There’s always something to howl about.

Buying Countrywide: Why Bank of America is the WRONG Buyer

Countrywide (CFC) has been acquired by Bank of America. This should come as no surprise to Bloodhound readers; we discovered the weakness at CFC last Spring and speculated about the price last Summer. Robert Kerr, Matt Heaton, and Bob Wilson, all Bloodhound readers, tipped me off to conjecture, asked all the right questions, and provided insightful commentary as I chronicled the descent; it was a demonstration of the power of weblogging. The Bloodhound community got this story correct while Wall Street was still starry-eyed about the strength of the “Mozilo franchise”.

Stock picking is not our mission at Bloodhound; industry analysis is. The Countrywide acquisition will be a nightmare for Bank of America (BA) for one simple reason- they really don’t know the mortgage business. BA is a bank, and a damned fine one at that. Their grew their asset base by acquiring regional banks. Bank of America is not and will probably never be a real player in the residential real estate finance arena.

Why? They’re bankers. It’s a cultural thing. Bankers react while brokers (Wall Street) create. Bankers imitate while brokers innovate. Let me give you some examples:

  1. BA lauds it’s Teacher Flex and Neighborhood Advantage programs as innovative thinking. The not so secret reason is that these loan programs were REACTIONS to the NCNB merger; NCNB had a less than enviable lending record in lower-income census tracts. The creation of those loan programs was a direct response to mandates imposed upon BA. BA was dragged, kicking and screaming, into the “homeownership mandate”.
  2. BA botched their sub-prime mortgage product line. They entered a business they didn’t understand and sold it at the worst possible time.
  3. Bank of America alienated over half of the retail origination channel when it cut off mortgage brokers. I think they bought CFC to shore up their weak retail origination business. That will fail, also. The cultural divide between these two companies is huge.

Here’s the dirty little secret for REALTORS; BA is not your friend. They have been the driving force behind the measure to enter your business. While they’re failing in their legislative pursuits, they’re attempting it in the online world. MLS searches, property valuations, and a network of real estate brokers prove that BA is going to attempt the disintermediation play sooner than later. While Russell Shaw didn’t find the smoking gun, his Columbo-like approach will eventually reveal that all roads lead to Charlotte.

Why am I bagging on this deal? It doesn’t solve problems. Today, mortgage financing is controlled by federally-chartered banks. The arrogance exhibited by those banks is nothing short of astounding. In one e-mail, a bank defended their bully tactics by saying “Quite frankly, with all the lenders going out of business, we can afford to take an aggressive stance“. That’s not solving problems, it’s perpetuating them.

…and arrogance always loses… always.

BA is buying problems with this CFC acquisition. The CFC sales force will not mesh well with the button-downed arrogance the BA crew exhibits. My prediction? CFC originators flee the newly-formed entity in droves during 2008. Mortgage brokers will reject the new entity because of their lousy customer service.

Who’s perfectly positioned to benefit from this exodus? Why, Wells Fargo, of course.

Wells Fargo, the mortgage lender disguised as a federally-chartered bank.

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