In an ironic twist, Bank of America (BofA) is closing 40 mortgage offices and firing hundreds of workers at a time when mortgage interest rates are setting record lows.
The firings come in the wake of recent news from Freddie Mac that the 30-year FRM had fallen to 3.94 percent, the first time the rate ever dipped below 4 percent. Regardless, BofA’s actions seem to indicate two things: one, that the major bank is committed to the recent cost-cutting measures recently implemented by CEO Daniel Moynihan, and two, that the ghosts of BofA’s 2008 purchase of Countrywide Financial continue to haunt the bank.
Originally reported last month, BofA’s job cuts are part of a massive restructuring of the company that will ultimately reduce its payrolls by 10 percent, or roughly 40,000 jobs. A large part of BofA’s continued struggles derives from its purchase of Countrywide, once a jewel of Wall Street and largest originator of home loans in the U.S.
In the years following the mortgage meltdown, Countrywide has become somewhat of a poster child for the reckless ambition and “irrational exuberance,” in Alan Greenspan’s words, that characterized that brief period of finance. Though the company posted record profits during the housing boom, its lax accounting and predatory lending practices (which included scores of risky zero-down, subprime loans) soon caught up with it, and it was purchased by BofA in 2008 for a fraction of its share price. BofA has discovered, though, that it may have inherited more than it bargained for in the purchase, which saddled its books with thousands of failed (and possibly illegal) mortgages.
E. Scott Reckard of the L.A. Times labeled the Countrywide deal “disastrous,” and James Kwak, a co-author of the popular economics blog The Baseline Scenario, recently commented on the plights of BofA with even stronger language, writing, “It’s amazing that after three full years of our government trying to give Bank of America money at every possible opportunity, it’s still a basket case.”