cfc

Not to worry, your mortgage is $200,000 and your house is worth only $150,000. Fannie Mae to the rescue. Fannie Mae will let you sell your home at $150,000 and Fannie Mae will take the loss. You don't even need a buyer for your home!

This situation is called being "upside down," which means that you owe more than the house is worth. Selling your home when you are "upside down" is called a "short sale."

This is not a new practice. It has been used before but never without a buyer. Most deals fell through because the paper work took too long or because lenders, servicing firms and mortgage guarantors rejected the sales price. For these reasons, "short sales" have a bad reputation among real estate agents.

We start the new year with the disappearance of two household names in the financial world, Merrill Lynch which sold itself to Bank of America, (NYSE: BAC) fearing the worst of the broadly deteriorating financial markets; and Wachovia that not only feared the worst but lived through it only long enough to be acquired by Wells Fargo (NYSE: WFC). Both transactions completed yesterday while the market was closed.

The market has been up all day and both BAC and WFC can be upbeat as two of the world's survivors of the 2008 minefields that blew up some of the largest and most revered names in many generations.

The BAC deal propels it to be the No. 1 financial institution in the United States with about $2.7 trillion in assets. Merrill Lynch ends a 94 year run. Earlier in the year BAC acquired Countrywide Financial. These two deals allow Bank of America to stand tall as he largest originator and servicing company for new loans, just when home refinancing may take off based on new lower rates becoming available. It may be able to expand financial services when the world is hoping for even a modest recovery.

This is the third in a four part series which I hope gives buyers, sellers, shareholders and dare I say management a platform for discussion.

The most valuable asset eBay (NASDAQ: EBAY) has is PayPal, the dominant internet financial transaction facilitator. When I started imagining what might happen if eBay started auctioning off its parts I envisioned that PayPal would be worth the highest premium.

I think there would be dozens of interested companies that would find it highly advantageous to acquire PayPal.

The reason eBay bought PalPal in the first place was that they had first hand experience trying to compete with it when it was a separate company, and even with its huge base of customers, eBay could not build much traction. As the old saying goes, "if you can't beat them, join them", or in this case buy them.

For starters, all of the major credit card companies would be very interested with MasterCard Inc'A' (NYSE: MA) and Visa (NYSE: V) leading the bidding and beleaguered American Express (NYSE: AXP) trying to find a way too.

Then there are the few prospering banks still left standing that would have to give this potential acquisition strong consideration. Bank of America (NYSE: BAC) which has already bought out Countrywide Financial and will soon add Merrill Lynch (NYSE: MER) would find this a must have. JPMorgan Chase (NYSE: JPM) has added Bear Stearns and Washington Mutual (NYSE: WM) to its group of enterprises and might be best suited to expand the company given its growing resources. Wells Fargo (NYSE: WFC) that recently agreed to acquire Wachovia Corp (NYSE: WB) after staying on the sidelines most of the year might want PayPal, but I do not think it would pay up.

Everything is upside down these days. The folks with all the money and multi-million dollar bonuses are begging for a handout on the pretext that the economy will crash if they do not get one. We're not talking money for coffee or a snack, we're talking billions of dollars.

It is crashing anyway, or at least sinking. It is just a matter of what it takes down along the way. Apparently, the folks at the Treasury and Federal Reserve are now convinced that it will be everything.

The survivors are pawing at the defeated as Wells Fargo tries to grab Wachovia despite its previous tentative agreement with Citigroup Inc. (NYSE: C). While Citigroup gained a point in Wachovia deal over the weekend, the balance has since tilted in favor of Wells Fargo again.

Bank of America (NYSE: BAC) gobbled up Countrywide (done) and Merrill Lynch (NYSE: MER) (a work in progress), while JPMorgan Chase (NYSE: JPM) corralled Bear Stearns and Washington Mutual (NYSE: WM).

Sadly, only the federal government was big enough to swallow the problems of American International Group (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Otherwise,those in the know think world financial markets would have crumbled due to the collateral damage, (pun intended).

When I posted Congress is screwing up -- think backstop not bailout!, I was concerned with the psychological effect as much as the financial effect of not approving the funding, but no doubt the people suffering the most are not those who created the pain.

In the News:
Trading Strategies for October
Following the most volatile September in memory, here are 10 ways to play the year's scariest month.
http://www.marketwatch.com/newscommentary/tradingstrategies

Payout Jackpots for Credit Crunch CEOs
Though they were at the helm of companies that were bruised or broken by the credit crunch, these 12 CEOs were still offered big severance packages when they were shown the door. They include Merrill Lynch's Stan O'Neal who got $161 million, Citi's Chuck Prince $105 million and Countrywide's Angelo Mozilo $100 million to name a few.
http://www.cnbc.com/id/26959512

Confidence in the global economy fell in September, as concern mounted about the health of the U.S. economy and global financial system following the bankruptcy of Lehman Brothers and the near bankruptcy of AIG, which prompted a U.S. Federal Reserve intervention, a new survey indicated.

The Bloomberg Professional Global Confidence Index fell to 11.3 in September from 14.1 in August among U.S. respondents. The Western European index fell to 12.6 from 12.9. Readings below 50 indicate negative sentiment.

Economist Richard Felson, who did not participate in the Bloomberg survey of 3,000 Bloomberg Terminal users, told BloggingStocks Wednesday too many financial concerns and bankruptcies are occurring over a short period for business professionals to be positive.

"Countrywide, Bear Stearns, Indymac, Freddie, Fannie, Lehman, Merrill, and now AIG. Wow, that's an awful lot for any economic system to absorb in five years, let alone one year," Felson said. "Executives and other business professionals are justifiably concerned about credit access for business operations and about declining demand due to rising unemployment. The major U.S. economic metrics are not moving in a positive direction right now and the nation needs to correct that."

Bank of America's (NYSE: BAC) newly-acquired Countrywide Financial is being sued by yet another state attorney general, with Indiana's Steve Carter announcing on Sunday that he's suing the company for deceiving borrowers into loans that they could not afford and/or were not aware of the associated risks.

In a press release announcing the suit, Carter said that "These unfair lending practices may have harmed thousands of people and, in turn, negatively affected our communities and neighborhoods throughout the state." According to Carter, "The most common misrepresentations uncovered to date have been on 1) pre-payment penalty terms, and 2) the time period in which interest rates would be recalculated (resetting ARMs – adjustable rate mortgages)."

Carter is seeking penalties of up to $15,500 per violation, plus investigative costs and restitution.

Countrywide had been sued many times before the Bank of America acquisition, and BofA knew that there would be more to come. But for a deal that is widely considered to have been too expensive and too risky, the distraction and headache of all these lawsuits would seem to make this a deal Ken Lewis probably regrets. Of course, he won't say that publicly.

Connecticut Attorney General Richard Blumenthal has sued Bank of America's (NYSE: BAC) Countrywide Financial alleging that the company misled borrowers into taking on risky loans that they couldn't afford. California, Illinois, and Florida have filed similar charges, and it seems likely that more will follow.

Blumental said that "Countrywide conned homeowners into mortgages they simply could not afford," and wants Countrywide to amend mortgages that violated state laws and make restitution to affected borrowers. Blumenthal is also seeking fines of $100,000 per violation of state banking laws, and up to $5,000 per violation of state consumer protection laws.

Some things never change.

David Sambol, the out-going president of kaput mortgage giant Countrywide Financial Corp., is taking his family on an African vacation -- on Countrywide's Gulfstream IV.

Yes, the guy in charge of the company that sold hundreds of thousands of suspect mortgages to people who couldn't afford them is leaving on a jet plane, for a nice three-week-long vacation in Africa with his family.

But you know, it's been a stressful year for Mr. Sambol, what with his company nearly collapsing and that stressful fire sale to Bank of America (NYSE: BAC). Not to mention being hauled before Congress to account for his part in helping facilitate the global credit crisis.

Marie Antoinette would have understood completely. "Let them take a vacation," she would have said. "An African safari would be nice. The kids will love it."

Stockholders of publicly traded companies, as well as the general public, have recently become outraged with executive compensation and their hefty bonuses, especially in light of the mounting losses at some companies. It seems that no matter what happens or what they do, executives somehow always win. They win big during their employment, and sometimes even more as they retire. With all that money, you'd think that haggling over some perks in their package would be beneath them . . . but it isn't.

The recent outrageous perk award goes to Continental Airlines (NYSE: CAL) CFO Jeffrey Misner who asked for and was granted a free lifetime parking spot at Jacksonville International Airport. As long as the 54-year-old retiree lives within 200 miles of Jacksonville Airport, and providing Continental has operations at the airport, Misner will have a free parking place. Of course, that's just a perk that goes with a $2,997,000 retirement pay.

At the beginning of the year, many were shocked to hear that Countrywide Financial Corp. -- the poster child of the subprime mortgage meltdown, which has been bought by Bank of America (NYSE: BAC) -- CEO Angelo Mozilo was going to receive a $36.4 million cash severance payments, $400,000 per year for consulting services, and perks including the use of a private airplane. He walked away from most of these after a public outcry. Don't feel bad though, he still left with at least $23.8 million.

It just doesn't cease to amaze me how some people have the nerve to ask for certain perks in addition to their very fine salaries and severance pays. Here are some more examples:

• Hanmi Financial (NASDAQ: HAFC) President and CEO Dr. Sung Won Sohn requested and got a 2005 Mercedes Benz 430S, as well as the transfer of his membership to the Wilshire Country Club and the Jonathan Club. This was in addition to his $1,298,000 lump sum retirement pay.

The Friends of Angelo Mozilo loan scandal widens, with Portfolio.com publishing a list of prominent people who received favorable loan terms from Countrywide Financial because they were friends of its chairman and CEO. Christopher Dodd has already been raked over the coals for the special deals he received, but there's more: former Fannie Mae CEOs James Johnson and Franklin Raines, former HUD director Henry Cisneros, CNN commentator Paul Begala, and many others. View the full list here, with 17 names and details on the terms.

It's tempting to level allegations of political corruption, and special terms given to executives at Fannie Mae and a judge who later heard a case involving Countrywide would seem to be obvious conflicts of interest. But as scandals go, this one seems pretty lame in that regard. The amounts involved just weren't that big: What's $15,000 when you're William Esrey, the former CEO of Sprint? It seems more likely that Angelo Mozilo, an incredibly vain man, wanted to be a "player" and hobnob with influential people. That he used shareholder assets to pursue his social agenda is distasteful but, unfortunately, not particularly rare. And given what a corporate governance outhouse Countrywide was, it certainly isn't surprising.

But in the current environment where Countrywide is being raked over the coals, mostly with good reason, this was destined to turn into a big mess. Read the Portfolio exposé here.

The Chapter 13 bankruptcy trustee in Pittsburgh accused Countrywide Financial, the poster child for lending practices that were disastrous for both investors and consumers (but worked out quite well for Angelo Mozilo), of losing or destroying more than $500,000 in checks between December 2005 and April 2007, and then charging already downtrodden borrowers for illegitimate late fees and legal costs.

Countrywide recently settled those allegations, and will pay $325,000. That's it. Is that a deterrent? Now that Countrywide is owned by Bank of America (NYSE: BAC), it's barely a rounding error, and certainly not something that will discourage Countrywide or other lenders from ripping people off.

Crime might not pay, but apparently it doesn't cost much either. Given the continuing flow of hugely negative publicity for Countrywide, it's hard to imagine that Bank of America isn't rethinking its plan to keep the Countrywide brand. Why would someone go a company synonymous with foreclosures, bait and switch, and corporate greed when they want a home loan?

With all the terrible press Countrywide Financial, which is now owned by Bank of America (NYSE: BAC), has gotten, it seems hard to imagine that there's more bad information to come. A former Countrywide regional vice president showed NBC internal emails where he had expressed concerns about mortgage fraud -- inflated appraisals, and employees coaching borrowers to lie about their incomes.

The vice president/whistle blower was fired -- he says it was because he refused to close bad loans, while the company says he was not performing. Interestingly, those could well be the same thing. He is now suing the company, and this will be an important lawsuit to watch for people looking to understand the mortgage crisis.

His allegations seem to fit in well with everything we know about Countrywide, and the rapid deterioration in its financial position indicates that its lending practices were, at best, sloppy.

TheStreet.com's Jim Cramer says it'll be a huge, bizarre investment that sticks -- not a bid for Wachovia.

Why is there so much chatter about Wachovia (NYSE: WB) (Cramer's Take) getting a bid? Why do people think that its deposit base is worth the heartache of dealing with its mortgage portfolio?

We have all heard the chatter about a potential bid for Wachovia, and it sure would be sweet, because the stock has been one of the worst of the group. It doesn't have a CEO, so that fits the scenario of a company that could be for sale. The franchise was always a solid one until now. And I will admit that the secret to the bulls' case for a better second half is a bid for Wachovia, a premium bid that takes everyone's breath away and causes a short panic.

My problem is that if you wanted to buy Wachovia, why not wait? What's the hurry? Is it that you might miss a chance at a bottom? Is there someone else out there who might want it? Do you perceive a bidding war, for instance, between JPMorgan (NYSE: JPM) (Cramer's Take) and Wells Fargo (NYSE: WFC) (Cramer's Take) for WB? How about USB (NYSE: USB) (Cramer's Take)?

If pretty much every other attorney general in the country was suing Countrywide Financial (NYSE: CFC), would Florida's? Apparently. Last night the Associated Press reported that Florida Attorney General Bill McCollum has sued the company for misleading and unfair trade practices.

There's no question that Countrywide is a horrible company on a multitude of levels, but there's some irony to the allegations that the company took advantage of borrowers. Take a look at the chart for the company's stock price over the past 5 years -- how much worse would it have done if they'd treated people ethically? It's a little bit like finding out that career minor leaguer Manny Alexander was a steroid user.

In some ways the beat down on Countrywide seems unfair, more of a response to general market problems than anything else. Countrywide helped people use toxic mortgages to buy homes they couldn't afford at a time when lenders were operating on the assumption that home values always went up, interest rates never did, and everything was comin' up roses. It was a happy conspiracy and, sure, Countrywide was happily working on loans that were fraudulent -- but everyone knew the subprime game was the wild west and no one cared. Towns benefited from increased property taxes and federal loan programs encouraged home buying with little money down. But with a lot of people angry about losing their homes, these lawsuits are good politics in an election year.