Fed Meeting on Mortgage Mega-Merger

By Alan White

A long list of community development and housing activists gathered at the Chicago Fed’s meeting room this morning to testify about the impact of Countrywide Mortgage Company on their communities. After Bank of America’s customary recitation of its community lending, philanthropic activities and employee volunteerism, Rev. Jesse Jackson was the first public witness to take the microphone.

Rev. Jackson described Countrywide, the largest mortgage lender in the U.S., as a symbol of the foreclosure crisis, Wall Street greed and the steering of minority homeowners to high cost loans for profit, a lending model he characterized as thievery and thuggery. He spoke of the serious impact the crisis is having on cities and neighborhoods, causing property tax shortfalls and cuts in local government services like education. Neither supporting nor opposing the BofA-CW merger, Reverend Jackson urged the Fed to demand answers from BofA to specific questions regarding CW’s portfolio of foreclosures. He urged the Fed to insist on a halt to CW foreclosures and a serious commitment by BofA to convert unsafe subprime loan products to 30-year fixed-rate amortizing, affordable mortgages.

The speakers that followed either supported the merger in the hope that Bank of America would improve the culture at Countrywide, or opposed it because of Countrywide’s foreclosure and mortgage servicing practices.

Ms. Flora Johnson, A Chicago South Side homeowner, told of buying her home in 1963, working as a cashier, and raising her children alone after her husband left her. In 1999 she was sold a home equity loan, not knowing it was an adjustable rate mortgage. Her payments started at $932 per month, then increased to $1450. Countrywide sent her a written repayment plan with even higher, less affordable payments. She spoke of constant collection calls from CW, with no meaningful attempt to restructure her loan, until she joined a public protest with Action Now. As a result of the protest, she got a loan mod, a 30-year fixed rate with a lower monthly payment.

Another witness, Reverend Christine Schrey of Chicago’s Northwest Side Housing Center, related her experiences as a counselor trying to work with homeowners facing Countrywide foreclosures. She told of CW not returning calls, taking 18 months to respond to a request for a short sale, and bypassing counselors to pressure homeowners directly into agreeing to unaffordable short-term repayment plans. She noted that former CW CEO Angelo Mozilo’s $100 million golden parachute would buy a lot of housing counseling.

Many community development groups spoke glowingly of BankofAmerica’s support for their activities and projects, and for the Community Reinvestment Act and its goals more generally. The only praise for Countrywide came from Bruce Marks, director of the Neighborhood Assistance Corp. of America, which has an agreement with Countrywide to provide low-interest loan modifications to homeowners counseled by his group. Critics of BankofAmerica’s record focused on its support for payday lenders like Advance America and the racial disparities in BofA’s high-cost mortgage lending based on HMDA data.

Given the implicit subsidies already being offered by the Fed to keep BofA afloat, the Federal Home Loan Bank's involvement in Countrywide, and the added risk BofA will take on by acquiring CW, there is ample reason for the Fed to negotiate appropriate conditions on the merger. One important area of risk is the litigation that CW faces in various state, federal and bankruptcy courts, litigation that raises serious questions about CW’s lending and servicing practices. Given the stakes, the Fed could also insist that BofA report monthly on CW foreclosures, loan modifications, homeowner contacts, time to respond to loss mitigation applications, and other metrics of the foreclosure prevention effort. After the second biggest bank swallows up the biggest mortgage lender, the resulting consumer and systemic risk will bear close watching by our central bank.

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