The rumors are true.  Early this morning an official announcement was made that Bank of America will be purchasing Countrywide for $4 Billion.  Reactions are mixed, but most are saying this is very good for Countrywide stock holders and a good buy for Bank of America.

As I’m sure you’ve heard, Countrywide has been struggling in the past year.  Mortgage delinquencies are hurting their bottom line and they have struggled to keep the liquidity to stay in the game.  Bank of America stepped in August 22, 2007 and put $2 billion into Countrywide to help them continue funding loans through what was viewed as a very tough time for many lenders. Bank of America kept Countrywide in the game, and quite honestly – still aggressively priced for the market (with the rates that they were offering).

Countrywide currently services 1 of every 6 mortgages in the US.  That’s some pretty serious market share!  The acquisition of Countrywide will allow Bank of America to be the dominant player in the mortgage market they have been positioning themselves to be.

One VERY interesting note is that every skeptic says there is one hang-up on this deal.  Federal law prohibits a bank-holding company to control over 10% of U.S. deposits after acquiring another bank.  An interesting ‘loop hole’ is the 10% limit doesn’t apply to federally chartered thrifts.  Guess what?  Countrywide bank is a federally insured thrift.  I’m sure this will allow them to maneuver around the deposit cap.

Another interesting point is that Countrywide recently, and I mean VERY recently – they have transferred all of their fundings over to Countrywide FSB.  Previously fundings were being provided by ‘America’s Wholesale Lender’.  Was this a strategic move?  Well, everything starting changing over right around the same time Bank of America stepped in and provided $2 billion of liquidity.   Interesting stuff.

News continues to pour out as the markets open this morning, but everyone still feels that this sale is good for Countrywide.  This morning there was a conference call for shareholders.  Questions were asked about what would happen to some of Countrywide’s ‘Bad Debt’, unfortunately there weren’t any direct answers. 

As the deal progresses, we’ll keep you posted.  At this point, my bet is the deal will go through.

Image Courtesy of: Wall Street Journal.