Right now, Bank of America (BAC) might be considering extricating itself from its deal to buy Countrywide (CFC). The fact of the matter is that homeowners aren’t the only ones dealing with negative equity right now. Countrywide has reached a point where its portfolio — in terms of loans — has such a low value that it has gone negative. And Bank of America can’t ignore that.

Countrywide is very exposed in terms of subprime mortgage loans, due to the fact that it is the largest of the U.S. mortgage lenders. That means that it also has a large proportion of the subprime mortgage loans, making things especially difficult for Countrywide right now. Especially since there are signs that Bank of America may be reconsidering.

Bank of America may not walk away completely, though. Instead, the company may decide to re-negotiate how Countrywide’s debt will be treated in the $4 billion deal. Bank of America is still affirming that it will take care of the debt acquired from Countrywide in the deal, but some analysts are wondering how the structure will play out. As a result, reports Reuters, Fitch Ratings is considering its next move with regard to Countrywide:

Fitch said it may cut Countrywide debt into junk territory if Bank of America does not fully support the mortgage lender’s debt after the acquisition.

Countrywide’s ratings may also be equalized with Bank of America’s “AA” rating, the third highest investment grade, depending on the deal’s structure, Fitch added.

This is just one more sign of where the U.S. economy is headed overall.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss.

Tags: Countrywide deal, Bank of America, home mortgage loan, subprime mortgage,
mortgage lenders, mortgage loan blog, BAC

Mortgage interest rates saw a drop this week. Things have been crazy on the mortgage market lately. Rates have been a bit volatile, and lately they have been trending up as inflation increases. And, even though the Fed rate cut earlier this week didn’t directly affect mortgage rates, there is an indirect connection. Tom Vanderwell on Straight Talk About Mortgages makes this connection between the Fed rate cut and mortgage rates:

Why would that cause mortgage rates to drop? Inflation and the value of the dollar. The value of the dollar has dropped dramatically since the Fed started lowering rates and it is anticipated that it will rise “somewhat” now that we’re in “pause” mode. So what? If the value of the dollar goes up, the cost of oil comes down. If the cost of oil comes down, inflation drops. And, if inflation drops, what happens to mortgage rates? They tend to drop as well.

Indeed, mortgage interest rates are more closely tied to 10-year Treasury rates, since both are long-term and the Fed funds rate is a short-term indicator. For buyers, the drop in mortgage interest rates is attractive, since it means that they will pay less in interest over the life of the loan.

Additionally, for home equity loan borrowers — those with variable rates — the Fed rate cut is more directly influential. Those with variable rate ARMs and HELOCs (and those with credit cards), should see a decrease in the interest rate charges they are getting.

It remains to be seen whether or not the current drop in mortgage interest rates sticks around. Many factors influencing the economy, including when home prices hit bottom and can start recovering, will influence where mortgage interest rates go from here.

Tags: mortgage interest rates, home equity, home mortgage loan, mortgage loan blog,
HELOC, ARM, Fed rate cut