MercoPress. South Atlantic News Agency

Bank of America rescues US biggest mortgage lender

One of the leading banks in United States, Bank of America is to take over the country's biggest mortgage lender Countrywide Financial, in a 4 billion US dollars deal.

Analysts said the deal was a lifeline for Countrywide, which was rumored to be close to bankruptcy. The firm - a key participant in the sub-prime sector - had been hit by the severe downturn in the housing market. Countrywide saw a 44% drop in home loan volumes in December and its highest level of foreclosures since 2002. However analysts believe much uncertainty remains as to what the deal meant for the two firms and their shareholders, a key factor in sending Countrywide shares 13% lower on Friday. Last August Bank of America had invested 2 billion US dollars in Countrywide. During the housing boom, a huge number of people took out mortgages to take advantage of lower borrowing costs. But with US interest rates climbing over the past two years, many borrowers have been unable to repay their monthly loans, prompting huge defaults and repossessions. Besides, sub-prime lenders gave loans to those with poor credit records or unpredictable incomes. In a statement after the takeover deal was announced, Bank of America chief executive Kenneth Lewis said: "We are aware of the issues within the housing and mortgage industries. The transaction reflects those challenges." Under the terms of the deal Countrywide shareholders will receive 0.1822 of a Bank of America share for each Countrywide share. The deal values Countrywide at $7.16 a share, down 7.6% on last week's closing price. The bank says it expects to make after-tax savings of 670 million US dollars from the combined company by 2011. Mr Lewis said Angelo Mozilo, the chief executive of Countrywide Financial and the firm's co-founder would be unlikely to have a management position once the transaction was completed. "I would want him to stay until the deal gets done, and then probably I would guess that he would then want to go have some fun," Mr Lewis said. Mr Mozilo has faced severe criticism from those who say he promoted lending policies that contributed to the housing slowdown, by providing loans to those who would find it hard to pay them back. Critics have also objected to the size of Mr Mozilo's pay package. If the deal goes ahead, Mr Mozilo could receive about 36.4 million US dollars, according to pay experts and regulatory filings.