Illinois to sue Countrywide; BofA’s big tax break
There are some new wrinkles in Bank of America’s (BAC) plan to buy struggling mortgage lender Countrywide (CFC). Illinois’ attorney general is planning to sue Countrywide, claiming the mortgage lender misled consumers and eased its lending standards to pump up loan volume, boosting its profits. The suit is expected to be filed in state court Wednesday, asks the court to rescind or reform questionable loans written in the state over the past four years, The New York Times reports.
The news comes as Countrywide shareholders prepare to vote on Bank of America’s $2.8 billion takeover plan. Countrywide investors are expected to approve the merger, which stands to rescue the Calabasas, Calif., lender from rising problems in its mortgage portfolio and questions about its business practices. Worries that the Countrywide deal will saddle Bank of America with heavy loan losses and legal bills have pulled BofA shares down 30% since the deal was struck in January. But a Bloomberg report Wednesday says not to worry: Taxpayers, via tax write-offs available to Bank of America, are actually footing the bill, to the tune of as much as $5 billion over 20 years, according to accounting watchdog Robert Willens.
“Ken Lewis got a break,” Willens said, referring to Bank of America’s chief. “What these losses do is reduce the effective cost of the deal so the headline price isn’t really what they’re paying. It’s entirely possible that the entire equity purchase price could be financed by tax savings.” Whether those savings can offset the hit BofA’s reputation may take in future Countrywide litigation remains to be seen.
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The lawsuits by states on behalf of their residents are just the beginning as I’m sure many Attorneys General will sue Countrywide for their unethical practices. I wouldn’t be surprised if the US Attorney General sues them as well for the fraud they perpetuated in Bankruptcy Proceedings. Bank of America is and will be in for a surprise if they haven’t done their due diligence.
Posted By Mike from NYC : June 25, 2008 9:06 am
Again this is just another ploy to undermind and derail the impending merger between the two companies. The fact remains, borrowers entered into these transactions with both eyes wide open. If the borrowers didnt understand the term of the loan then more questions needed to be asked and if the answers were still not to their liking then then they shodl hav sought additionla help outside of their discussions with the loan officer. Why is it that we keep blaming Countrywide. It’s the responsibility of the borrower to make sure that they understand the terms. No one held a gun top to their head and made them sign the loan documents. Every borrower has the right to leave the closing table if they are uncomfortable with the terms. That being said, one piece of the puzzle that no one has mentioned yet is the Title company. The title companys’ responsibility is to make sure that the term and conditions of the loan are explained in detail and that the closer checks for understanding. If the closer just glances over the terms and dosent explain how a particular portion of the loan can effect them then the Title co. is not doing their job. The title company is the stop gap in the process. The double edged sword here is that the title company dosent make any money if the loan dosent close. The more loans that are closed, the more money is made by the title company.
Posted By Fred, Sarasota, FL. : June 25, 2008 8:18 am
AI
