The Bank of America purchase of Countrywide is sending shockwaves across the mortgage sphere today, but it should be a surprise for very few. Those companies that grew on the meteoric rise of the mortgage industry are now fulfilling their long term role.

Fish Food.

That is the nature of the banking industry. Sure the smaller companies have a good run in good times. But the powers that be know when times get tough the big boys eat the small fry or let the  government take them.

The large banks do not need these deals to be profitable from day 1 as they know that all of the other services and programs can be pushed to the mortgage customers. I expect to see this happen for the next couple of years as the smaller mortgage companies face some sort of liquidity crisis allowing the big boys to buy them at a discounted rate.

For its part, Bank of America (BAC, Fortune 500) anticipates the merger, which is slated to close in the third quarter, will start realizing savings in 2011, and that $670 million in cost savings can be recognized over two years. In a brief conference call held this morning, B of A chief executive Ken Lewis made the obvious point first: the merged company will utterly dominate the vital U.S. real estate finance sector to an extent never before seen. It will control 25 percent of mortgage originations and 17 percent of the mortgage servicing market.  via Fortune

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4. Countrywide’s Mozilo Charged With Securities Fraud and Insider Trading by S.E.C.
5. Probe of Lend America’s FHA Loan Program