CALABASAS, Calif. — Credit unions that did business with Countrywide shouldn't worry about legal liability from the spate of recently announced lawsuits.
Even though Countrywide Financial Corp. has been hit with lawsuits from the attorneys general of California, Illinois and Florida, and faces threats of additional legal action from Washington Gov. Chris Gregoire, credit unions likely have nothing to fear.
Both credit union attorney Joe Melchione and American Credit Union Mortgage Association President Bob Dorsa agree that the correspondent relationship credit unions had with Countrywide are unlikely to be connected to charges of misleading and unfair trade practices.
"I haven't had a chance to look at the complaint, and I'm not likely to, because I don't believe many credit unions were involved in the kind of aggressive lending that's the subject of this litigation," Melchione said. He is a partner at the Glendale, Calif.-based law firm Styskal, Wiese and Melchione, which counts about 350 credit unions, mainly in California, as clients. The state is also home to Countrywide.
"We will have to wait and see how it shakes out; but by and large, I haven't seen our credit unions being too intimately involved with these kinds of loans, and they were certainly not named in the suit," Melchione added.
Las Vegas-based Dorsa recalled back in 1995 that he was performing mortgage-based consulting work in Southern California. He noted that Countrywide was doing a brisk correspondent business with 100 or more credit unions that were actively referring members or selling mortgage loans to Countrywide.
"Probably the only good thing that came out of that relationship, other than the service release premium, is that when credit unions sold those loans, they relinquished all their rights," Dorsa said.
Portland, Ore.-based OnPoint Community Credit Union raised eyebrows in February 2007 when the $2.6 billion cooperative formed an industry-first 50/50 joint venture with Countrywide.
However, OnPoint dissolved the partnership this past January after Countrywide executives tried to sweeten their side of the deal.
"When Countrywide started having problems late last year, they came to OnPoint wanting to renegotiate the contract," said Mary Jane Campbell, senior vice president of marketing. "We opted not to, choosing to rebuild our mortgage origination program instead."
OnPoint isn't worried about the lawsuits filed against the soon-to-be division of Bank of America, nor the current FBI investigation into the mortgage dealer's business practices.
"Really, it's kind of been a nonevent," Campbell said. "We never made subprime loans, not as OnPoint or through the joint venture, so when we brought things back in house, it was pretty much business as usual."
Campbell said OnPoint entered into the 50/50 partnership with Countrywide in order to quickly staff a mortgage sales force throughout its branching network and more easily expand its selection of mortgage products. OnPoint had always planned to bring mortgage origination back in house eventually, she said.
Dorsa said credit unions played their part in current mortgage crisis, because they didn't do enough to promote themselves as a better source for mortgage loans or simply passed mortgage leads on to Countrywide.
"It's really resonated in my mind over the past year or so, knowing that we struggle as a credit union system with only 2% to 3% market share, and Countrywide may have surpassed that just on the people we, as an industry, sent to them," Dorsa said.
The association leader said he feels frustrated with the industry because an overall lack of action drove members and the general public to seek other options, even though credit unions offered, or could have offered, better alternatives.
And, a mere 3% market share means 97% are obtaining mortgages elsewhere, so credit unions still aren't a part of the solution, he said.
"The fact that we continue to just stroll along here is potentially harmful to even more Americans," Dorsa said. "Our association and the people who support us are trying to combat that, but there are still literally thousands of credit unions that are comfortable sitting on their hands and not doing anything."
On July 1, Bank of America announced it had completed its acquisition of Countrywide. In the end, the bank paid $2.5 billion for the bankrupt lender by offering 0.1822 of a share of BofA stock to Countrywide investors in exchange for one share of Countrywide stock.
Upon the announcement, both Moody's and Standard and Poor's raised Countrywide's ratings up to par with BofA's. S&P raised Countrywide's counterparty rating to AA, and Moody's upgraded the mortgage lender's senior debt rating to Aa2.
It's still unclear how BofA will handle Countrywide's $97.23 billion of outstanding debt (as of Dec. 31, 2007). Some of it will be repaid upon close of the transaction, but a substantial amount will remain outstanding. Fitch Ratings was less certain BofA would honor the debt and kept Countrywide at BBB- but said if BofA guarantees the debt, it would also raise Countrywide's ratings
The deal makes Bank of America the country's largest mortgage lender with nearly one-quarter of the national market. Countrywide is expected to adopt BofA branding by mid-2009. BofA previously announced it would cut 7,500 overlap positions over the next two years.
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