What Does Warren Want With Countrywide?

The answer is simple. It’s not the origination side of the business.

Consider Countrywide’s mortgage servicing portfolio by itself. Countrywide services $1.4 trillion in mortgage loans. Most servicers “value” their servicing portfolio anywhere between 100 and 200 basis points. In real terms, Countrywide’s servicing “value” is somewhere between $14-28 billion. That is some chunk of change for just collecting mortgage payments and handling escrow accounts. Yes, there is more to it than that, but that is the gist of mortgage servicing.

Now Berkshire Hathaway will not be interested in purchasing the entire servicing portfolio of Countrywide. A good portion of Countrywide’s servicing portfolio is sub-prime mortgages and ALT-A mortgages. Berkshire would be interested in the portfolio of the performing mortgages as not to get dragged down by any of the current mess that has so often commented on. There are other aspects of Countrywide that interests Buffet, such as the companies mortgage backed securities.

But if Buffet can get a portion of Countrywide at a discount now, it’s a win-win situation for the two companies. Berkshire gets to add Countrywide to it’s stable of companies and a company that has delivered good earnings over a large period of time. Countrywide would get some much needed relief.

I do not like Angelo Mozilo but he has built the largest lender, prime and sub-prime, in the country and does not want to see it go up in smoke. I’m sure he would be acceptable to the idea of being brought into the Berkshire stable of companies.

Buffet does not comment on companies that it is buying and selling but Berkshire did recently disclose holdings in both Bank of American and Wells Fargo, the sixth and second largest mortgage lenders. And Buffet told TV network CNBC last week that the worsening credit and housing markets may present some “real” investment opportunities.

Berkshire is not interested in the origination portion of Countrywide. This is the same portion of Countrywide that announced 500 job layoffs and it is my belief will have to trim more jobs before the pain is truly through.

You saw a big jump in stock price today based on the information above. Countrywide has lost about 50% of it’s stock value within the last year. Maybe now is the time to look at Countrywide, even though I don’t like it.