The company announced liquidity issues on Thursday, August 16, 2007, due to the fall of the secondary market for securitized mortgage obligations. Countrywide also stated that it plans to use the entire $11.5 billion credit line provided by a group of 40 banks, including JPMorgan Chase. On Friday, August 17, a large number of depositors attempted to withdraw funds from their bank accounts. Countrywide also intended to comply with 90 percent of its loans. Stocks had lost roughly 75% of their peak value at this time, and bankruptcy speculation had grown. In a last-minute, early morning conference call, the Federal Reserve Bank cut the discount rate by 0.5 percent. To help with liquidity, the Fed accepted $17.2 billion in repurchase agreements for mortgage-backed securities. The stock market was also calmed as a result, and investors responded pleasantly, with the Dow registering gains.
Furthermore, the company was obliged to restate profits from accrued but unpaid interest on “exotic” mortgages with an initial pay rate lower than the amortization rate. In 2007, it became clear that much of this interest had vanished.
The Federal Reserve agreed to waive banking regulations at Citigroup and Bank of America’s request in a letter dated August 20. The Fed decided to exclude both banks from restrictions limiting federally insured banks’ ability to lend to connected brokerage firms to 10% of their total capital. Until then, banking regulations stated that brokerage subsidiaries’ actions should not put federally insured deposits at risk. Citibank and Bank of America announced on August 23 that they and two other banks had acquired $500 million in 30-day funding at the Federal Reserve’s discount window. Countrywide Financial received $2 billion in fresh capital from Bank of America Corp. on the same day. The Bank of America brokerage arm would receive convertible preferred shares in exchange for this.
On November 26, 2007, Countrywide stock plummeted over 10% on the New York Stock Exchange, to $8.64 a share, less than half its value in August, when the company was facing bankruptcy rumors, and a fraction of its worth in 2006. Reports that the Atlanta Federal Home Loan Bank had granted a considerable amount of credit to Countrywide to compensate for its failure to raise financing in the private sector were one proximate cause. Senator Chuck Schumer has asked for a review of the FHLBB’s decision in this case.
Angelo R. Mozilo profited $291.5 million by selling a large portion of his CFC stock between 2005 and 2007. On behalf of shareholders, a class action lawsuit was launched alleging securities violations.
In September 2008, Countrywide Mortgage sent emails to its mortgage clients informing them that one of their workers had stolen social security numbers and birth dates from one of their customers. In the letter, Countrywide apologized and provided free credit monitoring for 90 days.
‘Protect Our House’ PR campaign
After months of negative press and the revelation of a 20% employment cut, Countrywide started a public relations effort directed at disgruntled employees in September 2007. Employees were required to sign a pledge promising to “show their devotion to our initiatives” and “convey the Countrywide story to everyone.” Those who signed the commitment received a Protect Our House wristband made of green rubber.
The $4 billion buyouts of Countrywide Financial by Bank of America began with a phone call from Countrywide Chief Executive Angelo Mozilo to his Bank of America counterpart, Kenneth D. Lewis, in December. Bank of America stated on January 11, 2008, that it has agreed to buy Countrywide for $4 billion in an all-stock transaction. Following the news, the stock settled at around $512 a share; it had been as low as $4.43 before the Bank of America transaction was announced. Countrywide was eventually purchased by Bank of America Corp in 2008 for $2.5 billion.
Despite a $2 billion infusion of capital from Bank of America in August, Mozilo stated he was ready to throw in the towel after more than six months of financial disaster at Countrywide, according to Lewis.
Simultaneously, after witnessing Countrywide substantially retool its operations in order to survive, Bank of America officials began to believe Countrywide’s large U.S. mortgage business would be worth acquiring.
As we watched the business model shift to one we could embrace, the chance to attain that type of size and scale became more tempting “Lewis remarked. “We thought about the lawsuits and the bad press that Countrywide had received.
We weighed the short-term discomfort against what we believe would be a fantastic value for our shareholders.
Bank of America dispatched 60 analysts from its Charlotte, N.C., offices to Countrywide’s Calabasas, Calif., headquarters. Bank of America offered Countrywide an all-stock transaction worth $4 billion after four weeks of assessing the company’s legal and financial situation and estimating how its loan portfolio was anticipated to perform—a fraction of the company’s $24 billion market value a year ago. The purchase was authorized by Countrywide shareholders on June 25, 2008, and it concluded on July 2, 2008. On June 26, 2008, Bank of America indicated that its acquisition of Countrywide Financial Corp. would result in the loss of 7,500 employees over the next two years.
Given Countrywide’s prominence as the nation’s largest mortgage lender at the time, the deal marked a watershed moment in the housing crisis. In August 2014, Bank of America was obliged to agree to a near-$17 billion settlement to satisfy allegations against it relating to the sale of toxic mortgage-linked securities, a major portion of which had been marketed by Countrywide.
The US Securities and Exchange Commission charged former CEO Angelo Mozilo with insider trading and securities fraud, as well as former COO David Sambol and former CFO Eric Sieracki, for failing to disclose Countrywide’s low lending standards in the company’s 2006 annual report.  Despite these allegations, Countrywide and its successor Bank of America were given the Veterans Administration’s Property Management contract. This proclamation was made in Circular 26-08-10 by Judith Caden, VA Director of Loan Guaranty Service, on July 22, 2008. Until 2011, Bank of America held this position with VA.
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