September 19, 2011

Countrywide Bankruptcy: Bank of America’s Maze Of Options

September 19, 2011

Countrywide Bankruptcy: Bank of America’s Maze Of Options

Did you know that Bank of America kept the Countrywide name after its bargain purchase in 2008, and that “it would consider putting the unit into bankruptcy if litigation losses threaten to cripple the parent”? Here’s the alphabet soup of entities BofA is juggling:

The transaction was completed July 1, 2008 with Countrywide Financial Corporation merging into Red Oak Merger Corporation, a wholly owned merger subsidiary of Bank of America Corporation.

The merged company retained the “Countrywide Financial Corporation” name and became a direct subsidiary of BAC.

Countrywide’s primary operating subsidiaries travelled with the CFC holding company during the merger, namely: Countrywide Home Loans, Inc. (CHL), Countrywide Securities Corporation (CSC), Countrywide Home Loans Servicing, LP, and Countrywide Bank, FSB.

Bank of America generally opted to have its subsidiaries purchase assets from the legacy CFC units and only selectively merge with non-securitization related Countrywide entities, although CHL was the primary mortgage originator in the Countrywide group of companies.

It’s important to understand this tangled web, since the structure of the relationship with Countrywide should ultimately limit the risk to Bank of America from continuing legacy mortgage legal claims.

Analysts believe that the small size of Countrywide’s balance sheet, its limited continuing value, and its ongoing legal separateness suggest that Bank of America’s risk related to Countrywide is contained.

CHL constitutes 74% of Bank of America’s non-agency origination from 2004-2008, 77% of defaulted and delinquent balances, and 78% of defaults and delinquencies that occurred within two years of origination.

Analysts expect most of the liability to reside in the still-separate Countrywide entities, including CFC, CHL, and CSC.