Bank of America Home Loans
Bank of America Home Loans is the mortgage unit of Bank of America. It previously existed as an independent company called Countrywide Financial from 1969 to 2008. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion. In 2006, Countrywide financed 20% of all mortgages in the United States, at a value of about 3.5% of the United States GDP, a proportion greater than any other single mortgage lender.
History
Countrywide was founded in 1969 by David S. Loeb and Angelo Mozilo. Loeb died in 2003. The initial public offering was less than successful, with company stock trading over the counter at less than $1 per share. In 1985 Countrywide stock was re-listed on the New York Stock Exchange under the ticker symbol CFC.Countrywide's stock has been described as the "23,000% stock" by Fortune magazine. Between 1982 and 2003, Countrywide delivered investors a 23,000.0% return, 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. Federal regulators seized IndyMac on July 11, 2008, after a week-long bank run.
Businesses
Bank of America Home Loans is composed of:- Mortgage Banking, which originates, purchases, securitizes, and services mortgages. During the year ended December 31, 2005, the Mortgage Banking segment generated 59% of the company's pre-tax earnings.
- Banking, which operates a federally chartered thrift that primarily invests in mortgage loans and home equity lines of credit primarily sourced through its mortgage banking operation.
- Capital Markets, which operates as an institutional broker-dealer that primarily specializes in trading and underwriting mortgage-backed securities.
- Global Operations, which provides mortgage loan application processing and loan servicing.
Mortgage banking
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
The role of Loan Production is to originate and fund new loans and to acquire already-funded loans through purchases from other lenders. Loan Production produces mortgage loans through four divisions of Countrywide Home Loans: Consumer Markets, Full Spectrum Lending, Wholesale Lending, and Correspondent Lending.Consumer Markets and Full Spectrum Lending offer loans directly to consumers. Loans produced by these two retail divisions are originated, funded, and sold by Countrywide. Consumer Markets offers various products, whereas Full Spectrum Lending focuses primarily on products appropriate for customers with less than prime-quality credit.
Wholesale Lending offers loans to consumers whose loans are originated by another mortgage broker. These loans are funded and sold by Countrywide but originated by other lenders.
Correspondent Lending purchases mortgage loans from other lenders, which include mortgage bankers, commercial banks, savings and loan associations, home builders, and credit unions. These loans may be sold by Countrywide to end-investors on the secondary market but are originated and funded by other lenders.
Loan servicing
Loan servicing services loans, i.e., collect payments from the borrower, handles escrow accounts, tax and insurance payments, then remit "advances" to the investor's trustee as specified in the Pooling and Servicing Agreement.Loan servicing typically retains a fraction of the payment made as a "servicing fee".
Loan servicing also generates income in the form of interest on monies received and held before paying scheduled advances to the trustee, fees charged for late payments, force-placed insurance, document requests, legal fees, payoff statements, etc.
Loan closing services
LandSafe and its subsidiaries offer loan closing services, including real estate appraisal services, automated credit reporting products, flood determination services, and residential title services for the six major counties of Southern California.Banking
The Banking segment consisted of Countrywide Bank, FSB, and Countrywide Warehouse Lending. Formerly, the bank was known as Countrywide Bank, N.A.. This nationally chartered bank was regulated jointly by the Office of the Comptroller of the Currency and the Federal Reserve. Still, it 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 and is the fastest-growing bank in United States history. Assets from deposits are currently approaching $125 billion.Countrywide Bank primarily originates and purchases mortgage loans and home equity lines of credit for investment purposes. Most of these loans are sourced through its mortgage banking subsidiary, Countrywide Home 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.
Countrywide Warehouse Lending provides warehouse lines of credit to mortgage bankers, who use these funds to originate loans. These mortgage bankers are primarily customers of Countrywide Home Loans' Correspondent Lending division and the Capital Markets divisions; the mortgage bankers use warehouse lines of credit from Countrywide Warehouse Lending to help originate loans, then sell those loans to Countrywide through Correspondent Lending or Capital Markets.
Capital markets
The Capital Markets segment primarily operates as a registered securities broker-dealer, a residential mortgage loan manager, and a commercial mortgage loan originator. CFC 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 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, who can be individuals or institutions.Countrywide Asset Management Corporation manages the acquisition and disposition of loans from third parties and loans originated by Countrywide Home Loans on behalf of Countrywide Home Loans. These are typically delinquent or otherwise illiquid residential mortgage loans, which have primarily originated under Federal Housing Administration and Veterans Administration programs. The Company attempts to rehabilitate the loans, using the 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.
Securities trading activities include trading debt securities in the secondary market after the original issuance of the security. Underwriting activities encompass the assumption of the risk of buying a new issue of securities from the issuer and reselling the securities to investors, either directly or through dealers. Capital Markets primarily underwrites mortgage-related debt securities.
Insurance
The Insurance segment activities include offering property, casualty, life, and credit insurance as an underwriter and as an insurance agency and providing reinsurance coverage to primary mortgage insurers through two business units: Balboa Life and Casualty Operations, and Balboa Reinsurance Company.Balboa Life and Casualty Group underwrite property, casualty, life, and credit insurance in all 50 states. Its products include Lender-Placed Property and Auto, which includes lender-placed auto insurance and lender-placed, real-property hazard insurance; Voluntary Homeowners and Auto, which underwrites retail homeowners insurance and home warranty plans for consumers; and Life and Credit, which underwrites term life, credit life, and credit disability insurance products.
Balboa Reinsurance Company provides a mezzanine layer of reinsurance coverage for losses between minimum and maximum specified amounts to the insurance companies that provide private mortgage insurance on loans in its servicing portfolio. It provides this coverage concerning substantially all of the loans in the Company's portfolio that are covered by PMI, which generally includes all conventional loans with an original loan amount over 80% of the property's appraised value. It earns a portion of the PMI premiums in return for providing this coverage.