Here is a very interesting piece of analysis from Paul Jackson at Housing Wire. Given BofA’s recent announcement that it likely would not take on any of Countrywide’s outstanding debt many analysts are speculating that this could be first step towards BofA renegotiating its deal to purchase Countrywide or just walking away.
FBR analyst Paul Miler said in a note to clients this week that he believes BofA will renegotiate the purchase price to between $0 and $2 a share since he now believes that CFC’s loan portfolio has deteriorated so much that it currently has negative equity.
S&P cut CFC’s credit rating to junk after BofA said it would not may not support $24bn of CFC’s debt once the merger is complete. Here is an interesting quote from Miller reported by Reuters: “We believe Countrywide has significant credit risk on its balance sheet, not only in its loan portfolio, but in its subprime and HELOC securities and residuals, its representations and warranties on loans sold, and in loans held outside of banking operations.”
Jackson reports that CFC held $28 billion of option ARMs, $14 billion in HELOCs, $20 billion in second liens, and $19 billion of hybrid ARMs at the end of the first quarter.