Feds OK BofA, Countrywide merger

Real estate roundup
By Inman News, Friday, June 6, 2008.

Inman News
The Federal Reserve Board has approved Bank of America Corp.’s plan to acquire Countrywide Financial Corp., saying that it would not stifle competition in mortgage lending or violate restrictions that limit depository institutions from controlling more than 10 percent of deposits. With $1.7 trillion in deposits, BofA is already the largest depository institution in the U.S. After its acquisition of Countrywide, BofA would control 10.9 percent of U.S. deposits, which could limit its ability to acquire other banks, the Federal Reserve said in an order approving the deal. The Fed said the merger would not impact competition for property appraisal and real estate settlement services because there are numerous local providers and BofA and Countrywide don’t control a significant market share. There has been speculation that mounting losses in Countrywide’s loan portfolio will lead BofA to lower its price or back out of the deal, but BofA officials have said they remain committed to closing the deal in the third quarter (see story).

Rising incomes may kick-start housing

The chief economist for Capital One Bank says home prices are returning to more historical levels in relation to household incomes, and that housing could shift to a seller’s market sooner than expected. In a MarketWatch column, Irwin Kellner says the typical existing home cost 3.4 times annual household income in April, with median new-home prices at 3.8 times annual income. While that’s still higher than the 2.8 ratio seen in the 1980s, it’s down form 4.2 reached in 2005 at the peak of the housing boom. Because incomes are still rising, “home prices don’t have to fall as much as you think before buyers decide that they can once more afford the home of their dreams,” Kellner says. Home prices that get a “bit over three times” household income might kick-start the market, he says.

Fewer comments on RESPA reform

HUD’s proposed changes to the Real Estate Settlement Procedures Act, or RESPA, aren’t generating as much public comment as a more dramatic plan put forward six years ago. With the June 12 deadline for commenting on HUD’s plans to overhaul RESPA looming, the American Land Title Association (ALTA) is urging members to make their views known. ALTA says only 1,500 comments have been filed since HUD unveiled its plan on March 14, compared with 40,000 comments in 2002. “We need to have a much better response if we hope to affect the final rule,” ALTA said in a bulletin to members. HUD proposes revisions to the Good Faith Estimate (GFE) presented to home buyers that it claims will make it easier for consumers to shop around for the best deal on a loan, and receive credit for yield spread premiums lenders pay as rebates on high-interest loans. In addition, HUD wants to provide incentives for lenders to package settlement services with loans, which ALTA and the National Association of Realtors oppose (see story). For more background and a link to submit comments to HUD, see the RESPA reform group in the Inman community pages.

Agreement addresses reviews of loan pools

Rating agencies that review pools of mortgage loans that are sold to investors have reached agreements with New York Attorney General Andrew Cuomo to change their fee structures and create due diligence and lender standards for mortgage-backed securities (MBS). Cuomo alleged that because the rating agencies were paid no fees during their initial reviews of the loan pools, investment banks hired the agency that provided the best rating. The New York attorney general also said rating agencies were not provided pertinent information investment banks had about the mortgages comprising the loan pools. The agreement, with Standard & Poor’s, Moody’s Investors Service Inc. and Fitch Inc., is intended to ensure that the rating agencies receive that information before the bonds are rated, and that the agencies are compensated regardless of whether they are selected to rate an MBS issuance. Cuomo said his investigation into the mortgage industry is continuing.

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