New details emerged Tuesday morning about Bank of America’s plan to integrate Countrywide Financial Corp. (CFC) into its mortgage business — although the future of Countrywide’s substantial wholesale mortgage platform was not discussed. In testimony before the Federal Reserve in Chicago, Bank of America Corp. (BAC) executives confirmed that the combined mortgage operation will not originate subprime mortgages following a pending acquisition of Countrywide. BofA also announced changes to its overall lending program, including the elimination of option ARMs, and said it would “significantly curtail” low-documentation loans. The bank also said it would voluntarily impose limits on prepayment penalties and establish limits on interest-only and hybrid ARMs, in order to limit payment shock. Similar to guideline changes announced recently by Citigroup Inc. (C), BofA’s combined mortgage business will focus on originating conforming mortgages, as well as limiting interest-only mortgages to a minimum 10-year interest-only period; BofA also will offer adjustable-rate mortgages only when borrowers are protected against “steep increases in payment amounts.” But, by far, the largest source of speculation surrounding the BofA/Countrywide merger has been reserved for the future of Countrywide’s wholesale lending operation; Countrywide is one of the last major lenders still offering a wholesale platform to brokers, with many other banks — including Bank of America — having exited the channel during the past 12 months. I’ve speculated in past commentary that BofA will shutter wholesale upon completing the acquisition. With Washington Mutual recently deciding to shutter its wholesale lending division (see HW’s earlier report), options for brokers are becoming increasingly thin as the marketplace continues to shift its focus toward retail origination. Not everyone, however, sees an imminent wholesale exit and BofA/Countrywide. More than a few sources suggested the dearth of major players in the industry was a strong reason that BofA would likely keep wholesale operating. “There aren’t too many players left,” said one source, a banker who asked not to be named. “It could make very good sense for BofA to keep wholesale going, because they could very well end up owning that channel.” “With fewer players, and a strong broker network, Countrywide’s wholesale arm may actually one of the few profitable plays out there in wholesale right now,” the source said. Disclosure: The author held no positions in BAC or other publicly-traded companies mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
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