End of an era at Countrywide Financial

News item: The Bank of America purchase of Countrywide Financial has closed, bringing the lender's life as an independent company to an end. The New York Times values the deal at about $4.35 per Countrywide share, or about $2.5 billion. The deal was originally valued at $4.1 billion when it was announced in January, but Bank of America stock has declined quite a bit since then, decreasing the value of the buyout. Hey, things happen.

Relatedly, the Los Angeles Times peels back the onion a bit more on Countrywide's VIP loan program, reporting on one borrower who "says he sought no favors."  Commenter Sheila pointed this out earlier today, arguing it calls into question previous reports here and elsewhere about various prominent Democrats who enjoyed special Countrywide attention. Or, as Sheila put it, "that might mean that all the Democrats you swift-boated in this blog might not be completely corrupt after all." 

I'll agree they're not "completely corrupt," but I believe the story that they received special treatment is important and revealing. It reveals that prominent members of Congress receive special treatment. In my world that's news. So Sheila and I disagree. I would say we disagree respectfully, but I don't want to put words in her mouth.

But I digress. The most interesting thing about this latest glimpse into the VIP loan program at Countrywide is the story of the loan in question: A guy borrows less than $1.2 million to buy a house in the summer of 2004. Four months later, Countrywide appraises the same property at $1.5 million -- up more than 25% in four months -- and refinances two original loans so that the borrower can cash out $156,000 in home equity. Who was the borrower?  Ross C. DeVol, director of regional economics at the Milken Institute, a Santa Monica think tank. Now that's appreciation. And customer service. Through a spokesman, DeVol told the Times he never asked Countrywide for any favors.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Countrywide co-founder Angelo Mozilo, by Getty Images

Comments

[Slipstream]

According to the Washington Post, Barack Obama got a good rate on his loan. I thought that would be the top story on your blog by now. Come on, keep up.

[Brad]

"Sheila" = U.S. Rep. Laura Richardson perhaps?

[PotsNPans]

And what's this --hidden in the L.A. Times

Obama had his own VIP loan program going on Northern Trust.

Things that make you go HMMM?

http://www.latimes.com/news/nationworld/
nation/la-na-loan2-2008jul02,0,7220594.story

[Giacomo]

All member of Congress are responsible for knowing the rules of ethics that govern them. And all members -- especially the senior ones -- should be hyper-alert for gifts and favors they might be receiving.

Despite the pressure you might receive from those with a political agenda, please don't filter the news by party affiliation.

Keep digging, and thanks!

[bode]

A few notes:

1) Many months ago there were a lot of people here who guaranteed this acquisition wouldn't happen. I just want to point out that yes, indeed, it did, and CFC's debt is even rated as if it's BACs now. I don't know what it means for BAC but the acquisition really happened.

2) Elected officials at all levels get special treatment. If someone calls of Countrywide for a loan and gets slightly better terms than they got other places, and didn't ask for it, it is unsurprising. I mean, from the lowest level fair committee member who gets free tickets to the highest level, I'm not sure how this is exceptional corruption.

To put it another way, does saving a few dollars on your house without knowing it rise to the level of anything Rep. Richardson has done? Not even close. It's a story, but it's like learning how the sausage is made: there's only one way to make it.

[Mike Barker]

Never asked for favors but certainly eagerly accepted them without hesitation or reflection upon appropriateness.

[Giacomo]

"Elected officials at all levels get special treatment. "

An acknowledgment of corruption should not become an acceptance of it.

This reminds me of the reasoning, "well they're wasting big money funding THEIR "X" program, so don't complain waste in OUR "Y" program." This is how governmental waste and corruption is allowed to escalate.

[dwr]

"Never asked for favors but certainly eagerly accepted them without hesitation or reflection upon appropriateness."

or reflection upon possible violation of ethics rules. Yeah, wink wink, I didn't ASK for the 3% fixed rate when others were getting 6%, so there's no wrongdoing.

Can anyone imagine if W or Cheney were on this VIP list? The liberal media would be all over it for the next six months.

[TakeFive]

"Many of the borrowers who benefited from Mozilo's involvement say they were unaware he had intervened"

Yeah, and when firemen and police walk into a resturant and get a discount without asking, they're just as unaware.

Face it. Word gets around that certain resturants take care of specical people. You think loan shops are any different?

The Swiftboaters were willing to go on record stating facts. Their target's evasions, revisions, and piecemeal release of service records is what made it so effective.

[Nick]

"An acknowledgment of corruption should not become an acceptance of it."

So true, and hard to keep in mind in the days where corruption in Congress is taken for granted. For example, I don't imagine you'd find any people who know anything about the Dodd bailout bill thinking it's not a bailout bill, yet officially it's still touted as a program to help Americans. If everyone knows Dodd is corrupt to the core, should that give him a free pass doing something which is "not as corrupt as what he usually is doing"?

[westside renter]

Bode,

The reason the B of A - Countrywide deal closed is because after tax credits, it cost B of A nothing. We taxpayers picked up the tab. There was an article about it on Bloomberg last week, but I don't know if it's still there.

[Clintidote]

I presume we can assume that the creepy-looking orange guy made out like a bandit once again? I predict we'll be seeing him again, either in prison or skin-cancer medical journals or both.

[LeftLA]

Westside: Show us where one penny came out of your pocket or mine to fund this deal. You made the statement that "we...picked up the tab..." now show us the money trail. Not a general assumption, but proof.

[bode]

Hi Westside,

I heard this same argument on Pat Morrison's show a few weeks ago. I don't agree -- basically, BAC bought a company that is going to lose money for some time. When you're a large company and have a subsidiary that loses money, you pay tax on the net income. Last I checked there's no law against running a business where some divisions lose money and some make money. The net result will be that BAC's profit will be lower, and hence their tax burden will be lower. Maybe even the lower profit will translate into less executive bonus?

I don't think that's using the word "tax credit" in a fair manner. BAC obviously thinks that what they acquired will have long-term value going forward or they wouldn't have done this deal. Whether or not that value is "worth it" is debatable, I agree, but there are no tax subsidies involved here. The transaction will have tax advantages for one or more parties (just like, AHEM, the Tribune Companies ESOP conversion). No one wrote an article about how that ESOP conversion had a "tab picked up by the taxpayers." The same is true here: there's no tab being picked up by Federal or state governments. It will have a net negative effect, though -- ask the city of Calabasas how they feel when 10,000 people lose their jobs. Of course, the alternative was that 10,000 people lost their jobs because CFC went under.

Put another way, if you take out a mortgage to buy the house that you live in, your income tax is lower because you can deduct the mortgage interest. If you think that means "the taxpayers" are "picking up" some of your housing cost, then you can argue in the same way the taxpayers are picking up some of the CFC/BAC deal. And, just like if mortgage interest were not deductible, if BAC couldn't use CFCs loss as a tax advantage, the deal wouldn't be done. You're simply implying something nefarious when it just is not that way.

[sheila]

The money quote from the article being:

"Many of the borrowers who benefited from Mozilo's involvement say they were unaware he had intervened -- an assertion that the former executive said wasn't far-fetched. The CEO, proud that he still handled individual loans, in some cases simply wanted to ensure a positive experience for well-known or influential people, the former executive said."

So, is that just some vague VIP entitlement issue that ALL rich and powerful people have, or is it really "corruption?" You know, like Duke Cunningham -style corruption... After all, 60% of Countrywide's political contributions in the past year were to Republicans, so plenty of folks are pigs at that particular trough...

It's not that we disagree. It's as much "news" as most of the other stuff here. All I'm asking is for a little even-handedness. When a follow-up story shows up in your own paper, casting doubt on a previous "2 cents" you've tossed out there, link us up. Laura Richardson's foreclosure? Fine, but go ahead and tell us about John McCain's last 4 years of property tax defaults in La Jolla, too...

[Laker]

bode wrote: "Put another way, if you take out a mortgage to buy the house that you live in, your income tax is lower because you can deduct the mortgage interest... ...if BAC couldn't use CFCs loss as a tax advantage, the deal wouldn't be done...."

bode, from what you're saying i understand that if mortgage interest deduction was no there, people would not buy houses.....
at least many of them.,....
What a revelation!

[76s]

There really isn't a hard-core corruption story here, but it's worth noting how cosseted politicians and other high profile folks are in virtually all aspects of life. They end up living in a bubble and few make the effort to escape that bubble and to live as we do. The beauty [?] of Countrywide's VIP program (and similar experiences throughout the daily events of life for the favored few) is that the favored few DIDN'T EVEN HAVE TO ASK FOR THEIR SPECIAL TREATMENT! The favored few get more than "plausible deniability," they get the ability to fool themselves into believing that that they get didn't get special treatment.

As for the BofA merger with CFC, we should be happy that it's happened. It will probably be quite a bad deal for BofA. A CFC bankruptcy would have been very messy and costly fo all of us.