Oct. 26, 2007: With Bank of America exiting wholesale, and CW losing $1.2 billion, what is the next big rumor?

Oct. 26, 2007: With Bank of America exiting wholesale, and CW losing $1.2 billion, what is the next big rumor? Rob Chrisman

Yesterday, besides laying-off 3,000 employees, Bank of America issued a short statement announcing the closing of their wholesale operation. “Today Bank of America announced that it will exit the wholesale mortgage business in order to devote increased energy to its expanding retail channels. We will be fulfilling all of our contractual obligations to you and your customers. The termination of your Wholesale Broker Agreement will be effective November 25, 2007. All loan files must be locked and delivered by that date. During this transition period, please be assured that our sales and fulfillment teams will continue to provide you with the exceptional level of service you’ve come to expect. If you have any questions during this time, please contact your account executive.”

Bank of America is abandoning mortgage broker business, and loans need to be funded by December 31st. (Happy New Year – will they be looking for reasons not to fund wholesale loans?) “We did not run out of money, and have plenty of money” according to one executive. BofA originated $48 billion during the third quarter, making it the fourth largest U.S. residential originator, and by some estimates 30% of their production came from the wholesale (TPO) channel. But earnings were off more than $2 billion from the second quarter.

Countrywide Financial Corp., the biggest U.S. mortgage lender, reported a loss of $1.2 billion – its first quarterly loss in 25 years. And Wednesday it was reported that Henry Cisneros, a former U.S. Secretary of Housing and Urban Development, had resigned from its board of directors leaving to spend more time as chairman of CityView, which provides financing to U.S. homebuilders. So what is CW’s stock doing? Yesterday it was in the mid-$12’s… and today it is back into the $15 range due to the company saying that it will return to profitability in the fourth quarter.

Rumors? Remember that BofA has a large investment in Countrywide around $18/share, and rumors are circulating that, with CW’s stock at these levels, BofA may step in and “re-align” certain business units, namely wholesale. Pure unsubstantiated rumor, but obviously brokers across the nation are watching this closely, along with watching other investors’ intentions with regard to their wholesale production. There was also news today about a discussed “Merrill Lynch-Wachovia union”.

The only economic news today is the US Consumer Confidence Index, expected to be unchanged from the early October reading of 82.0, leaving it at a 14-month low. With stocks volatile, housing wallowing, and oil over $90/barrel, confidence may be an issue. Prices worsened yesterday following the increase in the New Home sales report by 4.8% (versus expectations of a -3.1% decline). Most analysts believe that sales will fall through the middle of next year but the new home market is likely to correct faster than the existing home market since builders are motivated sellers willing to offer greater incentives.

Fed Funds? Fed futures predict an 86% chance the fed cuts rates by 25 bps to 4.50% at next week’s meeting, up from a 70% change one week ago. But the 10-yr stands at 4.40% and 30-yr A-paper prices could be worse by as much as .250 in price.

A man and a boy entered a barber’s shop together. After the man had received a shave and a haircut, he sat the boy in the chair and said, “I’m just going to run next door to pick up a few things from the supermarket. I’ll be back in a few minutes.”

When the boy’s hair was cut and the man still hadn’t returned, the barber said, “It looks like your dad’s forgotten you.”

“That wasn’t my dad,” said the boy. “He just walked up, took me by the hand and said, “Come on, we’re going to get a free haircut.”