BofA Back Peddles on Countrywide Debt – Could Spell Trouble for Other Banks

Posted on July 21st, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

No pun intended in the title…

I, along with a few others, were screaming about the BofA/Countrywide deal. I never thought there was any way in hell they would assume all of the debt because it would mean BofA was actually paying $10s of billions for the troubled lender. (Please see Previous Stories)

Now, we know the truth.  It seems that BofA never intended to make good on Countrywide’s debt. They were just going to take what they wanted, including the servicing, servicing platform and select retail locations in areas where they may not have had coverage.

It is questionable whether they will even want to keep the name ‘Countrywide’ alive, as the name itself is now one of the greatest symbols of the mortgage and housing implosion.

Obviously this is trouble for those holding Countrywide debt. I actually remember watching some young pup on bubblevision about four months ago brag about buying loads of Countrywide debt because ‘the yields are so high and all they have to do is make it until September and its a home run!’ Oops.

But, I think the most significant implication surrounding BofA’s bold remarks is what this means for the debt of other troubled banks trying to raise capital or rumored to be ‘take-over candidates.’  Knowing that BofA can say ‘we just may not pay it and deal with the consequences’ should make every investor salivating over ‘high yields’ shake in their Ferragamo’s. 

Who knows how and where all of this will end. Who knows if this was really an ‘asset purchase’ or a company buyout or even perhaps the first government bank bailout as many have speculated. This story may be in the headlines for quite some time. -Best, Mr Mortgage <>

Reuters – Mon Jul 21, 2008 11:27am EDT

NEW YORK, July 21 (Reuters) – The cost to insure the debt of Countrywide Financial Corp’s home loan unit rose on Monday after Bank of America Corp’s chief financial officer said the bank doesn’t intend to guarantee Countrywide’s debt.

Joe Price said on a conference call that “all I can say at this point is we don’t intend to guarantee the public debt.” He added that he understands the ramifications of not paying at maturity.

Bank of America acquired Countrywide on July 1.

In a filing earlier this month Bank of America provided no guarantees on the debt, though analysts said a new organizational structure indicated the bank is likely to repay Countrywide bondholders at maturity.

The cost to insure the debt of Countrywide Home Loans rose to 235 basis points, or $235,000 per year for five years to insure $10 million in debt, from 220 basis points, according Phoenix Partners Group.

Bank of America’s credit default swaps are trading at 112 basis points, according to Phoenix. (Reporting by Karen Brettell)

34 Responses to “BofA Back Peddles on Countrywide Debt – Could Spell Trouble for Other Banks”

  1. As always.. awesome insight – Thanks Mr. M

  2. Good Call BofA!
    So, is BofA safe? Are they solvent now? Who in the world would want to buy this debt and pay it at maturity? Why?

    I don’t know much about the debt industry, somebody please explain?

  3. American Express just missed EPS targets. CEO said, “defaults in June had worsened beyond his expectations” –

    delinquent credit card accounts rose more than a full percentage point from a year earlier to 3.99% in May (Bloomberg)

  4. I have a similar question as od does. How is it that BOA can not guarantee CFC debts?

  5. How are covering the debt to maturity and guaranteeing distinguished in this situation? I remember IRA issuing a series of articles suggesting that BofA could not have it both ways: if they allow any Countrywide debt to default, then technically they themselves would be in default. That is not a status any bank wants to allow.

    So what is going on here?

  6. This is no surprise. As usual, the wolves guarding the henhouse have struck again. If this was BofA’s from the beginning, then perhaps there should be an investigation of their business practices, along with a few lawsuits. The sickness, greed, selfishness, and cowardice of the business culture is so disgusting that there are no words to describe the contempt they cause within the minds of hardworking people.

  7. Who says they are going to pay? Most likely, maturities are going to be bundled and netted, adjusted for recovery value of some sort but who know what that will be. The only thing we can count on is that toxic loans make for toxic bonds.

  8. How much debt are we talking about?
    What are some examples of the debt? The POA portfolio?

  9. Nothing new..said this weeks ago that BofA was slicing and dicing CW…the CW Neg Am loans were dumped like a hot coal before the merger was ever completed..

  10. Just a second… Isn’t it illegal for a company to sell off valuable assets, leaving the creditors with nothing? I don’t understand how BofA could legally get away with siphoning off the good CFC stuff without assuming the liabilities. There are laws prohibiting this kind of thing. Creditors would certainly have grounds for suing BofA.

    There have certainly been cases in the past where a company tried to transfer assets to another firm in order to protect them from creditors only to find the courts rule that since that was the intent of the transfers it wouldn’t be allowed.

  11. Back PEDALS

  12. I can’t imagine anybody stupid enough to Bank @ BOA this is the worst organization known to man, they play by their own rules…I encourage everybody to withdraw funds from this organization and join a Credit Union these guys have to much overhead, the assumption of Countrywide will deepen their losses as we are nowhere close to seeing foreclosure’s slowing, especially in California, last week’s ramp up on the financial’s had no foundation, Wells Fargo’s quarterly profit was a joke and billions where wrote-off yet beating estimates that doesn’t make sense to me, yet the FDIC is ramping up personnel for more bank closures in the near very near future.

  13. I mean come friends, who would want to pay out at the top of a ponzi and pyramid scheme?

  14. $8 billion or more is what BOA had invested in Countrywide that’s allot of money to pay for a servicing platform at this point in the game, of which already exist with BOA, this is going to prove to be a mess more than the initial steal it seemed to be, in all it will be a servicing nightmare and costly for BOA as much as $50 billion plus who is desperate to cash in on anything, the bigger you are faster you fall .

  15. Mr. M. I am under the impression that we are talking roughly 30 Billion due between 2014-2016. Can you ellaborate on this please? Tell the whole story with numbers so we see the impact. I mentioned this in another string on your site. I needed more information, so if you have it please share!

    “Thank YOU”

  16. Ooops… (Stu) my bad…

  17. “Nothing new..said this weeks ago that BofA was slicing and dicing CW…the CW Neg Am loans were dumped like a hot coal before the merger was ever completed..”

    Dumped to who? The taxpayers?

  18. no pun intended in the title – PEDDLES.

  19. Who know how much the exposure is when considering all paper owned by CFC that has loans against it from the likes of the FHLB, all corporate bonds, all buy backs on previously sold/securitized for fraud, white-lie fraud, lender negligence etc. liability could be in the hundreds of billions but it is much cheaper to hire 1000 attorneys and litigate everything.

  20. Unfair Mr. M.

    No way 100’s of Billions… maybe Millions…

    What is the true impact we are talking about here? That proposed number is VERY important in this conversation!!!

  21. I thought you get the bad with the good, or am I wrong? It is like marrying someone and then saying now I don’t have to pay off my debts.

  22. Who picked up CW’s option ARM portfolio and for how much? I’m very surprised that flew under the radar. I’m shocked anyone would want to go near that portfolio, unless it was for .20 on the dollar.

  23. What happen to the 50 billion the Atlanta Fed swapped with Country Wide

  24. I am trying to figure out HOW? they can do this. This was a standard corporate takeover (as far as as I can tell – they bought all the stock of an existing corporation). They get assets and liabilities. If they run it as separate subsidiary (keeping liabilities on the sub’s Balance sheet) – can they take assets out? Double entry accounting should require them to put some other “asset” in. I certainly understand the intent – I just don’t see how the mechanics work which will shield them from lawsuits from justifiably upset liability holders.

    Anybody know the logistics?


  25. 1 – Cross selling captive mortgage holders for deposits and credit cards. In January that may have been a good idea – but now?
    2 – Top notch lending/servicing platform. Yep CW best over BOA. BOA can now scrap their inferior process and move forward.
    3 – Protect their 2 bil loan to CW in late 2007. Making this deal 6 vs 4 bil. Seems now like throwing good $ after bad.
    4 – I still don’t get how they can ‘not pay their dues’. Looking for their disclosures again. I guess I’ll try to do some reading again.

  26. there are many unasnwered questions thats for sure. It may be my tin foil hat talking, but i think CFC was the first Govt orchestrated bailout, not Bear Stearns.

  27. It gets funnier by the day in this country. Sometimes I have the impression of Indonesian, Argentinian or Turkish banking. And they pumped on TV that bullshit that Bank of America had better results. Crony capital leads to dictatorship. That’s the next step. I have a suggestion. Suspend elections and nominate for Henry Paulson dictaror. While you at it, change the name of the country to United States of Goldman Sachs. Banking accounting is a joke, like the federal government books. You will be paying the bill. That’s why Bank of America excluded Countrywide.

  28. Or perhaps we can see their takeover as LEAPS. Long term call option.

    By keeping CFC in subsidary, if everything goes well, they can merge later. If not, they limit exposure.

    Cheap LEAPS.

  29. I smell a RAT with this whole deal!!!

    Can’t we get a deep investigation into this situation?? We need to know HOW and WHY BofA was allowed to get away with this??

    Where is Nouriel Roubini when you need him?? The taxpayers are SICK of sitting by helplessly while crooks like Paulson and Ken Lewis get away with murder. The mafia had nothing on them.

  30. CMON Man, is this really a shock to you?

    CEO already said back in June he was doing away with the name. Also, expect to see the debt purchsed with treasuries to save the others from great losses. This is not just the bailout of Countrywide, but he bailout of everyone who touched it.

    I propose we rename BofA to RTC 08.

  31. So…how does this affect those of us that currently have Countrywide loans, seriously? If what you’re talking about has all ready happened, we should have received something from BofA that they were taking over our loans, but we’ve received nothing. My loan is paid as agreed, and has nothing fraudulent (full doc, verified info) about it.

  32. Nobody is getting away with anything! The day of reckoning for all of this corrupt back door, slight of hand maneuvering to line the pockets of the Pig Men will soon be upon them. (September 2008)Google that “September 2008” and read all about it. The game is over!

  33. […] While the Countrywide purchase my yet to prove disastrous, they have said recently they do not plan on making good on Countrywide debt and only plan to keep the good stuff. I wrote about it last week. […]


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