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January 12, 2008

BOA Buys Countrywide

by Stewart Douglas

Story link: BOA Buys Countrywide

Under-fire US mortgage lender Countrywide Financial has today been acquired by Bank of America, in a move thought to be worth in excess of $4 billion in the wake of liquidity problems at the country’s biggest mortgage lender in light of the sub-prime collapse and the slowdown in the housing market.

The news comes just days after Countrywide reported a 44% decrease in mortgage volumes over the course of December and a sharp rise in the number of foreclosures after lax lending practices and rising interest rates lead to widespread consumer debt problems.

The deal has been portrayed as the saviour of Countrywide, which has been rumoured in the press to have had extensive liquidity shortages in light of the sub-prime sector fallout and the stagnant US housing market.

Indeed the announcement has buoyed financial shares across the board, bringing more confidence to the sector after Countrywide had reported a steadily worsening position for several consecutive months following the sub-prime problems.

The move comes after a prolonged relationship between the Bank of America and the troubled lenders, which began in August 2007 with initial investment of $2 billion for equity in the USA’s biggest mortgage lender.

Additionally it has been thought that the Bank of America was looking to increase its stake in the company with a view to gaining more of its domestic mortgage market share, prior to the acquisition today and indeed the worst of the liquidity problems at Countrywide.

It remains to be seen whether the acquisition will aid the lender in its recovery from the current financial problems it is facing in the wake of the sub-prime collapse, and whether the move will prove to be a valuable acquisition for Bank of America.

 

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