WASHINGTON — A buyout of hobbled mortgage lender Countrywide Financial likely would be approved by regulators, analysts say, because otherwise the company could file for bankruptcy, injecting further uncertainty into the home-loan market.
Bank of America is in talks to acquire Countrywide, The Wall Street Journal and The New York Times reported Thursday online, citing unidentified people familiar with the deal. The transaction would put the country’s largest mortgage lender, which has experienced a surge in home-loan defaults and has seen its share price plummet, in the hands of the largest U.S. bank by market capitalization.
A Bank of America-led buyout is “the one and only hope that (Countrywide) has” to avoid bankruptcy, according to Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co.
Egan-Jones warned earlier this week that Countrywide could “falter” unless it receives an infusion of $4 billion in capital within the next two weeks.
“I cannot imagine that the regulators want Countrywide to go under,” said Bert Ely, a banking industry consultant in Alexandria, Va. “I think they’re actually quite nervous about that.”
Countrywide founder Angelo Mozilo stands to reap $115 million in severance-related pay, regulatory filings show. Free rides on the company jet also are included in Mozilo’s departure deal, and the company would pick up his country club bills until 2011.
A combination of Bank of America and Countrywide would require approval from the Federal Reserve and possibly other agencies.
Banking regulators declined to comment on the reports.
Federal law bars banks from making acquisitions that would increase a bank’s market share to 10 percent of U.S. deposits, and Bank of America is nearing that point at 9.88 percent. However, experts disagreed about whether deposits held by Countrywide’s federally regulated thrift, Countrywide Bank, would count toward that limit.
In addition, banking industry experts say Bank of America could easily lower the total amount of money held in deposits by lowering interest rates and losing deposits to competitors.
Federal bank regulators “are not looking to clean up messes like the largest mortgage originator in the country going under,” said Bart Nater, a San Francisco-based senior analyst with consulting firm Celent.
Regulators are likely to be far more concerned with whether Countrywide fails — and the economic ramifications of such a large collapse — than with consolidation in the mortgage industry, Nater said.
Bank of America, which took on a 16 percent stake in Countrywide over the summer, told The Associated Press it does not comment on market rumor or market speculation. Countrywide did not immediately return calls or e-mails seeking comment.
