Bank of America to Countrywide's Rescue?

So now the story is that B of A has injected 2 billion dollars into Countrywide (that after they admitted having to borrow 11.5 billion to finance home loans). B of A took nonvoting convertible stock in return--so they can eventually sell them for a lot more (with restrictions) if prices go up. For now, Countrywide's stock value has gone up to $26.25 a share. Last week, shares hit a low of $15, then rebounded a bit after the Fed cut rates. They're still at about half of what they were at their height.

What does this all mean for buyers? Anecdotally, some friends of ours were about to sell their home and buy another. However, last week, they found that because they hadn't received the purchase agreement back in a timely manner, they hadn't been locked into their interest rate. As rates suddenly climbed, they saw their buying power drop about $200,000. They were in a panic, looking for a rental as they had to be out of their house by the end of the month. Today, I talked to them, and they're getting a 30-year fixed for the agreed purchase price--from Countrywide. So yes, this is saving transactions for those who are in the middle of buying and selling.

But this situation also has a dampening effect for those who don't have to buy. It cuts further into consumer confidence. Those who would like to buy their own home worry about buying and then seeing the property lose value. Of course, if they wait for prices to come down as far as possible, interest rates will have risen by then since, as you know, it's about how big a monthly payment one can afford to make. On the other hand, there are those who remember what it was like in the early 90's when people had to move for a job or family, and they couldn't get what they owed. Some friends of ours lost their house and then experienced the humilliation of being refused credit to buy a small tv a year later.

And then there's the reverse side of the coin--people who are waiting for things to get worse, so they can pick up houses on the cheap. They're holding out to see how low things ago (and also hoping that interest rates will stay down), and then they'll buy at just the right moment. However, they're going to need the numbers to work out just right to get rent that will cover a loan (or loans!) for 90%.

So will B of A's move help save Countrywide? We'll have to wait and see if people can make their payments.

Here's a link to an article on Bank of American and Countrywide:

BofA saves Countrywide?