Compete.com Blog has an interesting article on the rumoured merger of Bank of America and Countrywide. The details of the post, while accurate to my knowledge, are intriguing, but have very little to do with the motivations of the merger. Brian Revis documents how many more unique visitors would visit BOA’s web site while shopping for a loan. To me, that is like buying a Ferrari because it looks good in red. True, but largely irrelevant.
Coutrywide may be the nations largest online lender, but that piece of the pie is still pretty small in the grand scheme of things. First off, Countrywide is much more than a mortgage lender. According to their own website, mortgage banking only represents about half of all of their earnings. The rest is split among capital markets, banking, and insurance.
Furthermore, Mortgage Banking fundings come primary from secondary sources. 60% coming from correspondent and wholesale channels compared to 35% coming directly from consumers. The pie is even smaller for online as the consumer direct lending comes from,“both prime and nonprime, through Countrywide Home Loans’ 999-branch retail system, call center operations and the Internet.”. I think it’s pretty clear that internet originations still take a back seat to Mortgage Professionals who are out in the field, working through referrals and shaking hands.
I think it would also be interesting to try to find out how many monthly unique visitors to Countrywide’s website are existing customers instead of potential shoppers. Since you can check your payoff balance, pay your mortgage and get immediate customer service information from Countrywides web site, I’d wager that nearly half of their traffic (A guess on my part) has nothing to do with shopping for a new mortgage.
Anyway, a reader asked me to comment on the linked post above. My comment is, “I don’t know the exact reasons for why BOA might want to acquire Countrywide, but I very much doubt it’s based primarily on web traffic.”
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Great Topic, I was wondering when we might start to see this subject. I agree I think that this goes much, much deeper then just web site traffic. The bigger lenders have been balking up and diversifying for sometime now. Countywide also just bought into Chicago-based CCM Futures, LLC. What a better time to play the options on mortgage futures. Both BOA and Countywide have sizable sub prime lending units and I think that this is the true drive here, also Countywide as its own Appraisal Management Company.
Why? BOA is smart, they bought a large controlliing portion of CW when their stock prices were at a low. How much did BOA make as a result of their goodwill “support” of their competitor? That investment was genius. I haven’t confirmed numbers, but according to our AE with BOA they were anticipating a positive reaction on the Street, which while not fully covering their initial outlay, netted them millions as the stock price of CW rebounded.
We then watched as BOA was praised for their commitment to stabilize the credit market while lending a helping hand to their competitor in a time of need. You gotta love that spin! LOL, they saw an opportunity to make a good profit and grab a large controlling share of a major competitor.
So, what happens in the next 12-18 months as CW’s subprime holdings begin to default? Well, here’s BOA with a large controlling share sitting at the table, capital at their disposal. Do you think they might have a say in what becomes of CW? They may take control of CW under the veil of a “merger” or they will be at the front of the line, able to cherry pick which assetts from CW they will absorb - maybe they’ll want to keep the servicing rights for CW’s conforming holdings - and then whatever BOA doesn’t want will go to the fire sale. More likely, it will be a combination of both. The beauty with BOA is they aren’t big risk-takers, so I tend to trust their decision-making. Whatever they decide, you can rest assured that it will be structured such that it have a stabilizing & profitable effect for the market and the economy… When you’re as big a player as BOA is, it’s in your best interest to keep the money flowing - that money flows from the market.
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