Countrywide option ARM home loans deteriorate more

[UpInArms]

Source: Reuters

NEW YORK (Reuters) - Countrywide Financial Corp said thousands of borrowers with $25.4 billion in option adjustable-rate mortgages (ARMs) owe almost as much as their homes are worth as home prices slide and more homeowners abandon their properties.

Another sign of borrower distress: One in eight is at least 90 days late on payments.

<snip>

Lenders industrywide have said many borrowers who owe more than the value of their homes are abandoning the properties because they don't expect to recoup their losses.

"People still don't understand what a catastrophe this is," said Christopher Whalen, senior vice president and managing director at Institutional Risk Analytics of Torrance, California. "The guys who are really on the hook are Bank of America shareholders."

Read more: http://www.reuters.com/article/bondsNews/idUSN1251538220080812?sp=true

[ihavenobias]

1. K & R

[madrchsod]

2. i love the countrywide ad "on" this post

dam it sucks not to have a star.....

[Joanne98]

3. Why did BOA buy them?

[Dr.Phool]

4. Ooops, misread your question.

Things were looking so bad for Countrywide, most analysts believed that BOA would smarten up, pay the penalty, and walk away.

I guess they weren't that smart.

[Demeter]

5. That's the $64 billion Question, Joanne

And we haven't yet devised a plausible answer.

[UpInArms]

7. from nakedcapitalism

http://www.nakedcapitalism.com/2008/05/more-on-what-bank-of-america-might-do.html

Saturday, May 3, 2008
More on What Bank of America Might Do With Countrywide Debt

The BofA/Countrywide follies continue. Earlier in the week, the Charlotte bank, in an SEC filing on the pending Countrywide acquisition, remained silent on the question of the fate of Countrywide bonds. As we had mentioned some time ago, BofA plans to use a deal structure that would leave the debt in a subsidiary so that creditors would have recourse only to Countrywide assets, and not BofA resources, for repayment (forgive me if I have oversimplified the structure). However, the Countrywide bonds had nearly doubled in price on the assumption that BofA would assume liability.

Reader Scott forwarded an article from the always-informative Institutional Risk Analytics. It tells us that BofA has agreed to take on Countrywide's $50 billion of Federal Home Loan Bank borrowings. IRA discusses some options for how BofA might proceed, which includes putting Countrywide into Chapter 11.

That begs the question: why didn't Countrywide go bankrupt in the first place? It would have been cleaner for Bank of America to stand aside, wait for Countrywide to crater, and cherry pick the assets it wanted, or buy the whole thing after negotiating a haircut with creditors. That clearly was the best course for shareholders. And Mozilo would not have fared very well in a bankruptcy. It will be harder for the big retail bank to defend its decision to rescue Countrywide if it promptly puts it into bankruptcy.

So despite the claims at the time the deal was announced (that BofA had been keen to buy Countrywide for some time), there was more here than meet the eye.

[Dr.Phool]

6. Didn't they just change the reporting requirements?

Instead of booking it as delinquent on their books after 90 days, they pushed it back another 60 or so?