In the mid 1980s, I entered the mortgage banking industry at a company that some will remember: Rainier Mortgage, a division of Rainier Bank.  As banking deregulation opened up opportunities for large out of state banks, Rainier sold their mortgage operations to Goldome.  I was the youngest mortgage loan underwriter in an office full of 25 women. Imagine an office where every person chain smoked all day and the windows in the office didn’t open. As the last hired underwriter into the lion’s den, I knew I would be one of the first to be laid off when merger rumors started to fly, so I asked for a transfer to the loss mitigation department instead of taking the layoff.  The Foreclosure division was booming at that time and I learned a whole lot about human nature during my time there.  My innocence about the goodness of people was shattered; it’s shocking what people will do to a home when they are having that home taken away from them.

As the Goldome purchase of Rainier Mortgage continued to unfold, many, many people were laid off and Goldome eventually closed their offices here locally.  Some of my former colleagues are still in the mortgage business at various companies. They’re underwriters, loan officers, company owners, branch managers, and executives.

The proposed Bank of America buyout is a pretty low figure, 6 billion, considering Countrywide’s servicing portfolio, even with delinquent loans, is estimated to be 1.48 trillion.  This means that employee stock purchases will probably amount to zero.  Federally chartered banks have traditionally come in and out of mortgage lending in a cyclical way.  Most suit-and-tie bankers at the executive level do not understand what it means to go out into a community and walk into a real estate office and form relationships with Realtors.  Instead, the mortgage banking division’s employees are handed leads on a daily basis from the bank branches. 

BOA employees originate mortgage loans at the retail level from the banking branches with call centers taking loan apps. Recall that BOA closed their wholesale lending unit.  Knowing this, Countrywide employees will have a couple of options.  They may be asked to re-apply for their job (WaMu is famous for making all employees do this during every merger), relocate to a BOA mortgage banking center, or perhaps if Countrywide is better established at a more desirable commercial retail location, the branch will be left open, for now.

The fact that we are in a national housing recession is beyond debate.  Many economists are now saying we have already entered an economic recession, which makes Eleua’s wild predictions from earlier seem eerily prescient. If retail mortgage originations are expected to decline, then it would be safe to assume that those crunching the numbers would figure out how many people are needed at each position and then layoff double what is needed since reducing labor is a fast way to reduce expenses.

The other problem that is difficult to quantify yet easy to foresee is corporate culture.  BOA is purchasing a company where loan originators are paid in a radically different way than how banks pay their loan officers. Differences in pay structure, norms, hierarchy, beliefs, rules, shared power, openness of tolerance for each other’s corporate culture, and systems of motivating and rewarding employee behavior will lead to political clashes of will.  With company mergers, politics will lead decisions on who to keep and who to let go, and that doesn’t always mean that the top producing branch managers and loan officers will be kept. 

But who’s to say that the buyout will even go through?

[photopress:BOACW1.jpg,thumb,alignleft]BOA has some time now to look through all the books. The real value is in Countrywide’s servicing portfolio.  Perhaps that can be purchased instead.  Many, many companies during the last 10 months have first tried selling the company whole and many of those purchases did not go through.  If I held CWide stock (which I do not) I would want to know why shareholders would approve a sale price of 1 billion if the servicing portfolio was worth 1.48 trillion.

[photopress:BOACW2_1.jpg,thumb,alignleft]If I held BOA stock, (which I do not) I would want to know why BOA sees Countrywide as a good investment when most of their money was made during the real estate run-up, originating loans that investors do not want to purchase anymore. Why base the value of Countrywide on what they have been able to accomplish in the past 7 years?

[photopress:BOACW3_1.jpg,thumb,alignleft]This buyout offer could be a way for BOA to really get a better feel for all the possible positive and negative consequences of a purchase, both short term and long term.  Wouldn’t it make more sense for BOA to let Countrywide go into bankruptcy and then pick off the servicing portfolio at that time?  Any superstar branch managers and LOs will naturally be looking for work and then existing BOA managers can interview Countrywide people ahead of time for a good culture match. 

Then there are the billions in tax breaks that BOA gains from purchasing Countrwide, just like when they purchased First Republic Bank of Dallas in 1988, and I suppose cross-selling banking services and credit cards to that servicing portfolio would net some income, yet also adds expenses. Yes, Countrywide is capable of originating a billion each year in new retail originations, however, during that time, we experienced extremely lax underwriting standards. Many of those loans were originated by mortgage brokers through CWide’s wholesale channels.  There are few buyers on the secondary market now for anything other than conforming loans. The days of subprime broker originations and lax underwriting are gone and Realtors, builders, and consumers are surprisingly not loyal when returning for business, which is why a sales/service mentality is so important in mortgage lending.  Realtors, builders and consumers tend to like really good service, fast service, low rates AND low fees, all in one place, which is excruciatingly hard to do at a massive corporate bank, which is why hundreds of thousands of mortgage bankers left banking in the early 1990s and opened mortgage brokerage firms.

If BOA is buying 1.48 trillion for 6 billion, (they already put 2 billion into CWide so their latest bid is 4bil) perhaps this is a good investment after all, for BOA that is.  But not for the 50,000 Countrywide retail and wholesale employees. Matthew at blownmortgage reminds us why BOA closed their wholesale lending division, which does not bode well for Countrywide wholesale employees.  Take off the rubber wrist bands and start polishing your resumes and networking skills (like I suggested in August), before the WaMu retail employees land all the decent-paying jobs first.

Next up for discussion of course is the future of Washington Mutual.  Who would have known one year ago that we’d be talking about Countrywide and Wamu today?  Well, perhaps Angelo Mozillo and the CWide executives knew. Take a look at their stock sales.