Countrywide Home Loans History and business

David S. Loeb and Angelo Mozilo launched Countrywide in 1969. Loeb passed away in 2003. The first public offering was a flop, with firm stock selling at less than $1 a share over the counter. The stock of Countrywide was relisted on the New York Stock Exchange in 1985 under the ticker symbol CFC.

Fortune magazine has referred to Countrywide’s stock as the “23,000 percent stock.” Countrywide delivered a 23,000.0 percent return to investors between 1982 and 2003, outperforming Washington Mutual, Walmart, and Warren Buffett’s Berkshire Hathaway.

Bank of America stated on January 11, 2008, that it will buy Countrywide Financial for $4.1 billion in stock. The Board of Governors of the Federal Reserve System approved Bank of America Corporation’s acquisition of Countrywide Financial Corporation on June 5, 2008. Then, on June 25, 2008, Countrywide reported that the planned merger with Bank of America had been approved by 69 percent of its shareholders. The purchase of Countrywide Financial Corporation by Bank of America Corporation was finalized on July 1, 2008. Countrywide Mortgage Investment was split out as a separate firm called IndyMac Bank in 1997. Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run.

Businesses

Bank of America Home Loans is composed of:

• Mortgage banking is the business of creating, purchasing, securitizing and servicing mortgages. The Mortgage Banking sector earned 59 percent of the company’s pre-tax earnings in the year ended December 31, 2005.
• Banking, a federally chartered thrift that invests largely in mortgage loans and home equity lines of credit sourced principally through its mortgage banking operation.
• Capital Markets is an institutional broker-dealer that primarily deals in mortgage-backed securities trading and underwriting.

Mortgage banking

On a nationwide basis, the Mortgage Banking business originates mortgage loans through a variety of channels. Almost all of the company’s mortgage loans in this category are sold on the secondary market, mostly as mortgage-backed securities. In 2006, 45 percent of such mortgages were traditional non-conforming loans, which were too big for Fannie Mae to buy. The organization is primarily responsible for the continuing servicing of the mortgage loans it originates from. It also offers title, escrow, and appraisal services as part of its loan closing services.

Loan Production, Loan Servicing, and Loan Closing Services are the three main areas that make up the Mortgage Banking business.

Loan production

Loan Production’s job is to originate and fund new loans, as well as to purchase already-funded loans from other lenders. Consumer Markets, Full Spectrum Lending, Wholesale Lending, and Correspondent Lending are the four departments of Countrywide Home Loans that produce mortgage loans.

Consumer Markets and Full Spectrum Lending provide loans to consumers directly. Countrywide originates, funds, and sells the loans made by these two retail divisions. Full Spectrum Lending focuses exclusively on goods appropriate for customers with less-than-prime credit, whereas Consumer Markets offers a wide range of goods.

Consumers who have loans generated by another mortgage broker can use Wholesale Lending to get a loan. Countrywide funds and sells these loans, but they are originated by other lenders.

Mortgage loans are purchased from other lenders such as mortgage bankers, commercial banks, savings and loan organizations, home builders, and credit unions via Correspondent Lending. These loans may be sold on the secondary market by Countrywide to end-investors, but they are originated and funded by other lenders.

Loan servicing

Services for loan servicing collects payments from borrowers, manages escrow accounts, tax and/or insurance payments (if applicable), and then remit “advances” to the investor’s trustee as stipulated in the Pooling and Servicing Agreement (PSA).

As a “servicing charge,” loan servicing often retains a portion of the payment made (usually 25 – 75 basis points of the unpaid principal balance).

Interest on funds collected and held prior to paying scheduled advances to the trustee, fees levied for late payments, force-placed insurance, document requests, legal expenses, payback statements, and so on are all sources of income for loan servicing.

Loan closing services

For the six major counties of Southern California, LandSafe and its subsidiaries provide loan closing services such as real estate appraisals, automated credit reporting products, flood determination services, and residential title services.

Banking

Countrywide Bank, FSB, and Countrywide Warehouse Lending made up the Banking segment. The bank was previously known as Countrywide Bank, N.A., a nationally chartered bank supervised by the Office of the Comptroller of the Currency and the Federal Reserve, but it changed its name to a federally chartered thrift supervised by the Office of Thrift Supervision. Countrywide Bank is the third-largest savings and loan institution in the United States, as well as the fastest-growing bank in history. Deposit assets are currently valued at around $125 billion.

For investment reasons, Countrywide Bank generally originates and purchases mortgage loans and home equity lines of credit. The majority of these loans come from Countrywide Home Loans, the company’s mortgage banking business. As of April 1, 2007, the Bank obtained retail deposits, principally certificates of deposit, via the Internet, call centers, and more than 200 financial centers, many of which were housed in Countrywide Home Loans’ retail branch offices.

Countrywide Warehouse Lending offers mortgage bankers with warehouse lines of credit, which they utilize to originate loans. These mortgage bankers are primarily customers of Countrywide Home Loans’ Correspondent Lending and Capital Markets divisions; the mortgage bankers use Countrywide Warehouse Lending warehouse lines of credit to assist in the origination of loans, then sell those loans to Countrywide through Correspondent Lending or Capital Markets.

Capital markets

The Capital Markets section serves as a registered securities broker-dealer, a residential mortgage loan manager, and a commercial mortgage loan originator, among other things. CFC also has broker-dealers in Japan and the United Kingdom, as well as futures, introducing broker-dealer, an asset manager, and a mortgage servicing rights broker. The company only deals with institutional customers, such as banks, other depository institutions, insurance companies, asset managers, mutual funds, pension plans, other broker-dealers, and governmental organizations, with the exception of its commercial mortgage activity. The owners or sponsors of commercial properties, who can be individuals or institutions, are customers of its commercial real estate lending business.