Bank of America Corp.'s $4 billion deal to buy Countrywide Financial Corp. helps to clarify the future for customers seeking mortgage loans: less competition for their business, less of a role for independent mortgage brokers, and one more reason for a trip to the bank.
The deal, made public yesterday, will combine the two largest mortgage lenders in Massachusetts.
It also speeds the dismantling of a business model that made loans cheaper and easier to get than ever before - fueling an unsustainable home-buying boom, a record number of foreclosures, and perhaps a recession.
And it may result in more help for people who can't afford their Countrywide loans. Bank of America immediately signaled it would expand efforts to help troubled borrowers through counseling and loan modifications.
Countrywide is the nation's largest lender and the largest in Massachusetts. The company embodied the lending boom, pioneering a reliance on mortgage brokers to arrange loans and on Wall Street to provide funding through a process called securitization. It also was a leader in lowering lending standards, allowing people to borrow beyond traditional limits. Many ended up with loans they could not repay.
Bank of America, by contrast, sat through much of the boom. The Charlotte company refrained from lending to people with credit problems. It profited from funding lenders, including Countrywide, but not as much as the major New York banks. But this fall, pending regulatory approvals, it will become the nation's largest mortgage lender.
"Securitization was this great new innovation, as opposed to the stodgy old banking system," said US Representative Barney Frank, Democrat of Massachusetts. "Now it looks like the banking system is coming to the rescue. It's really a return to an older model."
Frank said the trend was likely to be a positive for many customers. Banks are more tightly regulated than mortgage companies by the federal government. Banks also profit by persuading customers to use multiple products - credit cards, checking accounts, wealth-management services - which only works if customers stay happy.
"I like the mortgage product as a cornerstone of the customer relationship," Bank of America chief executive Ken Lewis said on a conference call yesterday.
Countrywide and its chief executive, Angelo Mozilo, made no public comment. In an internal memo, Mozilo told employees, "as the industry changes and consolidates, we must embrace these changes."
The deal has a downside for customers. It will reduce competition, and that could mean higher prices.
Bank of America and Countrywide together made almost 11 percent of the mortgage loans in Massachusetts in 2006. That was more than three times the market share of the nearest competitor. And many of those competitors went out of business during the last year, clearing new opportunities for the combined company.
The lending industry remains relatively fragmented. The 10 largest mortgage lenders made 29 percent of the loans in Massachusetts in 2006. By comparison, the 10 largest banks controlled 67 percent of the state's deposits.
But the trend toward less price competition may be accentuated by another change. Over the last decade, mortgage companies and banks made most loans through independent mortgage brokers. Now mortgage providers are increasingly choosing to hire their own lending staffs, to tighten control over the lending process.
Bank of America had already stopped making loans through mortgage brokers. Yesterday, bank executives said they will end many of Countrywide's relationships with mortgage brokers as well.
A good mortgage broker lets customers easily compare prices from multiple lenders. Banks sell their own products, making it harder to compare prices - and limiting the pressure to cut prices.
The Service Employees International Union issued an immediate statement of opposition to the deal. "The long-run harm in terms of reduced competition, higher fees, and even more hidden influence in legislative and regulatory circles is just too high a price to pay for the nation's working families," it read in part.
Competitors were more sanguine. Brian Koss, an executive at local lender Mortgage Network and a former regional executive at Countrywide, said banks historically have had trouble competing with companies like his that specialize in mortgage lending. "I see it as a very large dinosaur," he said.
The most likely beneficiaries are borrowers facing foreclosure.
The deal was welcomed by some borrower advocates, who believe that Bank of America, based on its record, is more committed and better-equipped to help people who can't afford their mortgage loans.
The bank also faces a regulatory approval process where advocates can exert pressure on the company.
The key issues are whether Countrywide will agree to suspend scheduled increases in the monthly payments for borrowers who can afford their current payment, and to reduce payments for those who can't.
Countrywide reworked more than 80,000 mortgage loans last year, and it formed an innovative partnership allowing the Neighborhood Assistance Corporation of America to rewrite loans on its behalf. But the company has been able to help only a fraction of its borrowers who have fallen behind on payments.
Advocates hope Bank of America will be more successful in persuading the investors who own mortgage loans to allow borrowers to make reduced payments. The theory is that many investors conduct other kinds of business with Bank of America and those relationships may be more valuable than the loans.
"This is a good thing," said Bruce Marks, the head of Boston-based NACA, which also has an agreement with Bank of America to make affordable loans. "I've seen what Bank of America has done since we started the partnership with them in 1994, and I feel comfortable that they're going to do the right thing now."
Frank said he had spoken with company officials and also had confidence in the bank's intentions. He said he had urged the company to consider whether there were regulatory obstacles Congress might address.
"I think they see this as an opportunity to do some good and make some money," he said.
Binyamin Appelbaum can be reached at bappelbaum@globe.com.
