Bank of America Home Loans

Bank of America Home Loans
	File:Bank of America logo.svg
Company type	Division of Bank of America
Founded	March 14, 1969 (Countrywide); April 2009 (Bank of America Home Loans)
Headquarters	Calabasas, California, USA (Countrywide Financial); Charlotte, North Carolina, USA (Bank of America)
Key people	Barbara J. Desoer, President of Bank of America Home Loans and Insurance
Revenue	$6,061,437,000 US$ (2007)
Operating income	Template:Loss$1,310,274,000 US$ (2007)
Net income	Template:Loss$703,538,000 US$ (2007)
Parent	Bank of America
Website	Bank of America Home Loans

Bank of America Home Loans operates as the mortgage lending division within Bank of America. Originally launched as Countrywide Financial in 1969, it was acquired by Bank of America in 2008 for $4.1 billion. At its height in 2006, Countrywide was responsible for financing one-fifth of all U.S. mortgages, equating to roughly 3.5% of the nation's GDP—an unparalleled market dominance unmatched by any other mortgage lender.

History

Countrywide was founded by businessmen David S. Loeb and Angelo Mozilo. The company initially went public with a low-priced stock traded over-the-counter before relisting on the New York Stock Exchange in 1985 under the ticker symbol CFC. From 1982 through 2003, Countrywide delivered an extraordinary investor return of 23,000%, surpassing the performance of prominent corporations such as Walmart and Berkshire Hathaway.

On January 11, 2008, Bank of America revealed its intention to purchase Countrywide Financial for $4.1 billion in stock. The deal received regulatory clearance by June 2008 and shareholder consent soon after. The acquisition was completed on July 1, 2008, effectively folding Countrywide’s extensive mortgage operations into Bank of America's framework.

In a notable development in 1997, Countrywide separated its mortgage investment division to create IndyMac Bank. However, IndyMac encountered severe financial difficulties leading to regulatory takeover in July 2008 following a bank run.

Businesses

The structure of Bank of America Home Loans includes:

Mortgage Banking: responsible for originating, acquiring, securitizing, and servicing mortgage loans. In 2005, this area accounted for 59% of the company’s pre-tax income.
Banking: operates as a federally chartered thrift institution focusing primarily on mortgage loans and home equity lines sourced from its mortgage banking segment.
Capital Markets: serves as an institutional broker-dealer engaged in trading and underwriting mortgage-backed securities.
Global Operations: manages processing of mortgage loan applications along with loan servicing functions.

Mortgage banking

Within Mortgage Banking, loans are generated nationwide with nearly all being sold into secondary markets predominantly through mortgage-backed securities. In 2006, approximately 45% consisted of conventional non-conforming loans exceeding Fannie Mae’s size limits. The division usually retains servicing responsibilities for the loans it originates and provides ancillary loan closing services including title insurance, escrow management, and appraisal coordination.

Mortgage Banking is composed of three main divisions: Loan Production, Loan Servicing, and Loan Closing Services.

Loan Origination

Loan origination encompasses the creation and funding of new loans, as well as the acquisition of already funded loans from other lenders. This function is divided into four key segments: Consumer Markets, Full Spectrum Lending, Wholesale Lending, and Correspondent Lending.

Direct lending to consumers is conducted through Consumer Markets and Full Spectrum Lending—Consumer Markets provides a variety of loan products, while Full Spectrum Lending specializes in subprime credit offerings. Wholesale Lending finances and subsequently sells loans that mortgage brokers originate. Correspondent Lending acquires loans from external lenders such as banks and credit unions; these loans are initially originated and funded outside the company but may be sold later to secondary market investors.

Loan Administration

Loan administration includes processing borrower payments, overseeing escrow accounts designated for taxes and insurance, and forwarding advances to investors in accordance with the Pooling and Servicing Agreement (PSA). The servicing entity retains a fee from payments received, generally ranging from 25 to 75 basis points based on the outstanding principal balance.

Additional revenue streams include interest earned on funds held prior to remittance, fees for late payments, charges related to force-placed insurance, document retrieval fees, legal expenses, and statements issued upon loan payoff.

Closing Services

LandSafe and its affiliates deliver comprehensive loan closing support services such as real estate appraisals, automated credit reporting, flood zone determinations, and residential title services within the six primary counties of Southern California.

Banking

The Banking division comprises Countrywide Bank, FSB, and Countrywide Warehouse Lending. Countrywide Bank—formerly known as Countrywide Bank, N.A.—is a federally chartered thrift institution overseen by the Office of Thrift Supervision. It holds the position as the third-largest Savings and Loan entity in the United States and is recognized as the fastest expanding bank in U.S. history, with assets nearing $125 billion derived from deposits.

The bank's core business involves originating and purchasing mortgage loans alongside home equity lines of credit for investment purposes. The majority of these loans are generated through its mortgage banking subsidiary, Countrywide Home Loans. Retail deposit gathering occurs via online platforms, call centers, and over 200 branch locations—many co-located with Countrywide Home Loans offices as of April 2007.

Countrywide Warehouse Lending provides warehouse credit lines to mortgage bankers—primarily clients affiliated with Countrywide Home Loans’ Correspondent Lending and Capital Markets divisions—facilitating loan origination prior to selling those loans back to Countrywide.

Capital Markets

Operating as a registered securities broker-dealer, residential mortgage loan servicer, and commercial mortgage originator, the Capital Markets segment maintains broker-dealer operations in Japan and the United Kingdom. It also functions as an introducing broker-dealer for futures contracts, manages assets, and brokers mortgage servicing rights. Except for commercial mortgage activities, its transactions primarily serve institutional clients including banks, insurance firms, asset managers, mutual funds, pension plans, broker-dealers, and government agencies. Commercial real estate financing customers typically consist of individual or institutional property owners or sponsors.

Countrywide Asset Management Corporation manages both third-party loan acquisitions and dispositions along with those originated by Countrywide Home Loans. These portfolios often contain delinquent or hard-to-sell residential loans predominantly associated with FHA and VA programs. The company seeks to rehabilitate these loans through servicing efforts to qualify them for securitization; loans that do not meet criteria are handled via foreclosure and liquidation processes.

In securities trading, activities involve transactions of debt securities on the secondary market after issuance. Underwriting entails assuming risk for newly issued securities and reselling them directly to investors or through dealer networks. The Capital Markets division primarily focuses on underwriting debt securities related to mortgages.

Insurance

The Insurance division provides a range of offerings including property, casualty, life, and credit insurance, functioning both as an underwriter and an agency. It also delivers reinsurance solutions to primary mortgage insurers through two key entities: Balboa Life and Casualty Operations and Balboa Reinsurance Company.

Balboa Life and Casualty Group issues property, casualty, life, and credit insurance policies nationwide, covering all 50 states. Their principal products encompass Lender-Placed Property and Auto insurance, Voluntary Homeowners and Auto insurance, as well as Life and Credit insurance products such as term life, credit life, and credit disability coverage.

Balboa Reinsurance Company specializes in mezzanine reinsurance, offering coverage for losses that fall within certain thresholds to insurers providing private mortgage insurance (PMI) on loans managed within the company’s servicing portfolio. This service primarily targets conventional loans with loan-to-value ratios exceeding 80%, generating income through a portion of the PMI premiums collected.

Global operations

The Global Operations segment was largely centered on Global Home Loans (GHL), a UK-based third-party administrator established in 1998 through a joint venture between Countrywide and Woolwich plc. GHL managed loan processing and mortgage subservicing activities within the UK market.

Following Barclays plc’s acquisition of Woolwich, GHL expanded its services to include Barclays’ mortgage portfolio and assumed control of Barclays’ mortgage operations in Leeds in 2003. By 2005, GHL was responsible for processing loans exceeding £11.3 billion ($20.3 billion) exclusively for Barclays. The total subservicing portfolio reached £59 billion ($102 billion) by the end of that year.

In November 2005, Barclays declared its intention to end its partnership with GHL, opting to bring mortgage origination and servicing functions in-house. Subsequently, Countrywide purchased Barclays’ remaining 30% ownership stake in GHL prior to Barclays internalizing these operations in February 2006.

After this acquisition, Countrywide’s UK footprint was primarily limited to supporting Barclays and Prudential Assurance through proprietary systems developed by Countrywide Technology Group until these platforms were phased out in 2012.

Furthermore, the company held a majority stake in a UK joint venture that provided electronic residential property valuation services; this business was divested to First American in 2007.

Offshore Services commenced operations in India in 2004, capitalizing on cost-efficient technological expertise to deliver business process outsourcing and IT services to both the parent company and its subsidiaries located in the US and UK.

Employee and contract labor issues

In 2003, Countrywide became subject to a class-action lawsuit alleging violations related to overtime compensation. Plaintiffs claimed employees worked between 10 to 15 hours daily across six to seven days weekly without receiving appropriate overtime pay. The lawsuit was resolved in May 2005 with a $30 million settlement awarded to approximately 400 account executives. Additionally, Countrywide enforces comprehensive background screening for job candidates—including credit checks and public record reviews—requiring applicant consent; refusal results in disqualification from consideration. This practice has led to allegations of discrimination and privacy concerns.

There have also been reports suggesting that Countrywide failed to submit IRS Form 1099 for independent brokers as mandated by law, raising questions about regulatory compliance.

Minority and subprime borrowers

Countrywide reached a settlement with New York State Attorney General Eliot Spitzer regarding accusations of directing Black and Hispanic borrowers toward higher-cost mortgage products. As part of the agreement, the company committed to improving training and supervision of its loan officers and contributed $200,000 to cover investigation expenses.

Internal records indicate that Countrywide extended loans to households with disposable incomes as low as $1,000, frequently placing these families at financial risk. Economist Stan Liebowitz highlighted that the Fannie Mae Foundation had recognized Countrywide as a model of equitable lending due to its flexible underwriting criteria. The CEO reportedly acknowledged that lenders occasionally "bent the rules" to approve applications from minority borrowers. By early 2003, Countrywide’s portfolio of loans targeted at low-income borrowers had reached $600 billion.

Complaints after Hurricanes Katrina, Gustav, and Rita

In the aftermath of Hurricanes Katrina, Gustav, and Rita, certain customers reported that Countrywide initially permitted payment deferrals without imposing late fees, adding the missed payments to the loan balances. However, these borrowers later asserted that they were compelled to repay both the missed installments and accrued late fees in a single payment within 30 days or face foreclosure proceedings.

"Friends of Angelo" VIP program

In June 2008, Conde Nast Portfolio disclosed that several politicians from Washington D.C. benefited from preferential mortgage terms through Countrywide’s "Friends of Angelo" (FOA) program, named after CEO Angelo Mozilo. Among those receiving favorable treatment were Senate Banking Committee Chairman Christopher Dodd and Senate Budget Committee Chairman Kent Conrad. Additionally, Countrywide’s political action committee made substantial contributions to Dodd's election campaigns.

Senator Dodd introduced a federal proposal to purchase up to $400 billion in defaulted mortgages. The ethics watchdog group CREW called for investigations into Senators Conrad and Dodd concerning their FOA loan arrangements.

James Johnson, former CEO of Fannie Mae and advisor to Barack Obama’s campaign, was also a recipient of FOA loans and stepped down from his vetting role in June 2008 to prevent political controversies.

Furthermore, Franklin Raines, another ex-Fannie Mae CEO, obtained discounted loans exceeding $3 million through the FOA program. He served as an advisor on mortgage policy for Obama’s campaign; however, subsequent media coverage minimized the connection between Raines and the campaign.

Lawsuits

In June 2008, the Illinois Attorney General filed a civil lawsuit against Countrywide Financial Corporation, accusing it of engaging in "unfair and deceptive" lending practices that pressured homeowners into unaffordable mortgage agreements. Similarly, California's Attorney General charged the company with violating state statutes on false advertising and unfair business conduct by misleading borrowers regarding adjustable-rate mortgages, interest-only loans, low-documentation products, and home-equity loans—often with false assurances about refinancing options before interest rate increases.

Connecticut followed suit in August 2008 with allegations that deceptive lending practices caused harm to homeowners. Following Bank of America’s acquisition of Countrywide, these lawsuits were consolidated into an $8.4 billion settlement finalized in October 2008 aimed at restructuring predatory loans. Participating states included Arizona, California, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas, and Washington.

Moreover, a shareholder class action lawsuit was filed targeting investors in Countrywide’s asset-backed securities.

Disruption in the secondary market

Countrywide Financial commonly bundled mortgage loans into mortgage-backed securities for sale to institutional investors. While Fannie Mae and Freddie Mac purchase only loans that meet government-sponsored enterprise criteria, mortgage securities that do not conform to these standards are traded within the private secondary market. On August 3, 2007, trading of most non-conforming securities in this secondary market effectively halted.

The extent and duration of this disruption surpassed previous incidents. Alt-A mortgages—loans extended to creditworthy borrowers with limited documentation—ceased trading below AAA ratings, and problems spread even to many AAA-rated securities. Only conforming mortgage-backed securities continued to trade actively. Countrywide announced it had nearly $50 billion available in funding.

After American Home Mortgage collapsed on August 6, 2007, attention intensified on Countrywide, which originated roughly 17% of all U.S. mortgages. In the days following, Countrywide informed the SEC that interruptions in secondary markets might adversely affect its financial health due to its dependence on credit availability:

Interruptions in debt markets or downgrades in credit ratings could negatively impact earnings and financial condition, particularly in the short term… Reduced liquidity and rising credit risk premiums might persist or worsen… There is no guarantee that financing efforts will succeed or be cost-effective enough to sustain profitability.

This statement sparked speculation regarding bankruptcy risk. On August 10, as the secondary mortgage market froze, a run on Countrywide began, sharply restricting new mortgage funding.

Credit rating agencies Fitch, Moody's, and Standard & Poor's downgraded Countrywide by one or two levels, some approaching junk status. The cost to insure its bonds increased by 22% overnight, limiting access to commercial paper markets. Institutional investors reportedly sought to offload Countrywide securities.

By mid-August, fifty mortgage lenders had filed for Chapter 11 bankruptcy; Merrill Lynch and others identified Countrywide as a potential bankruptcy candidate. Coupled with concerns over its commercial paper issuance, Countrywide’s stock dropped $3.17 to $21.29—the largest single-day decline since 1987—falling 50% throughout that year. On August 15, Merrill Lynch recommended clients sell their Countrywide shares.

Problem announcements and bailout efforts

On August 16, 2007, Countrywide revealed liquidity challenges stemming from the collapse of the secondary market for securitized mortgage obligations and declared plans to draw its entire $11.5 billion credit facility from a consortium of 40 banks including JPMorgan Chase. The following day saw depositors rushing to withdraw funds, exacerbating financial pressures. Countrywide aimed to convert 90% of its loans to conforming standards amid a 75% decline in its stock price from peak levels, intensifying bankruptcy concerns.

The Federal Reserve Bank responded by lowering the discount rate by half a percentage point and accepting $17.2 billion in repurchase agreements backed by mortgage-backed securities to bolster liquidity, helping to stabilize both markets and investor sentiment.

Countrywide was also compelled to revise previously reported income derived from accrued but unpaid interest on "exotic" mortgages, as much of this interest became uncollectible during 2007.

On August 20, at the request of Citigroup and Bank of America, the Federal Reserve temporarily relaxed banking regulations allowing federally insured banks to lend more than 10% of their capital to affiliated brokerage firms. This regulatory easing enabled Citibank, Bank of America, and two additional banks to obtain $500 million in 30-day financing through the Fed’s discount window on August 23. That same day, Bank of America injected $2 billion in capital into Countrywide in exchange for convertible preferred stock.

By November 26, 2007, Countrywide’s share price had dropped more than 10% to $8.64 per share—less than half its value from August and a small fraction of its price in 2006. This decline followed reports that the Atlanta Federal Home Loan Bank had extended substantial credit to Countrywide amid ongoing funding challenges, prompting Senator Chuck Schumer to call for an investigation into the bank's decision.

Between 2005 and 2007, founder Angelo R. Mozilo sold significant portions of his holdings in Countrywide stock, generating $291.5 million in proceeds. Subsequently, shareholders initiated a class action lawsuit alleging securities law violations.

In September 2008, Countrywide informed mortgage customers about a data breach involving employee access to social security numbers and birthdates, offering free credit monitoring services for 90 days as part of its response plan.

'Protect Our House' Public Relations Initiative

In September 2007, after enduring several months of unfavorable media coverage and a reduction of 20% in its workforce, Countrywide initiated a public relations effort aimed at uplifting employee spirits. Employees were encouraged to pledge allegiance by signing a loyalty commitment to affirm their dedication and advocate the Countrywide narrative. Those who participated were given a green wristband labeled "Protect Our House"; reportedly, declining to sign could jeopardize their employment.

Acquisition

The $4 billion purchase of Countrywide Financial by Bank of America commenced with a December 2007 conversation between Countrywide CEO Angelo Mozilo and Bank of America CEO Kenneth D. Lewis. On January 11, 2008, Bank of America declared an all-stock transaction valued at $4 billion, which caused the stock price to climb from $4.43 to approximately $5.50 per share. The deal was finalized in July 2008 for $2.5 billion.

Although Bank of America had injected $2 billion in cash into Countrywide in August 2007, the company's financial situation deteriorated over the following six months, leading Mozilo to consider selling. Prior to proposing the acquisition, Bank of America’s analysts conducted thorough evaluations of Countrywide’s legal challenges and financial health, demonstrating confidence in the revamped business structure despite ongoing litigation and adverse media attention.

Countrywide’s shareholders gave their approval for the acquisition in June 2008. Subsequent to the merger, Bank of America revealed intentions to eliminate 7,500 positions over a two-year period.

This acquisition held considerable importance amid the housing market collapse due to Countrywide’s status as the largest mortgage lender in the U.S. However, it ultimately became expensive: in August 2014, Bank of America consented to nearly $17 billion in settlements related to problematic mortgage-backed securities, many tied to loans originated by Countrywide.

SEC Allegations

On June 4, 2009, the U.S. Securities and Exchange Commission filed charges against former CEO Angelo Mozilo for insider trading and securities fraud, along with former COO David Sambol and former CFO Eric Sieracki for securities fraud linked to nondisclosure of Countrywide’s lenient lending practices in its 2006 annual report. Despite these accusations, both Countrywide and its successor Bank of America maintained the Veterans Administration Property Management contract until 2011, as documented in a VA memo from 2008.

External links

"What the Countrywide deal means for your mortgage", CNN Money, January 11, 2008
Timeline of events leading to Countrywide Financial's buyout by Bank of America, San Diego Union Tribune, January 11, 2008