Bank of America CEO on housing

Bank of America CEO Ken Lewis made some interesting comments on housing yesterday. From MarketWatch.com:

"Housing is the single most important factor," Lewis said. "Housing may be bottoming. We're looking for house prices to stabilize. So the first sign of an improving economy would be that housing is stabilizing.

I love the logic being used. I'm sorry, but I pay close attention to housing data. There is no sign of a bottom occurring in 2009 (except in Arizona and Nevada). This is just another example of wishful thinking among people who want there to be a bottom in housing. Financial professionals have been predicting a bottom since 2005, yet they keep being wrong.

Bank of America CEO Discusses Countrywide Financial

From the Los Angeles Times, Bank of America CEO Ken Lewis discusses the merger with Countrywide Financial and his outlook for the housing market:

Often cast as having epitomized the lax lending standards that buried millions of Americans in unaffordable loans, Countrywide, the nation's largest mortgage lender, was on the ropes when Bank of America agreed to buy it six months ago. ...

On a weeklong California trip that included a Town Hall Los Angeles luncheon address Wednesday, Lewis acknowledged that loan losses at Countrywide were at the high end of estimates that Bank of America projected in January.

But he said Bank of America paid so little for the lender that once the books on the deal were closed, the Countrywide operation would immediately show a profit — with the potential for huge growth in income when the mortgage industry recovers. ...

"Given our view of things, we do not expect to cut [our] dividend nor do we expect to have to raise capital," he said, even though many other financial firms have taken both of those steps.

But he added that Wall Street clearly didn't believe him on those issues, given how far Bank of America's stock has fallen in recent months. It fell $1.48 to $22.06 on Wednesday, and is down 46% year to date.

As for the housing market, Lewis said Bank of America's latest forecast called for a further 15% decline in home prices nationwide, with the decline going into at least the first quarter of next year.

In the case of California, Florida and other markets that had the biggest booms, a further 20% decline is more realistic, he said.

I think Bank of America is overly-optimistic regarding future housing prices. Personally I expect that, on a national level, real housing prices will fall about 30%, which means nominal prices would fall less. I expect bubble markets like California, Florida, and the DC metro area will fall much more.

I also expect that the decline will take much longer than just until the first quarter of 2009. However, I expect that the rate of decline is currently at its peak and price declines will gradually slow in the future.

As for the Countrywide Financial purchase, I believe that in the long run it will help Bank of America become the dominate player in the U.S. mortgage market.

More News on Countrywide Financial

From yesterday's Wall Street Journal:

The Florida attorney general on Monday filed a civil lawsuit against Countrywide Financial Corp. and its chief executive, Angelo Mozilo, alleging the company engaged in deceptive and unfair trade practices.

The lawsuit, filed in state court in Broward County by Florida Attorney General Bill McCollum, alleges that Countrywide put borrowers into mortgages they couldn't afford or loans with rates and penalties that were misleading. It seeks civil penalties and damages.

Florida's action follows similar lawsuits filed last week by attorneys general in California and Illinois. Mr. McCollum said that his state has had a continuing investigation of Countrywide and "we thought it was important for us to do this right now."

From the Associated Press, via CNN:

Bank of America Corp. completed its purchase of Countrywide Financial Corp. Tuesday, making the Charlotte, N.C.-based bank the nation's leading mortgage originator and servicer.

The Federal Reserve and Countrywide's shareholders cleared the way for the acquisition last month. As of Tuesday's close, Bank of America controls between 20% and 25% of the country's home-loan market.

Is it really a good idea to control 20-25% of the nation's home-loan market during this housing bust?

Angelo Mozilo Leaves Countrywide Today

Bank of America's acquisition of Countrywide Financial is expected to take place today, which means Angelo Mozilo is retiring. From the Wall Street Journal:

Angelo Mozilo, slated to step down as chief executive of Countrywide Financial Corp. on Tuesday, is departing with a devalued reputation partly because he stayed too long and at times ran the publicly traded mortgage lender as if it were his own company.

Bank of America Corp. plans to complete its acquisition of Countrywide on Tuesday, and the 69-year-old Mr. Mozilo will retire. Bank of America will become the nation's biggest home-mortgage lender, using Countrywide's loan-processing technology and nationwide presence—but not its brand, which is scheduled to vanish after a transition period.

Until about a year ago, Mr. Mozilo was little known outside his industry. In the mortgage world, he was considered a visionary. He helped found Countrywide in 1969 and built it into the nation's biggest and most efficient mortgage lender. Then came an abrupt fall as defaults surged and investors lost confidence.

Countrywide's reaction to the crisis was to push for more market share in the first half of 2007, aiming to benefit from the collapse of rivals. That backfired when Countrywide could no longer find buyers for many of the loans it had originated, leaving the company stuck with billions of dollars of high-risk mortgages. Former executives say Countrywide, which still accounts for about one in every seven home loans made in the U.S., was so focused on increasing volume that it neglected quality control.

Mr. Mozilo made things worse for himself by postponing his retirement and by making frequent, heavy sales of Countrywide stock. He offered discounts on loans to friends so frequently that FOA—for Friends of Angelo—became a familiar loan type among employees.

I think this acquisition will hurt Bank of America over the next few years, but if you look out five years or more, Bank of America may dominate America's mortgage industry.

If you'd like to wish Angelo Mozilo a fond farewell, you may do so in the comments.