A majority 69% of Countrywide shareholders voted today to approve takeover of the company by Bank of America. Countrywide will drop the name in short order and is likely also to drop many product lines. According to Bloomberg:
The combined companies will handle 25 percent of U.S. mortgage originations and a 17 percent share of servicing, which involves billing and collections. Bank of America said it won’t make subprime loans and will limit its purchases of large packages of loans from other lenders. Subprime mortgages are made to borrowers with the weakest credit, and have posted the highest default rates.
Subprime loans are considered loans that adjust drastically upward in 2 or 3 years, and cannot be paid off during those initial periods. It’s unknown whether this definition includes Option ARMs, which we defended earlier this week — carefully defended. As we discussed in detail, they have more risk than traditional loans, but the operative part of their name is “Option.” If these loans are re-structured to have 30yr fixed options and the ability to take cash out when cash-out loans might not be available elsewhere, then they can be a viable product.