Countrywide and Bank of America

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Ohg Rea Tone is all or nothing. He is educated and opinionated, more clever than smart, sarcastic and forthright. He writes intuitively - often disregarding rules of composition. Comment on his posts - he will likely respond with characteristic humor or genuine empathy. He is the real-deal.

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Countrywide and Bank of America

Son,

Good news and bad news.  Countrywide is a mortgage lender that has gotten into trouble with greedy lending practices.  The economy caught up with them.  Now the Bank of America is reportedly buying Countrywide for a ba-zillion dollars.  That sound like good news – like maybe the mortgage lending fiasco may be coming to an end.  Not exactly true.

In simple terms the Bank of America will be purchasing the ‘good loans.’  That is my guess.  They will go through the Countrywide books and select the lucrative and safe loans.  They will foreclose on the others.

What does this mean?  One of our local banks went out of business about ten years ago – the result of poor management decisions.  The bank was purchased by Commerce Bank – a big dog in the Kansas City banking community.  Commerce did a great service to the local economy.  But they are not so foolish as the folks who lost their bank to poor management.  The consequence was disastrous for some locals.

The local bank had financed their buddies and the bank management touted their importance to the local economy.  When they busted and Commerce came to the rescue the ‘buddy factor’ did not count for much.  Several local businesses went out of business because their loans were too risky for Commerce.  It did not make any difference if they were making regular payments – the formula for risk was too great.

So it will be interesting to follow the fallout from the Countrywide sale to Bank of America.

Dad

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