few days before the sale was revealed CFC's stock hit a new 52-week low, $4.43, after bankruptcy rumors - which it denied - swamped the stock.

Its 52-week high is $45. It once had a market cap of $40 billion. At last check its market cap was just $3.5 billion.

If the sale goes through as scheduled it's anticipated that more layoffs will occur. A few months ago CFC announced job cuts of 10,000, leaving it with about 50,000 workers worldwide. (Most of the jobs are in the U.S.)

Speculation has increased that, in time, BoA might close CFC's wholesale division, which would result in deep staff cuts.

Meanwhile, the boards of both companies have approved the sale, which is expected to close in the third quarter. CFC is a thrift, BoA a commercial bank. In a statement, BoA said the new company will not originate subprime loans.

Back in August, BoA bought a 16% stake in CFC, paying $2 billion for it. Mr. Mozilo and his then-partner David Loeb formed CFC at Mr. Loeb's kitchen table in 1969. It went public a few months later, raising just $450,000.

STATISTICS AT A GLANCE: Countrywide & BOA's Mortgage OPS Combined

(dollars in millions)

Company Servicing Servicing Market

Name Portfolio at 9/30/07 Rank Share

Countrywide $1,459,136 1 16.01%

Bank of America $483,462 6 5.30%

Combined $1,942,598 1 21.31%

Notes: Based on 3Q 2007 figures only. CFC funds loans through three different production channels: retail wholesale and correspondent. In 3Q, BoA used two channels: retail and wholesale and recently decided to close its wholesale division.

Source: MSN/Quarterly Data Report. Questions? E-mail Paul.MuoloSourceMedia.com. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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