From $2B Bailout to $4B Buyout at Countrywide

It didn’t take long from a historical perspective. Just late last year Bank of America infused $2 billion into the coffers of Countrywide Financial to support the floundering lender’s attempt to survive the subprime mortgage mess — which reportedly almost forced the firm into filing for bankruptcy protection earlier this week.

Now with Countrywide’s stock weak and its value depressed, it is being widely reported that Bank of America is paying $4 billion in stock to buy out the company — in which it already had a 16 percent stake in convertible preferred stock after the bailout.

Things were bad enough in 2007 when Countrywide Financial, along with many other mortgage lenders, was pummeled by rising defaults and foreclosures — forcing a slew of lenders to either close down their subprime divisions and lay off employees, or close their doors altogether.

Generally recognized as the nation’s largest lender, as it turns out Countrywide ended 2007 in even worse condition than was imagined. According to various news reports, earlier this week the firm reported that the number of foreclosures and late payments on mortgages it held in December 2007 soared to their highest level in five years.

Wall Street reacted to the news, and the company’s stock continued to plunge, closing Wednesday at $5.12 a share with 164 million shares traded, down dramatically from even just Oct. 5, 2007, when the stock was selling at $20.25 per share with 9.8 million shares traded, according to Yahoo! Finance.

In the meantime, the boards of both Bank of America and Countrywide have approved the buyout, and the deal is now subject to approval by regulators and Countrywide’s shareholders.

Angelo Mozillo, founder and CEO of Calabasas, Calif.-based Countrywide may be set to reap more than $115 million from the deal with Bank of America. What happens to the millions of home loans being serviced in Countrywide’s portfolio is up in the air, however. Are those homeowners going to profit or be hurt by this deal? There’s enough pain to go around already.

So the question remains, as more and more economists and industry analysts start pontificating about whether the U.S. economy is already in a recession (oops I used the “r” word; sorry about that Mr. Bernanke!), how long is it going to take before the Federal Reserve finally admits that the housing/mortgage crisis IS having a major impact on the overall economy. Even now Bernanke and his colleagues at the Federal Open Market Committee are still denying it.

Ask the thousands of people losing their homes to foreclosure every month how they feel about their economic outlook for the near future. Somewhere down the line it has to translate into less consumer spending and a major slowdown in economic activity nationwide.