Legal News

Subprime Legal: In Cwide/BofA, Will Law Stand in the Way of Business?

By Jamie Heller

Could law be standing in the way of business?

Both the NYT and WSJ have stories today citing speculation that Bank of America may back off its commitment to buy mortgage lender Countrywide for $4.1 billion.

Why the possible cold feet? Among the reasons offered: Along with the troubled Countrywide, BofA would be buying into all the investigations and lawsuits against the mortgage lender. As the Journal’s Corey Dade and Peter Eavis put it: “Uncertainty about the acquisition has intensified as Countrywide’s performance continues to weaken and amid a recent disclosure that the Justice Department is scrutinizing the business practices of the U.S.’s largest home lender by volume.”

Their article refers to another Journal story earlier this year by reporter Glenn Simpson which stated that investigators were finding that Countrywide’s loan documents often were marked by dubious or erroneous information about its mortgage clients and, since many of those mortgages were packaged into securities and sold them to investors, there was an additional question of whether Countrywide understated the investments’ risks.

The Journal quotes a BofA spokesman as saying a ramp up in auditors looking at Cwide’s portfolio of mortgage securities is “our usual transition activities prior to closing.”

Both the Journal and the NYT note that BofA says the acquisition is expected to proceed as planned and close in the third quarter.

LB’ers: sometimes law doesn’t stand in the way of business when perhaps it should. (See, e.g. WorldCom.)
But business people sometimes say lawyers worry too much about legal woes and not enough about the big-business picture.

As Subprime Legal unfolds, will legal issues prove a sideshow or a show stopper?

Full post as published by Law Blog - WSJ.com on May 06, 2008 (boomark / email).