Explaining Southern California's economy

Bank of America continues to end its Countrywide problem

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Bank of America has agreed to a $10 billion deal with Fannie Mae, related to the charge that its Countrywide loans were bogusly represented.

Oh, what a difference five years makes! Back in 2008, Bank of America bought Countrywide Financial — then based in Calabasas, Calif. — for $4.1 billion, a fire-sale price at the time given the heights to which the now notorious subprime lender had soared.

But even at that price, Countrywide eventually became a giant concrete-filled truck tire around BofA's neck. In 2011, BofA saw its stock price plummet. CEO Brian Moynihan hadn't done the Countrywide deal, but he was dealing with the ugly aftermath. At one point, when the entire financial services sector was swooning, billionaire investor Warren Buffett swept in to support BofA and put a floor under the fall.

That didn't stop speculation about BofA putting Countrywide into bankruptcy — which would have led to the first big test of a major bank failure in the post-"To Big to Fail" era. I blogged about it at the time:

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September housing starts, more on Pandit, Microsoft prices Surface

Microsoft Surface

Microsoft

The new Microsoft Surface tablet. Microsoft will price it a levels competitive with the Apple iPad.

Builders haven't been building this fast since July 2008: "Construction activity rose in three of the nation's four regions. The biggest increases came in the West and South. Housing starts increased by nearly 20 percent in both regions." (Commerce Dept.)

Maybe buying Merrill Lynch wasn't such a great idea. Bank of America suffers an expensive quarter: "Overall, Bank of America reported a profit $340 million versus a profit of $6.23 billion a year earlier." (WSJ)

North American energy boom continues: "Exxon Mobil agreed on Wednesday to buy Celtic Exploration for about $3.1 billion in cash and stock, as it sought to expand its presence in the energy-rich shale formations of western Canada." (DealBook)

The beginning of the end for the PC? Intel takes a hit in the quarter: "The big chip maker, whose microprocessors power most desktop PCs and laptops, said it is significantly scaling back production in the fourth quarter in response to weaker than expected demand." (WSJ)

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You call that a mortgage settlement?

Mortgage settlement

Reuters/Gary Cameron

U.S. Attorney General Eric Holder and U.S. Housing and Urban Development Secretary Shaun Donovan announce that the government and 49 state attorneys general have reached a $25 billion settlement agreement with the five largest mortgage lenders to redress foreclosure abuses, in Washington, February 9, 2012.

UPDATE: California Attorney General Kamala Harris wasted no time in leaping ahead to a provision of the deal that could up the settlement to $45 billion, with California homeowners getting $18 billion. The U.S. Department of Justice says $7 billion, and adds that "[s]ervicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts." Maybe she doesn't like the size of the stated number all that much, either?

We have a mortgage settlement at last between the big banks and the states. California and New York, the two staunchest holdouts, have signed on. But then there's the actual number: $25 billion (initially reported as $26 billion). It just isn't that much. And although the news of the settlement has been greeting positively, for the most part, it's far from clear that it will ultimately turn the housing market around.

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Is Bank of America gouging small businesses?

Bank Of America To Cut Tens Of Thousands Of Jobs In Restructuring Effort

Scott Olson/Getty Images

Welcome to 2012, small business owners who have lines of credit with Bank of America! You are about to see what a struggling banking giant will resort to when survival is at stake. This is from the Los Angeles Times:

The...bank is demanding that [small business] customers pay off their credit line balances all at once instead of making monthly payments. If they can't pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

Business owners complain that BofA's credit squeeze is abrupt and could strain their small companies and even put them out of business. The credit cutoff is coming at a time when the California economy can't seem to catch a break, and bucks what the financial industry says is a new trend of easing standards on business loans.

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Countrywide settlement solves at least one Bank of America problem

Mercer 15154

Mark Wilson/Getty Images

File photo: Angelo Mozilo, founder and former CEO, Countrywide Financial Corporation, testifies during a House Oversight and Government Reform hearing on Capitol Hill March 7, 2008 in Washington, DC.

So Bank of America will shell out $335 million to settle legal claims that Countrywide Financial "systematically discriminated" (according to the LA Times) against minority borrowers. Here's the thing, though: The subprime loans in question were generated before BofA bought Countrywide in early 2008. So BofA inherited this problem, along with the rest of the long nightmare that has been Countrywide — and the bank has been at pains to point that out, stressing that it doesn't do this kind of thing.

This raises the obvious question of whether, as part of the acquisition process, BofA realized that Countrywide was pushing minority borrowers into subprime loans. The federal government was certainly on the case. The Fed alerted the Justice Department to it in 2007.

You can now see how Countrywide was operating, opportunistically urging borrowers to go subprime — especially if those borrowers would have qualified for a conventional prime loan. Countrywide was invested in generating subprime loans — that was its business model. It certainly couldn't make as much money on prime loans, nor could it presumably garner as much interest from firms that wanted to package higher-risk, higher-return loans into securities that could then be given the general thumbs up by the credit ratings agencies.

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