Bank of America Swallows CFC

Bank of America's Barbara Desoer has quite a task in front of her. She is now the top executive in charge of the combined mortgage operations of CFC/BoA, which together service $2 trillion in loans. That translates into a residential market share of 21%, according to the Quarterly Data Report. That's a lot of firewood to watch, especially now, in the height of summer with draughts ravishing the western states.

Of course, servicing rights (unlike old-growth forests) cannot catch fire. But the mortgage industry is burning - and not in a good way. All of us hope (yes, even journalists) that the business of lending and servicing loans will not singe to the ground. It's ugly out there. We all know it.

The future health of mortgage banking rests on multiple factors: loan delinquencies, home values, the unemployment rate (no jobs means no loan payments) and the price of oil. As for Ms. Desoer (who does not have a background in mortgages), it's up to her make sure that BoA gets its money's worth on CFC. Then again, it paid just $2.5 billion for a company that services $1.48 trillion and has the ability to fund $400 billion in loans a year. Those are Countrywide's "assets." Its liabilities: future writedowns on its mortgage holdings, dozens of lawsuits from investors who saw their stock value crumble, and even more lawsuits from state regulators who think CFC hosed consumers. And that's just the short list.

Ms. Desoer and her boss Ken Lewis have to keep the CFC mortgage franchise intact but what exactly will the franchise entail? To date, BoA has said little about its plans. The rumor mill has been running overtime with stories about brokers (and some wholesalers) predicting that in time CFC will exit the wholesale niche entirely. Last month a BoA spokesman clarified to our sister publication, National Mortgage News, that it will remain in wholesale at least to some degree.

But the bank has been light on details. Readers should keep in mind that BoA has been schizophrenic when it comes to mortgage banking. Last decade it entered the subprime space and then liquidated its A- to D affiliate, EquiCredit, in 2001 before the business took off (and then crashed last year.)

It also opened a conduit a few years back and then closed it abruptly. It got big in wholesale and then exited that channel last fall. Does Mr. Lewis really have a plan for residential mortgages or did his bean counters at BoA buy CFC merely as an asset play on its receivables and mortgage holdings?

Ms. Desoer is moving to Calabasas (CFC's headquarters) and will manage the mortgage operation from there. But how much of CFC's talent will walk out the door? How many heads will be cut before the lending and servicing operations are in the black? And what of CFC's $106 billion subprime servicing portfolio, the one where delinquencies are running at 33%? There's plenty of questions surrounding BoA's Countrywide.

Note to Readers:

This month John Wiley & Sons publishes "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis." I co-authored the book with Mathew Padilla of The Orange County Register. The rise and fall of Countrywide are a constant thread throughout the book but the central focus of "Chain" is Wall Street's role in the crisis, in particular Bear Stearns, Merrill Lynch, Friedman Billings Ramsey and their top executives, Ralph Cioffi and Warren Spector (Bear), Stanley O'Neal and Michael Blum (Merrill) and Eric Billings of FBR. This is a book about the people who played a key role in the crisis. The "central cast" includes Bill Dallas (First Franklin); Roland Arnall, Wayne Lee, Kirk Langs and Adam Bass (Ameriquest/Argent); James Johnson (Fannie Mae); Brad Morrice and Robert Cole (New Century). The closest thing this book has to a "hero" is MBS co-inventor Lewis Ranieri who warned about the coming storm in 2006. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/