Servicing

Bank of America Corp. confirmed Friday that it has agreed to buy Countrywide Financial Corp. for $4 billion in stock, a deal that rescues the ailing Countrywide and makes BoA the largest residential lender in the United States, with a market share of almost 24%. Once their mortgage operations are combined, BoA/Countrywide will service $1.9 trillion worth of home loans, giving it a 21% share in that business. The boards of both companies have approved the sale, which is expected to close in the third quarter. Countrywide 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 small stake in Countrywide, paying $2 billion for it. Now it is buying the entire company for $4 billion. The sale comes after a tumultuous week for Countrywide, a company that is almost 40 years old. Early in the week, bankruptcy rumors sent Countrywide's stock reeling to just $4.43, compared with a 52-week high of $45. The statement issued by BoA does not address the fate of Countrywide's founder, chairman, and chief executive, Angelo Mozilo. Mr. Mozilo, 70, was expected to retire at year's end.

Just a day after its stock fell dramatically on credit concerns, Countrywide Financial Corp.'s share price rose 51% Thursday on rumors of a deal with Bank of America. Countrywide's common stock closed at $7.75 on Jan. 10, up $2.63 on the day. The stock had been mired near the low end of its 52-week range ($4.43 to $45.26) on fears that liquidity problems and credit costs could push the firm toward bankruptcy. Countrywide's recovery on Thursday helped boost other mortgage-related stocks as well. IndyMac Bancorp saw its share price rise 23%, and Washington Mutual's shares were up 15% on the day.

Bank of America, Charlotte, N.C., is reportedly talking to Countrywide Financial Corp., Calabasas, Calif., about buying all or part of the company, according to industry sources and a report by The Wall Street Journal. If the two merge their residential loan operations, the resulting entity would have a 23.7% market share among originators, potentially swamping the competition, according to figures compiled by National Mortgage News and the Quarterly Data Report. Among servicers, the combined market share would be 21.3%. The news of a sale comes two days after rumors about a possible bankruptcy filing by Countrywide sent the firm's stock price reeling. (Countrywide denied that it was in danger of failing.) At deadline time, Countrywide and BoA officials could not be reached for comment. Countrywide is set to report its fourth-quarter earnings on Jan. 29. (For more details, see the Jan. 14 issue of NMN.)

Six classes of manufactured housing securitizations issued by Oakwood Homes Corp. have been downgraded by Fitch Ratings, and three classes have been placed on Rating Watch Negative. The following classes were downgraded from CCC/DR2 to CC/DR2: series 1995-A, class B-1; series 1996-A, class B-1; and series 2000-A, classes A-2, A-3, A-4, and A-5. Classes A-2, A-3, and A-4 of series 2001-B were placed on Rating Watch Negative. Fitch also affirmed the ratings on 36 classes from various Oakwood issues. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and expected losses. Fitch can be found online at http://www.fitchratings.com.

Thirty tranches from 15 deals issued by Countrywide in 2007 have been downgraded by Moody's Investors Service, and 16 tranches have been placed under review for possible downgrade. Five of the downgraded tranches remain on review for possible further downgrade. The negative rating actions were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

Forty-seven tranches from seven deals issued by Goldman Sachs in 2007 have been downgraded by Moody's Investors Service, and 20 tranches have been placed under review for possible downgrade. One downgraded tranche remains on review for possible further downgrade. The negative rating actions were attributed to higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans. Moody's can be found online at http://www.moodys.com.

Huntington Bancshares Inc., Columbus, Ohio, has announced that it expects to report a net loss of $239 million ($0.65 per share) for the fourth quarter, due largely to credit losses linked to Franklin Credit Management Corp., a specialist in servicing and resolving residential mortgage loans. Huntington said it will make a $406 million provision for credit losses related to the restructuring of loans to Franklin. It also reported, among other items, an expected $18 million reduction in net interest income and $64 million of market-related losses attributable partly to the hedging of mortgage servicing rights. "Though a negative this quarter, [the Franklin loans'] successful restructuring, we believe, addresses fully the current and anticipated financial performance issues associated with this relationship," said Thomas E. Hoaglin, chairman, president, and chief executive officer of Huntington. Earnings were also hurt by "continued weakness in commercial real estate markets," he said. The company can be found online at http://www.huntington.com.

Capital One Financial Corp., McLean, Va., has lowered its estimate of 2007 earnings, citing among other factors costs associated with GreenPoint Mortgage, which the company has shut down. Capital One said it now expects to post earnings of about $3.97 per share for the full year, down from a previous estimate of "about $5.00." Capital One said its fourth-quarter provision for credit losses was $1.9 billion, consisting of $1.3 billion of chargeoffs and an allowance for future loan losses of $650 million. The company said the increase in loss provisioning was necessitated by "continued deterioration" in its $700 million portfolio of home equity lines of credit originated by GreenPoint and expectations for a weaker U.S. economy in 2008.

The city of Baltimore has filed a fair-lending lawsuit against Wells Fargo Bank NA, contending that the San Francisco-based bank's subprime lending practices have led to high foreclosure rates in minority neighborhoods and cost the city millions of dollars in expenses and lost revenues. The city alleges that Wells Fargo targets African-American neighborhoods with high-cost loans, resulting in an 8.2% foreclosure rate, compared with a 2.1% foreclosure rate in predominantly white neighborhoods. "Wells Fargo has caused these foreclosures by targeting Baltimore's African-American neighborhoods for irresponsible and abusive subprime lending practices designed to maximize short-term profits for the bank," Mayor Sheila Dixon said. A Wells Fargo spokesman said its loan pricing is based on risk. "Race is not a factor in our pricing," he said. City attorneys are asking a U.S. district court to enjoin Wells Fargo from engaging in certain lending practices and to award compensatory and punitive damages. The city has retained Relman & Dane, a civil rights law firm in Washington, to work on the case.

Two classes of ABN Amro 2003-12 mortgage pass-through certificates have been downgraded by Fitch Ratings. Class B-3 was downgraded from BB to B, and class B-4 was downgraded from B to C/DR5. Fitch also affirmed the ratings on four other classes in the transaction. The downgrades were based on deterioration in the relationship between credit enhancement and expected losses, Fitch said. The collateral for the deal consists of 30-year fixed-rate, conventional mortgage loans. Fitch can be found online at http://www.fitchratings.com.