BofA Director: Countrywide Deal 'Worst Deal We Ever Made'

When Bank of America bought Countrywide Financial for $2.5 billion in stock in 2008, it must have seemed like a good deal.

The troubles with Countrywide, then the nation’s biggest mortgage lender, were known at that point -- defaults and foreclosures were piling up, and there were rumors that bankruptcy could be around the corner. But Kenneth Lewis, then Chairman and CEO of Bank of America, maintained an optimistic tone.

“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers,” Lewis said in a statement when the deal was announced.

In hindsight, not only does the deal not look good. It might be one of the worst purchases ever.

This week, Bank of America announced it would pay out a combined $20.6 billion in fallout costs related to Countrywide, including an $8.5 billion settlement to investors who lost money on mortgage-backed securities -- the largest such settlement a bank has ever paid.

The deal also includes a $5.5 billion allocation to reserve funds for future buy-backs, and a $6.6 billion component for other charges, including lawsuits and a write-off of the Countrywide investment.

All of which makes Lewis’s 2008 statements -- including in January of that year when he called the Countrywide purchase “very attractive” -- seem a bit incongruous, in retrospect.

“It turned out to be the worst deal we ever made,” said one Bank of America director, quoted on Thursday in The Wall Street Journal, who’d voted in favor of the Countrywide acquisition in 2008.

Bank of America, along with JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, is under investigation at both the federal and state level for allegedly foreclosing illegally on borrowers and mishandling the foreclosure process more generally.

Between October 2008 and September 1010, roughly 86 percent of the claims submitted to the Federal Housing Administration by Bank of America were loans that originated from Countrywide Financial. In total, Bank of America asked for $5.7 billion of taxpayer money.

Comments

[jneal11254]

01:35 PM on 07/30/2011

Talk about passing the buck. The truth is that the disaster with BoA's portfolio was the result of outright incompentence and dishonesty at BoA. One side of BoA's mouth would tell a borrower their mortage had been successfully renegotiated, while the other side was foreclosing with no notice to the borrower. An awful mess, and passing the buck to Countrywide is like an alcoholic saying someone else made him drink.

[Justin McClure]

06:33 AM on 07/02/2011

BOA needs to go down in flames. They are a terrible business.

[lance392]

11:48 PM on 07/01/2011

Who is the Director of Public Relations for BOA? Do you think there have been enough blunders this year--from foreclosingon the wrong properties and repossessing property at the wrong address, to foreclosing on a customer who had paid his loan in full and now Countrywide acquisition. Does BOA have a Death Wish?

[structurequity]

10:31 PM on 07/01/2011

Angelo Mozilo must be busy counting his money, unbelievable the mess we are in because of these greedsters.

[Clairvoyant Evangelist]

08:25 PM on 07/01/2011

And then there is the public relations disaster.

It isn't included in the billions and billions and billions of the costs of settlements.

It's the "Bank of America" name inserted everywhere "CountryWide" would have been had BoA had enough sense to leave the pig in the poke and not touch it.

Every consumer Countrywide screwed "knows" today that Band of America screwed him, even though Band of America was no where around when Countrywide was doing the screwing.

That kind of publicity? Priceless. No one can calculate it.

[Aquest]

02:25 PM on 07/01/2011

How much of a bonus did Lewis get last year?

[giatny]

07:55 AM on 07/01/2011

When Pimco, Blackrock and the NY Fed get reimbursed
for being sold mortgage backs that failed, the world has
officially completed a 180 degree flip. They are
consummate professionals who have more expertise in
those markets than anyone at a bank. They are paid
$$$$ to know what they are buying and deserve NO
paybacks when they are wrong. The collapse of the
housing market caught many on the wrong side, but
handing out "mulligans" to professional traders is a
travesty. Are they willing to forfeit all the profits they
previously made in mortgage backs before the crash???
I owned a bank stock that collapsed from $63 to $6, whom do I call to get my money back? The precedent set by this
settlement will open the door for suits by anyone who lost
in the crash and will keep the economy in intensive care
much much longer. The taxpayer is now at risk on every
mortgage written as Fannie/Freddie/FHA continue their guarantees and no bank in its right mind would want to take the risk of a 30 yr mortgage at 4.4%. Dodd/Frank and the
money press at the Fed have increased the dangers to
the financial system and the liability of every taxpayer.
Has anyone ever added up all of the loan guarantees the
government has made at the people's expense??

[Clairvoyant Evangelist]

08:16 PM on 07/01/2011

Swindlers are swindlers, giatny, and swindles are swindles. Countrywide was a nest of swindlers and they brazenly swindled.

All the high-finance sharpers who made up and sold sleazy CDOs and multiple-times insured them with Morgan-Stanley invented CDS insurance-fraud instruments were, and are, swindlers, too, giatny.

Since when is is fair dealing and ethical business to make pure-paper mortgages on kited-up values, then cut in fellow con-tricksters to swear up their values as if they were real securities, and hard-sell them as real, using names of institutions to lull the marks to be trusting, the same way phisher-internet-sites do to cadge bank numbers from pensioners?

Or have you always considered it "good business" to put aunt Harriet on a plane with a bomb in her luggage and then run from the gate to plug coins into the flight-insurance machines, one after another, for multiple max CDS policies, since you know her flight will go down in flames, since it was your CDO in her hat-box, that you made to go kablooey?

If you have you admire Morgan Stanley, who invented the way to make it legal to do the same thing, to "consummate professional" investors, instead of aunt Harriets...

[planetjeffy]

04:09 AM on 07/01/2011

so...this is one where the Fed stuck it to the bank?

[sf omega man]

03:30 AM on 07/01/2011

Er... what does former CEO Ken Lewis care? He walked away with tens of millions of dollars ... or was it hundreds of millions?

That's the payout senior execs guarantee for themselves these days. After all, if stockholders can't afford it and bondholders freak... with people like Geithner in place there will always be the government to step in and commit taxpayer bailout money.

[greyhound2]

09:49 AM on 07/01/2011

Yup. BofA could get $32 million by confiscating the severance pay they gave that crook.

[RJII]

02:07 AM on 07/01/2011

what a travesty

[dukeitout]

12:52 AM on 07/01/2011

I couldn't believe it when Lewis bought Countrywide. There was humongous evidence that Countrywide originated so many junk mortgages by the time they were purchased by BofA. One could predict that BofA would eventually be faced with enormous problems. Where was the board of directors in the decision? The 3 stooges could have seen through this one. Why do people trust big banking institutions?

[msbeal]

03:35 AM on 07/01/2011

I always thought it was some sweetheart deal encouraged by the government. "Hey, you take over this mess and we'll do this and this for you," that sort of deal but I guess not.

[OneAmericanRants]

12:42 AM on 07/01/2011

Bank of America bought Countrywide because Countrywide was the market leader of profitable bad home loans. If you haven't read it yet, take a look at "The Foreclosure of America: Life Inside Countrywide Home Loans and the Selling of the American Dream" by Adam Michaelson.

Michaelson was one of the company's high-level executives and may have been the only one with the intelligence to recognize that Countrywide was riding straight into disaster. The book itself contains too much of Michaelson's personal narrative. However, the sections about what Countrywide was really doing behind the scenes are eye-opening.

It's time for Bank of America to recognize that they are 'not' too big to fail. Anyone remember David and Goliath? The American people may not be able to use a slingshot and a rock, but we can use our spending power. If you have checking, savings, loans, or credit card accounts with BofA, close them and put your money into local banks and credit unions. If enough people do this, they will hurt and they will fail.

Invest in Main Street, Not Wall Street, as they say on the Move Your Money Project web site (http://moveyourmoneyproject.org/). They have a link to help you find a bank near you. Bye-bye, BofA!

[msbeal]

03:39 AM on 07/01/2011

Doesn't it sound a little like BofA were victims in this deal too. Ignorant victims for sure, but they weren't the ones that did all the shennanigans with the bogus loans.

How they saw buying that dog a good deal is anyone's guess.

[Grapes of Wrath]

06:53 AM on 07/01/2011

BofA may have been ignorant at the start, but what about when they started and continued to foreclose on homes with faulty and forged documentation that clearly showed that they could not prove proper chain of title?

Instead of writing the wrong with their customers/homeowners, they did nothing but move as fast as they could to repo/foreclose as many homes as possible until the faulty documentation/securitization issue was brought into the media spotlight.

Would that be an act of an ignorant victim?

[tbryant80]

12:08 AM on 07/02/2011

They were not ignorant. They were purchasing CW loans way before the merger. They knew full well what they were dealing with. Do not have any pity for BofA. BNY was also a huge purchaser of these junk securities. Keep them on the radar.

[dragonladywaltham]

12:22 AM on 07/01/2011

Deal with it! Not the only bad decision you guys were paid for.

[bejayech]

09:53 AM on 07/01/2011

Paid for? I think the sentiment is they weren't paid. It was a money losing deal. They are paying to clean up the mess left by a bunch of crooked countrywide execs.

[tbryant80]

12:09 AM on 07/02/2011

Untrue. They were not ignorant about CW.

[shadow013]

11:42 PM on 06/30/2011

When BofA forgot to confirm good underwriting on loans they handled, they forgot due diligence on other financial deals. This wasn't about financial reality. It was all glamor. Wonder if Ken Lewis got Angelo's autograph, too.

[Tom95134]

10:51 PM on 06/30/2011

I guess they never heard of "due diligence."

[Intolerantcentrist]

11:47 PM on 06/30/2011

They heard of it; it just got in the way of making a handsome living…