Countrywide Financial Problems
Countrywide Financial Corp. was one of the first of many casualties during the U.S. financial crisis of 2008. Countrywide was once the nation's leading mortgage lender but drowned in a sea of bad loans when the housing market went belly up. In 2008, Bank of America Corp. bought Countrywide and renamed it Bank of America Home Loans. That deal, along with BofA's purchase of Merrill Lynch, created huge losses for the now-gigantic bank that threatened its future. The U.S. Treasury Department had to backstop BofA with billions of dollars of loans to ensure its survival. Federal investigators accused Countrywide executives of fraud.
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History
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David Loeb and Angelo Mozilo founded Countrywide Financial in 1969. Trading under the ticker symbol CFC, California-based Countrywide was one of the New York Stock Exchange's top performers between 1982 and 2003. The company focused on U.S. mortgage lending. Net earnings in 2006 were $2.7 billion. In 2006, at the peak of the housing bubble, Countrywide financed one-fifth of all U.S. mortgages.
Problems Surface
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Countrywide's problems became apparent at the end of 2006, when the housing bubble began to burst. The company had gotten heavily involved in subprime lending, making loans to consumers at the bottom of the credit-worthy scale. That worked as long as housing prices rose. But when prices started to fall, a huge percentage of the company's subprime housing loans went delinquent. Countrywide lost $704 million in 2007, and thousands lost their jobs. The stock fell 79 percent in 2007, the second-worst performance on the S&P 500.
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Bank of America Steps In
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On Jan. 11, 2008, Bank of America announced it was going to buy Countrywide for about $4 billion, seeing it as an opportunity to greatly expand its U.S. mortgage business. BofA completed the purchase on July 1, 2008. The name Countrywide Financial was changed to Bank of America Home Loans in April 2009. BofA CEO Ken Lewis said he was aware of the problems the bank was taking on, but called it a "rare opportunity."
BofA Inherits Problems
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The $4 billion Countrywide deal made BofA the nation's largest lender, but it also saddled the Charlotte, North Caolina-based bank with huge losses in its loan portfolio. The situation was exacerbated by BofA's decision to purchase beleaguered investment bank Merrill Lynch at the end of 2008. As a result of those two deals, the U.S. Treasury Department provided BofA with tens of billions of dollars in aid, and the stock price dropped into the low single digits for a time.
Mozilo Investigated
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Angelo Mozilo, the company's co-founder and its chairman and CEO when BofA bought Countrywide, sold much of his stock in the company between 2005 and 2007. In June 2009, the U.S. Securities and Exchange Commission charged Mozilo with insider trading and securities fraud. Two other former Countrywide executives were also charged with securities fraud. Mozilo denied the claims and said the government's evidence distorted the facts.
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