Banking behemoth BofA purchased Countrywide financial for 4 billion and some change.
Ok, so what? Well, I actually think it is a very positive thing and a sign of hopefully more to come.
First, Countrywide apparently held nearly one in every six mortgages in America at one time. That seems high to me, so feel free to correct me, but their portfolio did hold 9 million loans in 2007. That is 9 million consumers who don’t need to fear the consequences of a Countrywide failure. That alone is a very good thing.
Second, BofA shares only fell 80 cents on a very negative trading day after announcing this acquisition. On a stock valued at 38.50 at the end of trading, that is a healthy 2.6% drop, but not really out of line with the overall 2% drop the market suffered today. Investors basically shrugged off BofA’s increased exposure with this move. That is a very positive indication, in my eyes, that analysts feel BofA is right in their bet that they can stabilize Countrywide AND that moves by the Fed and Congress may help stabilize the lending and real estate markets in 08.
Third, this really helps a lot of people who need the help the most. Freddie Mac and Fannie Mae (major holders of Countrywide paper) would have both suffered badly if Countrywide failed, causing an even uglier chain reaction. When I purchased my first home, it was with the assistance, albeit indirect, of Fannie Mae. Despite all the problems, despite all the corruption at these institutions, they are a critical engine for the loan origination process. If they can’t help you get into a house, no one can, even if no consumer has ever talked to anyone at either institution (which is quite likely).
Fourth, the Fed again gave strong indications that they might again lower rates, perhaps by a half point. They said that last time in december, and I am reluctant to believe they will actually go a half point, but even another quarter point can really help things out. Of course, it appears that I was wrong in december when I said that I believed the Fed wouldn’t go lower for a while. That is fine, hack away Bernanke, because we need to jumpstart things here. But the fact is that his hands are tied as to how far he can go.
So, I reiterate… this is a very good time to be looking into refinancing your existing home, or finding the one that is right for you if you have been sitting on the fence.
Putting my money where my mouth is, I am starting to look very seriously myself. I just can’t resist the deals that I am seeing out there right now. And with 2008 looking like a very shaky year for the market, I am thinking that my money might be just about ready to find a home.
And, as if on queue, we see a huge jump in financing transactions, especially refi’s. According to INMAN news:
The group’s market composite index, a measure of home loan application volume, climbed 28.4 percent on a seasonally adjusted basis between the first and second weeks of January. This double-digit gain comes on the heels of a 32.2 percent rise in the index one week earlier, the largest in four years.
I am hoping that this translates into wider margins for banks and lenders/creditors, so that they can start to ease the restrictions in the current lending environment somewhat.
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