How Bank of America Will Live Up to its Name

Source: MarketWatch | NEW YORK (April 22, 2008)

Bank of America said Tuesday that it will institute strict new lending guidelines when it completes it acquisition of troubled lender Countrywide Financial Corporation later this year.

The new changes instituted will include ending the origination of subprime mortgages, greatly reducing the number of no- or low-documentation loans and issuing adjustable rate mortgages that have a much longer interest-only payment period in order to reduce huge resetting payments.

Bank of America agreed to purchase the nation's largest lender, Countrywide, in a white knight, $4 billion all-stock deal scheduled to close in the third quarter.

When the merger is completed, Bank of America will originate or service at least one out of every four of the country's mortgages.

"We recognize this tightening, by definition, restricts the availability of credit to some borrowers. However, this will help ensure that those who get loans can afford to repay them," said Bank of America Global Consumer Credit Executive Bruce Hammonds in a statement.

[Photo Courtesy of dM.nyc™ | flickr]

On the one hand, BofA continues to mask itself in the cloak of the perceived industry savior -- the "white knight," as MarketWatch refers to their purchase of Countrywide. On the other, hardly anyone recognizes that this announcement comes as a surprise, nor is it even newsworthy.

Of course, Banca di America will play the knight-in-shining-armor card again and pass the news along as if it's earth-shattering.

No. It's not. It's the sign of the times in the mortgage industry, and everyone involved knows it. Lending standards and more stringent documentation is here to stay, and that's a good thing.

However, I will say that the real news that is cause for alarm is the projection of BofA owning a quarter of the mortgage loans in the country. Talk about a stranglehold on the market.

//Phil De La Cruz