Bank of America Home Loans is the mortgage unit of Bank of America. It purchased Countrywide Financial in 2008 for $4.1 billion. As of 2006, Countrywide financed 20% of all mortgages in the United States, equivalent to about 3.5% of GDP, the highest share of any single lender.
The history of Bank of America
In 1969, Countrywide was founded by David S. Loeb and Angelo Mozilo. Loeb died in 2003. The company’s initial public offering failed, with shares trading at less than $1 per share over the counter. In 1985, Countrywide stock was relisted on the New York Stock Exchange under the ticker symbol CFC.
According to Fortune magazine, Countrywide’s stock delivered investors a 23,000.0% return between 1982 and 2003, exceeding the returns of Washington Mutual, Walmart, and Warren Buffett’s Berkshire Hathaway.
On January 11, 2008, Bank of America announced that it planned to purchase Countrywide Financial for $4.1 billion in stock. On June 5, 2008, Bank of America Corporation announced it had received approval from the Board of Governors of the Federal Reserve System to purchase Countrywide Financial Corporation. Then, on June 25, 2008, Countrywide announced it had received the approval of 69% of its shareholders to the planned merger with Bank of America. Finally, on July 1, 2008, Bank of America Corporation completed its purchase of Countrywide Financial Corporation. In 1997, Countrywide spun off Countrywide Mortgage Investment as an independent company called IndyMac Bank.[4] Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run.
The business world of the Bank of America
The following are the components of Bank of America Home Loans:
- In the year ended December 31, 2005, the Mortgage Banking segment generated 59% of the company’s pre-tax earnings.
- In addition to its mortgage banking operations, Banking operates a federally chartered thrift that primarily invests in mortgage loans and home equity lines of credit.
- As an institutional broker-dealer, Capital Markets specializes in trading and underwriting mortgage-backed securities.
- Mortgage loan application processing and loan servicing are provided by Global Operations.
Banking on mortgages
The company produces mortgage loans through various channels on a national scale. Nearly all the mortgage loans it produces in this segment are sold into the secondary market, mainly in mortgage-backed securities. In 2006, 45% of those mortgages were conventional non-conforming loans, loans too large to be sold to Fannie Mae. The company generally performs the ongoing servicing functions related to the mortgage loans that it produces. It also provides various loan closing services, such as title, escrow, and appraisal. The Mortgage Banking segment comprises three distinct sectors: Loan Production, Loan servicing, and Loan Closing Services.
Loan production
Among the responsibilities of Loan Production are originating and funding new loans, as well as purchasing already-funded loans from other lenders. As part of Countrywide Home Loans, Loan Production produces mortgage loans through four divisions: Consumer Markets, Full Spectrum Lending, Wholesale Lending, and Correspondent Lending.
Founded by Countrywide, Consumer Markets and Full Spectrum Lending provide direct loans to consumers. Countrywide originates, funds, and sells the loans produced by these two retail divisions. A wide range of products are offered by Consumer Markets, whereas Full Spectrum Lending offers products geared toward customers whose credit is below prime.
Countrywide Wholesale Lending provides loans to consumers whose loans are originated by another mortgage broker. These loans are funded and sold by Countrywide, but they originate with another lender.
A correspondent lender purchases mortgage loans from other lenders, including mortgage bankers, commercial banks, savings and loan associations, home builders, and credit unions. Countrywide may sell these loans on the secondary market to end investors, but other lenders originate and fund them.
Servicing of loans
As specified in the Pooling and Servicing Agreement (PSA), loan servicing collects payments from borrowers, handles escrow accounts, taxes, and insurance payments, and remits “advances” to the investor’s trustee.
It is common for loan servicing to retain a fraction of the payment made (normally 25 – 75 basis points of the unpaid principal balance) as a “service fee”.
Also, loan servicing generates income through interest on monies received and held before paying scheduled advances to the trustee, late payment fees, force-placed insurance, document requests, legal fees, and payoff statements.
Services related to loan closings
For Southern California’s six major counties, LandSafe and its subsidiaries provide loan closing services, including real estate appraisals, automated credit reports, flood determinations, and residential title services.
Banking
The Banking segment consisted of Countrywide Bank, FSB, and Countrywide Warehouse Lending. Formerly, the bank was known as Countrywide Bank, N.A. The nationally chartered bank converted its charter to a federally chartered thrift that is regulated by the Office of Thrift Supervision. Countrywide Bank is the 3rd largest Savings and Loan institution in the United States and is the fastest-growing bank in US history. Assets from deposits are currently approaching $125 billion.
The majority of Countrywide Bank’s investment loans come from its mortgage banking subsidiary, Countrywide Home Loans, which originates and purchases these loans. In addition, the Bank obtains retail deposits, primarily certificates of deposit, through the Internet, call centers, and more than 200 financial centers, many of which were located in Countrywide Home Loans’ retail branch offices as of April 1, 2007.
To originate loans, Countrywide Warehouse Lending provides warehouse lines of credit to mortgage bankers. Correspondent Lending and Capital Markets are the primary customers of these mortgage bankers; they originate loans using warehouse lines of credit from Countrywide Warehouse Lending, then sell the loans to Countrywide through Correspondent Lending or Capital Markets.
Markets for capital
The Capital Markets segment primarily operates as a registered securities broker-dealer, a residential mortgage lender, and a commercial mortgage loan originator. The company also operates broker-dealers in Japan and the United Kingdom, an introducing broker-dealer of futures contracts, an asset manager, and a broker of mortgage servicing rights. Except for its commercial mortgage activities, the company transacts only with institutional customers, such as banks, other depository institutions, insurance companies, asset managers, mutual funds, pension plans, other broker-dealers, and governmental agencies. Customers of its commercial real estate finance business are the owners or sponsors of commercial properties.
Countrywide Asset Management Corporation manages the acquisition and disposition of loans from third parties and loans originated by Countrywide Home Loans. These are typically delinquent or otherwise illiquid residential mortgage loans, which have primarily originated under Federal Housing Administration (FHA) and Veterans Administration (VA) programs. The Company attempts to rehabilitate the loans, using its servicing operations of Countrywide Home Loans, to securitize those loans that become eligible for securitization. The remaining loans are serviced through foreclosure and liquidation, including collecting government insurance and guarantee proceeds relating to defaulted FHA and VA program loans.
Traders trade debt securities on the secondary market after they have been issued. In underwriting activities, the risk is assumed of buying a new issue of securities from the issuer and reselling them directly or through dealers to investors. Underwriting mortgage-related debt securities is Capital Markets’ primary focus.
Insurance
The Insurance segment activities include offering property, casualty, life, and credit insurance as an underwriter and as an insurance agency, as well as providing reinsurance coverage to primary mortgage insurers through two business units: Balboa Life and Casualty Operations, and Balboa Reinsurance Company.
Throughout all 50 states, Balboa Life and Casualty Group offers property, casualty, life, and credit insurance. In addition to lender-placed auto insurance and real-property hazard insurance, it also offers voluntary homeowners insurance and home warranty plans for consumers, as well as Life and Credit, which provides term life insurance, credit life insurance, and credit disability insurance.
Balboa Reinsurance Company provides a layer of reinsurance coverage for losses between minimum and maximum specified amounts for the insurance companies that provide private mortgage insurance (PMI) on loans in its servicing portfolio. The layer generally includes all conventional loans with an original loan amount over 80% of the property’s appraised value, and it earns a portion of the PMI premiums in return for providing this coverage.
Operations around the world
A joint venture between Countrywide and Woolwich plc in 1998 resulted in Global Home Loans (GHL), a UK third-party administrator (TPA). Among the activities were loan processing and sub-servicing, mortgage loan application processing, and mortgage loan sub-servicing in the United Kingdom.
With the acquisition of Woolwich by Barclays plc in 2003, GHL acquired the Barclays mortgage portfolio through the transfer of ownership of the Barclays mortgage operation in Leeds to GHL.
Global’s sub-servicing portfolio on December 31, 2005, reached £59 billion ($102 billion), representing more than £11.3 billion ($20.3 billion) in loans processed for Barclays, PLC, the joint venture partner.
In November 2005, Barclays announced that it intended to terminate the third-party administration arrangement with GHL and bring the mortgage origination and servicing operations back in-house. As a result of this, Countrywide bought out Barclays’ remaining 30% stake in GHL. Barclays brought the operation back in-house in February 2006.
Since then, Global has only provided support to Barclays and Prudential Assurance, which continue to use the proprietary originations, servicing, and arrears processing systems developed by Countrywide Technology Group (CWTG).
Through a majority-owned joint venture, Valuation Services provided one of the first electronic residential property valuation services to third parties in the United Kingdom. This was sold to First American in 2007.
The Offshore Services company began operations in India in 2004. In addition to providing business process and technology services to the Parent Company and its subsidiaries in both the US and the UK, it was established to take advantage of the strategic advantage of employing systems specialists based on the subcontinent.
Today’s competitive mortgage rates
Rate | APR | Points | Monthly Payment | |
30-year fixed | 7.0% | 7.247% | 0.863 | $1,331 |
15-year fixed | 6.125% | 6.524% | 0.925 | $1,701 |
5y-6m ARM Variable | 7.25% | 7.879% | 0.989 | $1,364 |