Countrywide Mortgage, Bank of America May Merge

According to the Miami Herald, shares of Countrywide Mortgage jumped as much as 12 percent Friday, spurred by a report that Bank of America was in talks that could lead to the acquisition of the mortgage lender.

The Financial Times, citing people close to the matter, said the Charlotte bank might buy the California-based mortgage company or form a joint venture to sell Countrywide home loans through its massive branch network.

Sources close to both sides cautioned that talks were in early stages and could fall apart.

For the day, Countrywide Mortgage shares closed Friday up $1.71, or 4.2 percent, at $42.00, while Bank of America shares fell 36 cents, or 0.69 percent, to $52.04.

Bank of America officials in recent months have expressed interest in expanding their home loan operations, which lags in comparison to the bank’s size in consumer banking and credit cards.

Buying Countrywide would create the largest U.S. mortgage lender, with nearly 11 percent of all loan origination, according to 2005 Mortgage Bankers Association data.

Countrywide Mortgage has long been the subject of acquisition talk, but CEO and co-founder Angelo Mozilo has yet to pull the trigger, said Bert Ely, a Virginia-based banking consultant.

“Bank of America is big in mortgage and has aspirations in that area,” Ely said. “It’s something I wouldn’t rule out, but there’s constantly talk of supposed deals with Countrywide.”

In a research report Friday, Friedman, Billings, Ramsey & Co. analyst Gary Townsend downplayed the possibility of a mortgage deal, although he said an acquisition was workable financially.

“Bank of America wants a larger mortgage market share… but it has little appetite for a huge loan servicing platform,” Townsend wrote in the report. “We consider a joint venture more likely than a purchase.”

The report comes as the home mortgage loan industry is grappling with a slowing housing market and rising concerns about customer defaults. Countrywide is also among a dwindling number of so-called monoline financial services firms that largely specialize in one product, crimping performance during market slumps.

Acquiring Countrywide would again push Bank of America up against the federal cap that limits banks to gaining 10 percent of deposits through acquisitions. The company has been shedding deposits for the past year.

It now holds about 9 percent of the nation’s deposits. Countrywide, with about $56 billion in domestic deposits, holds close to 1 percent.

Such a deal would also make Bank of America a large player in lending to borrowers with spotty credit, a business it has largely avoided in recent years. Countrywide is one of the largest originators of bad credit home loans.

The company made more than 125,000 home loans with high mortgage rates in 2005, according to data filed with the federal government. By contrast, Bank of America made fewer than 4,000 loans with high rates.