Acquisition of Countrywide Financial

Acquisition of Countrywide Financial

On August 23, 2007 the company announced a $2 billion repurchase agreement for Countrywide Financial. This purchase of preferred stockwas arranged to provide a return on investment of 7.25% per annum and provided the option to purchase common stock at a price of $18 per share.[43]

On January 11, 2008, Bank of America announced they would buy Countrywide Financial for $4.1 billion.[44] In March 2008, it was reported that the FBI was investigating Countrywide for possible fraud relating to home loans and mortgages.[45] This news did not stop the acquisition, which was completed in July 2008,[46] giving the bank a substantial market share of the mortgage business, and access to Countrywide's resources for servicing mortgages.[47] The acquisition was seen as preventing a potential bankruptcy for Countrywide. Countrywide, however, denied that it was close to bankruptcy. Countrywide provided mortgage servicing for nine million mortgages valued atUS$1.4 trillion as of December 31, 2007.[48]

This purchase made Bank of America Corporation the leading mortgage originator and servicer in the U.S. , controlling 20–25% of the home loan market.[49] The deal was structured to merge Countrywide with the Red Oak Merger Corporation, which Bank of America created as an independent subsidiary. It has been suggested that the deal was structured this way to prevent a potential bankruptcy stemming from large losses in Countrywide hurting the parent organization by keeping Countrywide bankruptcy remote.[50] Countrywide Financial has changed its name to Bank of America Home Loans.