Use these links to rapidly review the documentCOUNTRYWIDE FINANCIAL CORPORATION FORM 10-Q March 31, 2008 TABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

Form 10-Q

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended March 31, 2008                
|Or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number: 1-8422

Countrywide Financial Corporation(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)           |  | 13-2641992(IRS Employer Identification No.)
|-------------------------------------------------------------------------------- |  | -------------------------------------------
|4500 Park Granada, Calabasas, California(Address of principal executive offices) |  | 91302(Zip Code)                            
|(818) 225-3000(Registrant's telephone number, including area code)              

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (check one):

|Large accelerated filer ý |  | Accelerated filer o |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act): Yes o    No ý

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

|Class                        |  | Outstanding at May 9, 2008
|---------------------------- |  | --------------------------
|Common Stock $0.05 par value |  | 583,344,439               



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COUNTRYWIDE FINANCIAL CORPORATION    FORM 10-Q    March 31, 2008    TABLE OF CONTENTS



|                              |  |                                                                                                  |  | Page
|----------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ----
|PART I. FINANCIAL INFORMATION |  | 1                                                                                               
|Item 1.                       |  | Financial Statements:                                                                            |  |     
|                              |  | Consolidated Balance SheetsMarch 31, 2008 and December 31, 2007                                 |  | 1   
|                              |  | Consolidated Statements of OperationsQuarters Ended March 31, 2008 and 2007                     |  | 2   
|                              |  | Consolidated Statement of Changes in Shareholders' EquityQuarters Ended March 31, 2008 and 2007 |  | 3   
|                              |  | Consolidated Statements of Cash FlowsQuarters Ended March 31, 2008 and 2007                     |  | 4   
|                              |  | Notes to Consolidated Financial Statements                                                       |  | 5   
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations            |  | 49  
|                              |  | Overview                                                                                         |  | 49  
|                              |  | Results of Operations ComparisonQuarters Ended March 31, 2008 and 2007                          |  | 56  
|                              |  | Liquidity and Capital Resources                                                                  |  | 78  
|                              |  | Credit Risk Management                                                                           |  | 81  
|                              |  | Quantitative and Qualitative Disclosures About Market Risk                                       |  | 93  
|                              |  | Loan Servicing                                                                                   |  | 96  
|                              |  | Off-Balance Sheet Arrangements and Aggregate Contractual Obligations                             |  | 97  
|                              |  | Prospective Trends                                                                               |  | 99  
|                              |  | Regulatory Trends                                                                                |  | 102 
|                              |  | Accounting Developments                                                                          |  | 103 
|                              |  | Factors That May Affect Our Future Results                                                       |  | 104 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                       |  | 106 
|Item 4.                       |  | Controls and Procedures                                                                          |  | 106 
|PART II. OTHER INFORMATION    |  | 107                                                                                             
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                      |  | 107 
|Item 6.                       |  | Exhibits                                                                                         |  | 107 

---





PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                                                                                      |                                            | March 31,
2008 |            | December 31,
2007 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------- | ---------- | ----------------- | -
|
|
|ASSETS                                                                                                                                                                                                                                                                                |                                            |                |            |                   |  
|Cash                                                                                                                                                                                                                                                                                  |                                            | $              | 9,014,340  |                   | $
|Mortgage loans held for sale (includes $11,484,414 carried at estimated fair value at March 31, 2008)                                                                                                                                                                                 |                                            |                | 15,653,390 |                   |  
|Trading securities owned, at estimated fair value                                                                                                                                                                                                                                     |                                            |                | 14,101,304 |                   |  
|Trading securities pledged as collateral, at estimated fair value                                                                                                                                                                                                                     |                                            |                | 3,358,767  |                   |  
|Securities purchased under agreements to resell, securities borrowed and federal funds sold                                                                                                                                                                                           |                                            |                | 7,786,346  |                   |  
|Loans held for investment, net of allowance for loan losses of $3,351,304 and $2,399,491 at March 31, 2008 and December 31, 2007, respectively                                                                                                                                        |                                            |                | 95,264,500 |                   |  
|Investments in other financial instruments, at estimated fair value                                                                                                                                                                                                                   |                                            |                | 20,903,537 |                   |  
|Mortgage servicing rights, at estimated fair value                                                                                                                                                                                                                                    |                                            |                | 17,154,574 |                   |  
|Premises and equipment, net                                                                                                                                                                                                                                                           |                                            |                | 1,582,483  |                   |  
|Other assets                                                                                                                                                                                                                                                                          |                                            |                | 14,198,552 |                   |  
|                                                                                                                                                                                                                                                                                      |                                            |                |            |                   |  
|                                                                                                                                                                                                                                                                                      | Total assets                               |                | $          | 199,017,793       |  
|                                                                                                                                                                                                                                                                                      |                                            |                |            |                   |  
|LIABILITIES                                                                                                                                                                                                                                                                           |                                            |                |            |                   |  
|Deposit liabilities                                                                                                                                                                                                                                                                   |                                            | $              | 63,293,392 |                   | $
|Securities sold under agreements to repurchase                                                                                                                                                                                                                                        |                                            |                | 17,862,890 |                   |  
|Trading securities sold, not yet purchased, at estimated fair value                                                                                                                                                                                                                   |                                            |                | 2,180,954  |                   |  
|Notes payable (includes $1,692,472 carried at estimated fair value at March 31, 2008)                                                                                                                                                                                                 |                                            |                | 87,651,431 |                   |  
|Accounts payable and accrued liabilities                                                                                                                                                                                                                                              |                                            |                | 11,641,310 |                   |  
|Income taxes payable                                                                                                                                                                                                                                                                  |                                            |                | 3,232,760  |                   |  
|                                                                                                                                                                                                                                                                                      |                                            |                |            |                   |  
|                                                                                                                                                                                                                                                                                      | Total liabilities                          |                |            | 185,862,737       |  
|                                                                                                                                                                                                                                                                                      |                                            |                |            |                   |  
|Commitments and contingencies                                                                                                                                                                                                                                                         |                                            |                |           |                   |  
|SHAREHOLDERS' EQUITY                                                                                                                                                                                                                                                                  |                                            |                |            |                   |  
|Preferred stock, par value $0.05authorized, 1,500,000 shares; issued and outstanding at March 31, 2008 and December 31, 2007, 20,000 shares of 7.25% Series B non-voting convertible cumulative shares
with a total liquidation preference of $2,000,000                             |                                            |                | 1          |                   |  
|Common stock, par value $0.05authorized, 1,000,000,000 shares; issued, 581,113,066 shares and 578,881,566 shares at March 31, 2008 and December 31, 2007, respectively; outstanding, 580,603,314 shares and
578,434,243 shares at March 31, 2008 and December 31, 2007, respectively |                                            |                | 29,056     |                   |  
|Additional paid-in capital                                                                                                                                                                                                                                                            |                                            |                | 4,186,868  |                   |  
|Retained earnings                                                                                                                                                                                                                                                                     |                                            |                | 9,662,386  |                   |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                                                  |                                            |                | (723,255   | )                 |  
|                                                                                                                                                                                                                                                                                      |                                            |                |            |                   |  
|                                                                                                                                                                                                                                                                                      | Total shareholders' equity                 |                |            | 13,155,056        |  
|                                                                                                                                                                                                                                                                                      |                                            |                |            |                   |  
|                                                                                                                                                                                                                                                                                      | Total liabilities and shareholders' equity |                | $          | 199,017,793       |  
|                                                                                                                                                                                                                                                                                      |                                            |                |            |                   |  

The
accompanying notes are an integral part of these consolidated financial statements.

1

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                    |                                                                                            | Quarters Ended March 31,                                                                       |           
|----------------------------------- | ------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | ----------
|
|
|Revenues                            |                                                                                            |                                                                                                |           
|                                    | Gain on sale of loans and securities                                                       |                                                                                                | $         
|                                    | Interest income                                                                            |                                                                                                |           
|                                    | Interest expense                                                                           |                                                                                                |           
|                                    |                                                                                            |                                                                                                |           
|                                    |                                                                                            | Net interest income                                                                            |           
|                                    | Provision for loan losses                                                                  |                                                                                                |           
|                                    |                                                                                            |                                                                                                |           
|                                    |                                                                                            | Net interest (expense) income after provision for loan losses                                  |           
|                                    |                                                                                            |                                                                                                |           
|                                    | Loan servicing fees and other income from mortgage servicing rights and retained interests |                                                                                                |           
|                                    | Realization of expected cash flows from mortgage servicing rights                          |                                                                                                |           
|                                    | Change in fair value of mortgage servicing rights                                          |                                                                                                |           
|                                    | Impairment of retained interests                                                           |                                                                                                |           
|                                    | Servicing Hedge gains (losses)                                                             |                                                                                                |           
|                                    |                                                                                            |                                                                                                |           
|                                    |                                                                                            | Net loan servicing fees and other income from mortgage servicing rights and retained interests |           
|                                    |                                                                                            |                                                                                                |           
|                                    | Net insurance premiums earned                                                              |                                                                                                |           
|                                    | Other                                                                                      |                                                                                                |           
|                                    |                                                                                            |                                                                                                |           
|                                    |                                                                                            | Total revenues                                                                                 |           
|                                    |                                                                                            |                                                                                                |           
|Expenses                            |                                                                                            |                                                                                                |           
|                                    | Compensation                                                                               |                                                                                                |           
|                                    | Occupancy and other office                                                                 |                                                                                                |           
|                                    | Insurance claims                                                                           |                                                                                                |           
|                                    | Advertising and promotion                                                                  |                                                                                                |           
|                                    | Other                                                                                      |                                                                                                |           
|                                    |                                                                                            |                                                                                                |           
|                                    |                                                                                            | Total expenses                                                                                 |           
|                                    |                                                                                            |                                                                                                |           
|(Loss) earnings before income taxes |                                                                                            |                                                                                                | (1,492,227
|                                    | (Benefit) provision for income taxes                                                       |                                                                                                |           
|                                    |                                                                                            |                                                                                                |           
|                                    |                                                                                            | NET (LOSS) EARNINGS                                                                            |           
|                                    |                                                                                            |                                                                                                |           
|(Loss) earnings per share           |                                                                                            |                                                                                                |           
|                                    | Basic                                                                                      |                                                                                                | $         
|                                    | Diluted                                                                                    |                                                                                                | $         

The
accompanying notes are an integral part of these consolidated financial statements.

2

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                              |                                                |                                                                |                            | Common Stock |             |   |   |        |   | Accumulated
Other
Comprehensive
Income (Loss) |           |   |  
|------------------------------------------------------------- | ---------------------------------------------- | -------------------------------------------------------------- | -------------------------- | ------------ | ----------- | - | - | ------ | - | --------------------------------------------- | --------- | - | -
|
|
|
|
|Balance at December 31, 2006                                  |                                                | $                                                              |                           |              | 585,182,298 |   | $ | 29,273 |   | $                                             | 2,154,438 |   | $
|Remeasurement of income taxes payable upon adoption of FIN 48 |                                                |                                                                |                           |              |            |   |   |       |   |                                               |          |   |  
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|Balance as adjusted, January 1, 2007                          |                                                |                                                                |                           |              | 585,182,298 |   |   | 29,273 |   |                                               | 2,154,438 |   |  
|Comprehensive income:                                         |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|                                                              | Net earnings for the period                    |                                                                |                            |             |             |  |   |        |  |                                               |           |  |  
|                                                              | Other comprehensive income (loss), net of tax: |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|                                                              |                                                | Net unrealized losses from available-for-sale securities       |                            |              |            |   |  |        |   |                                              |           |   | 
|                                                              |                                                | Net change in foreign currency translation adjustment          |                            |              |            |   |  |        |   |                                              |           |   | 
|                                                              |                                                | Change in unfunded liability relating to defined benefit plans |                            |              |            |   |  |        |   |                                              |           |   | 
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|                                                              |                                                |                                                                | Total comprehensive income |              |             |   |   |        |   |                                               |           |   |  
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|Issuance of common stock pursuant to stock-based compensation |                                                |                                                                |                           |              | 5,717,442   |   |   | 292    |   |                                               | 116,035   |   |  
|Excess tax benefit related to stock-based compensation plans  |                                                |                                                                |                           |              |            |   |   |       |   |                                               | 38,513    |   |  
|Issuance of common stock, net of treasury stock               |                                                |                                                                |                           |              | 301,802     |   |   | 15     |   |                                               | 11,774    |   |  
|Cash dividends paid$0.15 per common share                    |                                                |                                                                |                           |              |            |   |   |       |   |                                               |          |   |  
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|Balance at March 31, 2007                                     |                                                | $                                                              |                           |              | 591,201,542 |   | $ | 29,580 |   | $                                             | 2,320,760 |   | $
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|Balance at December 31, 2007                                  |                                                | $                                                              | 1                          |              | 578,434,243 |   | $ | 28,944 |   | $                                             | 4,155,724 |   | $
|Cumulative effect of adoption of SFAS 159                     |                                                |                                                                |                           |              |            |   |   |       |   |                                               |          |   |  
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|Balance as adjusted, January 1, 2008                          |                                                |                                                                | 1                          |              | 578,434,243 |   |   | 28,944 |   |                                               | 4,155,724 |   |  
|Comprehensive income:                                         |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|                                                              | Net loss for the period                        |                                                                |                            |             |             |  |   |        |  |                                               |           |  |  
|                                                              | Other comprehensive income (loss), net of tax: |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|                                                              |                                                | Net unrealized losses from available-for-sale securities       |                            |              |            |   |  |        |   |                                              |           |   | 
|                                                              |                                                | Net change in foreign currency translation adjustment          |                            |              |            |   |  |        |   |                                              |           |   | 
|                                                              |                                                | Change in unfunded liability relating to defined benefit plans |                            |              |            |   |  |        |   |                                              |           |   | 
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|                                                              |                                                |                                                                | Total comprehensive loss   |              |             |   |   |        |   |                                               |           |   |  
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|Issuance of common stock pursuant to stock-based compensation |                                                |                                                                |                           |              | 1,832,058   |   |   | 93     |   |                                               | 29,868    |   |  
|Excess tax benefit related to stock-based compensation plans  |                                                |                                                                |                           |              |            |   |   |       |   |                                               | (1,027    | ) |  
|Issuance of common stock, net of treasury stock               |                                                |                                                                |                           |              | 337,013     |   |   | 19     |   |                                               | 2,303     |   |  
|Cash dividends paid$0.15 per common share                    |                                                |                                                                |                           |              |            |   |   |       |   |                                               |          |   |  
|Cash dividends paid$1,812.50 per preferred share             |                                                |                                                                |                           |              |            |   |   |       |   |                                               |          |   |  
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  
|Balance at March 31, 2008                                     |                                                | $                                                              | 1                          |              | 580,603,314 |   | $ | 29,056 |   | $                                             | 4,186,868 |   | $
|                                                              |                                                |                                                                |                            |              |             |   |   |        |   |                                               |           |   |  

The accompanying notes are an integral part of these consolidated financial statements.

3

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                      |                                                                                                                    | Quarters Ended March 31,                                                                          |                                                                                                  
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------
|
|
|
|Cash flows from operating activities: |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      | Net (loss) earnings                                                                                                |                                                                                                   | $                                                                                                
|                                      |                                                                                                                    | Adjustments to reconcile net (loss) earnings to net cash provided (used) by operating activities: |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   | Gain on sale of loans and securities                                                             
|                                      |                                                                                                                    |                                                                                                   | Accretion of discount on securities                                                              
|                                      |                                                                                                                    |                                                                                                   | Interest capitalized on loans                                                                    
|                                      |                                                                                                                    |                                                                                                   | Amortization of deferred premiums, discounts, fees and costs, net                                
|                                      |                                                                                                                    |                                                                                                   | Accretion of fair value adjustments and discount on notes payable                                
|                                      |                                                                                                                    |                                                                                                   | Change in fair value of hedged notes payable and related interest-rate and foreign-currency swaps
|                                      |                                                                                                                    |                                                                                                   | Amortization of deferred fees on time deposits                                                   
|                                      |                                                                                                                    |                                                                                                   | Provision for loan losses                                                                        
|                                      |                                                                                                                    |                                                                                                   | Changes in MSR value due to realization of expected cash flows from mortgage servicing rights    
|                                      |                                                                                                                    |                                                                                                   | Change in fair value of mortgage servicing rights                                                
|                                      |                                                                                                                    |                                                                                                   | Impairment of retained interests and accrual for funding obligation under rapid amortization     
|                                      |                                                                                                                    |                                                                                                   | Servicing Hedge (gain) losses                                                                    
|                                      |                                                                                                                    |                                                                                                   | Write-down of available-for-sale securities                                                      
|                                      |                                                                                                                    |                                                                                                   | Stock-based compensation expense                                                                 
|                                      |                                                                                                                    |                                                                                                   | Depreciation and other amortization                                                              
|                                      |                                                                                                                    |                                                                                                   | Provision for restructuring costs                                                                
|                                      |                                                                                                                    |                                                                                                   | Provision for deferred income taxes                                                              
|                                      |                                                                                                                    |                                                                                                   | Origination and purchase of loans held for sale                                                  
|                                      |                                                                                                                    |                                                                                                   | Proceeds from sale and principal repayments of loans held for sale                               
|                                      |                                                                                                                    |                                                                                                   | Decrease (increase) in trading securities                                                        
|                                      |                                                                                                                    |                                                                                                   | Increase in other assets                                                                         
|                                      |                                                                                                                    |                                                                                                   | (Decrease) increase in trading securities sold, not yet purchased, at fair value                 
|                                      |                                                                                                                    |                                                                                                   | Increase in accounts payable and accrued liabilities                                             
|                                      |                                                                                                                    |                                                                                                   | Decrease in income taxes payable                                                                 
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|Cash flows from investing activities: |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      | Decrease (increase) in securities purchased under agreements to resell, federal funds sold and securities borrowed |                                                                                                   |                                                                                                  
|                                      | (Additions) repayments to loans held for investment, net                                                           |                                                                                                   |                                                                                                  
|                                      | Additions to investments in other financial instruments                                                            |                                                                                                   |                                                                                                  
|                                      | Proceeds from sale and repayment of investments in other financial instruments                                     |                                                                                                   |                                                                                                  
|                                      | Proceeds from sale (purchases) of mortgage servicing rights, net                                                   |                                                                                                   |                                                                                                  
|                                      | Purchases of premises and equipment, net                                                                           |                                                                                                   |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      |                                                                                                                    | Net cash provided (used) by investing activities                                                  |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|Cash flows from financing activities: |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      | Net increase in deposit liabilities                                                                                |                                                                                                   |                                                                                                  
|                                      | Net (decrease) increase in securities sold under agreements to repurchase                                          |                                                                                                   |                                                                                                  
|                                      | Net (decrease) increase in short-term borrowings                                                                   |                                                                                                   |                                                                                                  
|                                      | Issuance of long-term debt                                                                                         |                                                                                                   |                                                                                                  
|                                      | Repayment of long-term debt                                                                                        |                                                                                                   |                                                                                                  
|                                      | Excess tax benefit related to stock-based compensation                                                             |                                                                                                   |                                                                                                  
|                                      | Issuance of common stock                                                                                           |                                                                                                   |                                                                                                  
|                                      | Payment of dividends                                                                                               |                                                                                                   |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      |                                                                                                                    | Net cash (used) provided by financing activities                                                  |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|Net increase (decrease) in cash       |                                                                                                                    |                                                                                                   | 203,941                                                                                          
|Cash at beginning of period           |                                                                                                                    |                                                                                                   | 8,810,399                                                                                        
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  
|                                      |                                                                                                                    | Cash at end of period                                                                             |                                                                                                  
|                                      |                                                                                                                    |                                                                                                   |                                                                                                  

The accompanying notes are an integral part of these consolidated financial statements.

4

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (Unaudited)

Note 1Basis of Presentation

Countrywide Financial Corporation ("Countrywide" or "CFC") is a holding company which, through its subsidiaries (collectively, the "Company"), is engaged in
mortgage lending and other real estate finance-related businesses, including mortgage banking, banking and mortgage warehouse lending, dealing in securities and insurance underwriting.

As
detailed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2008, and the Registration Statement on
Form S-4 of Bank of America Corporation ("Bank of America") filed on February 12, 2008, as amended by Amendment No. 1 filed on March 27, 2008 and Amendment
No. 2 filed on April 30, 2008, Countrywide entered into an agreement and plan of merger (the "Merger Agreement") with Bank of America. The Merger Agreement provides for Countrywide to
merge (the "Merger") with and into a wholly-owned merger subsidiary of Bank of America ("Merger Sub"), with Merger Sub continuing as the surviving company.

The
terms of the Merger Agreement provide for the conversion of each share of Countrywide common stock into 0.1822 of a share of Bank of America common stock. Consummation of the Merger,
which is currently anticipated to occur in the third quarter of 2008, is subject to certain conditions, including, among others, Countrywide stockholder and regulatory approvals.

The
Merger Agreement contains certain termination rights for Countrywide and Bank of America, applicable upon the occurrence of certain events specified in the Merger Agreement. The
Merger Agreement provides that, in the event of the termination of the Merger Agreement under specified circumstances, Countrywide may be required to pay Bank of America a termination fee equal to
$160 million.

The
Merger Agreement provides for both Countrywide and Bank of America to conduct their respective businesses in the ordinary course until the Merger is completed and not to take certain
actions during the period from the date of the Merger Agreement until the date of completion of the Merger.

The
accompanying consolidated financial statements have been prepared in compliance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial
information and with the Securities and Exchange Commission's instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by U.S. GAAP for complete financial statements.

In
preparing financial statements in compliance with U.S. GAAP, management is required to make estimates and assumptions that materially affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those
estimates.

In
the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the
quarter ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, including a description of
the Company's significant accounting policies, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2007 (the "2007 Annual Report").

5

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Certain
amounts reflected in the prior period consolidated financial statements have been reclassified to conform to the current year presentation.

Note 2Adoption of New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements,("SFAS 157"). SFAS 157 provides a framework for measuring fair value when such measurements are used for
accounting purposes. The framework focuses on an exit price in the principal (or, alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants.
SFAS 157 establishes a three-tiered fair value hierarchy based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices
for identical assets or liabilities in an active market and Level 3 representing estimated values based on significant unobservable inputs). Under SFAS 157, related disclosures are
segregated for assets and liabilities measured at fair value based on the level used within the hierarchy to determine their fair values. The Company adopted SFAS 157 on its effective date of
January 1, 2008 and there was no financial impact. However, as permitted under FASB Staff Position No. 157-2, "Effective Date of FASB Statement No. 157," the Company
elected to defer the application of SFAS 157 to certain nonfinancial assets and liabilities, which are not measured at fair value on a recurring basis, until January 1, 2009.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement No. 115,("SFAS 159"). SFAS 159 permits fair value accounting to be irrevocably elected for most
financial assets and liabilities on an individual contract basis at the time of acquisition or remeasurement event date. Upon adoption of SFAS 159, fair value accounting may also be elected for
existing financial assets and liabilities. For those instruments for which fair value accounting is elected, changes in fair value will be recognized in earnings and fees and costs associated with
origination or acquisition will be recognized as incurred rather than deferred. The Company adopted SFAS 159 on its effective date of January 1, 2008 and the financial impact upon
adoption was an increase in beginning retained earnings of $34.2 million. See Note 4Fair Valuefor further discussion.

In
April 2007, the FASB issued FASB Staff Position No. FIN 39-1,Amendment of FASB Interpretation No. 39, ("FSP
FIN 39-1"). FSP FIN 39-1 amends certain paragraphs of FASB Interpretation Number 39,Offsetting of Amounts Related to Certain
Contracts,an interpretation of APB Opinion No. 10 and FASB Statement No. 105("FIN 39") to permit a reporting entity to offset fair value
amounts recognized for the right to reclaim
cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting
arrangement. Upon adoption on the effective date of January 1, 2008, the Company changed its accounting policy to offset the right to reclaim or obligation to return cash collateral against
fair value amounts recognized for derivative instruments under master netting arrangements. Adoption of FSP FIN 39-1 resulted in a reduction in total assets of $3.4 billion at
December 31, 2007.

In
November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109 ("SAB 109"). SAB 109 supersedes Staff Accounting Bulletin
No. 105 ("SAB 105"),Application of Accounting Principles to Loan Commitments. It clarifies that the expected net future cash flows
related to the servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. However, it retains the guidance in

6

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

SAB 105
that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment. The guidance is effective on a prospective basis to
derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. This guidance generally has resulted in higher fair values being recorded upon initial
recognition of derivative interest rate lock commitments. The initial and subsequent changes in value of interest rate lock commitments are a component of gain on sale of loans and securities. The
effect of the adoption of SAB 109 was to increase gain on sale of loans and securities by $357.7 million. This amount represents the revenue recognized at the time the loan commitment
was issued that is included in the value of the interest rate lock commitments or Mortgage Loan Inventory at March 31, 2008.

Note 3(Loss) Earnings Per Share

Basic (loss) earnings per share is determined using net (loss) earnings (adjusted for dividends declared on preferred stock) divided by the weighted-average
common shares outstanding during the period. Diluted earnings per share is computed by dividing net (loss) earnings attributable to common shareholders by the weighted-average shares outstanding,
assuming all dilutive potential common shares were issued.

The
Company has potentially dilutive shares in the form of employee stock-based compensation instruments, convertible debentures and convertible preferred stock. As detailed in
Note 15Notes PayableConvertible Debentures, included in the consolidated financial statements of the 2007 Annual
Report, in May 2007, the Company issued two series of convertible debentures totaling $4.0 billion.

As
detailed in Note 18Shareholders' EquitySeries B Convertible Preferred Stock, included in the
consolidated financial statements of the 2007 Annual Report, the Company issued $2.0 billion of convertible preferred stock on August 22, 2007.

7

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

The
following table summarizes the basic and diluted (loss) earnings per share calculations for the periods indicated:

Quarters Ended
March 31,2008

2007(in thousands, except per share data)Net (loss) earnings:Net (loss) earnings

$
(893,053
)
$
433,981Dividends on convertible preferred stock


(36,250
)

Net (loss) earnings attributable to common shareholders

$
(929,303
)
$
433,981Weighted-average shares outstanding:Basic weighted-average number of common shares outstanding


579,339


588,158Effect of dilutive securities:Dilutive stock-based compensation instruments





14,079Accelerated share repurchase program





763Diluted weighted-average number of common shares outstanding


579,339


603,000Net (loss) earnings per common share:Basic (loss) earnings per share

$
(1.60
)
$
0.74Diluted (loss) earnings per share

$
(1.60
)
$
0.72


Due
to the loss attributable to common shareholders for the quarter ended March 31, 2008, no potentially dilutive shares are included in loss per share calculation as including
such shares in the calculation would be anti-dilutive. During the quarter ended March 31, 2007, stock appreciation rights and options to purchase 10,000 shares, were outstanding but not
included in the computation of diluted earnings per share because they were anti-dilutive.

Note 4Fair Value

The Company's financial statements include assets and liabilities that are measured based on their estimated fair values. The application of fair value estimates
may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated
fair value as discussed in the following paragraphs.

Effective
January 1, 2008, the Company adopted two pronouncements affecting the Company's fair value measurements and accounting: SFAS 157 and SFAS 159.

SFAS 157
defines and establishes a framework for measuring fair value. SFAS 157 requires that fair value estimates be based on an exit price in the principal or the most
advantageous market accessible in an orderly transaction between willing market participants. SFAS 157 establishes a three-

8

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

tiered
fair value hierarchy that prioritizes the inputs used to estimate fair value into three broad levels, considering the relative reliability of the inputs:



SFAS 159
permits fair value accounting to be elected for certain assets and liabilities on an individual contract basis at the time of acquisition or under certain other
circumstances referred to as "remeasurement event dates." For those items for which fair value accounting is elected, changes in fair value will be recognized in earnings, and fees and costs
associated with the origination or acquisition of such items will be recognized as incurred rather than deferred. In addition, SFAS 159 allows application of the Statement's provisions to
eligible items existing at the effective date and management has elected to apply SFAS 159 to certain of those items as discussed below.

Transition Adjustment

Management identified existing mortgage loans held for sale and commitments to purchase mortgage loans within the Capital Markets Segment to be accounted for at
estimated fair value for consistency with its peers who generally use fair value accounting as well as to reduce the burden of compliance with the requirements for hedge accounting. Such loans
represented 2% of mortgage loans held for sale at the time of adoption of SFAS 159.

Management
elected to account for certain outstanding asset-backed secured financings and the mortgage loans securing such financings at their estimated fair values to eliminate
potential timing differences between recognition of changes in the estimated fair value of the loans securing these borrowings (which had been recorded at the lower of cost or estimated fair value)
and the estimated fair value of the borrowings (which had been recorded at amortized cost). This election was made for mortgage-backed secured financings collateralized by mortgage loans where the
secondary market for the securities backed by the loans was disrupted. Such borrowings represented 25% of mortgage-backed secured financings and the mortgage loans securing such borrowings represented
23% of mortgage loans held for sale at the time of adoption.

Management
elected fair value accounting for those portions of its investments in municipal bonds included in its available for sale securities investment portfolio managed by
nonaffiliated investment managers to improve the operational efficiency of using investment managers. Such investments represented 1% of the securities investment portfolio at the time of adoption.

9

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

As
a result of these elections, the Company recorded a $34.2 million cumulative effect adjustment to opening retained earnings as summarized below:

Carrying Value Before Adoption

Transition Adjustments to Retained Earnings Gain/(Loss)

Transition Adjustments to Other Comprehensive Income

Carrying Value After Adoption(in thousands)Assets:Mortgage loans held for sale(1)

$
2,897,216

$
237




$
2,897,453Investments in other financial instruments:Investment securities


244,902


2,197

$
(2,197
)

244,902Interest rate lock commitments(2)





432





432Total assets

$
3,142,118







$
3,142,787Liabilities:Notes payable:Asset-backed secured
financings

$
2,353,250


51,060




$
2,302,190Accounts payable and accrued liabilities:Interest rate lock commitments(2)


51


51





Total liabilities

$
2,353,301







$
2,302,190Pre-tax cumulative-effect of adoption of the fair value option





53,977Deferred tax expense





(19,728
)Cumulative effect of adoption of the fair value option




$
34,249


---

Prospective Fair Value Accounting Elections

Management identified certain new mortgage loans originated or purchased for sale in the Mortgage Banking Segment to be accounted for at estimated fair value so
the changes in the fair value of such loans will be reflected in earnings as they occur to match the accounting applied to related hedging instruments, as well as to reduce the burden of compliance
with the requirements for hedge accounting. The mortgage loans identified were those that have an existing active market (primarily

10

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

agency-eligible
mortgage loans). Such loans represented 86% of mortgage loans originated or purchased and held for sale during the quarter ended March 31, 2008.

Fair Value Measurements

Gains and losses from changes in estimated fair values included in earnings for the quarter ended March 31, 2008 of financial statement items carried at
estimated fair value pursuant to the fair value option are summarized below:

Gain (Loss) on Sale of Loans and Securities(in thousands)Assets:Mortgage loans held for sale at fair value(1)

$
(369,558
)Investments in other financial instruments:Investment securities


3,248Interest rate lock commitments


(1,484
)Liabilities:Notes Payable:Asset-backed secured financings


351,160


---

Following
is the fair value and related principal amount due upon maturity of assets and liabilities accounted for under the fair value option as of March 31, 2008:

Fair Value

Principal Amount Due Upon Maturity

Difference(in thousands)Assets:Mortgage loans held for sale:Current through 89 days delinquent

$
11,328,610

$
11,705,185

$
(376,575
)90 or more days delinquent


155,804


311,092


(155,288
)Investments in financial instruments:Investment securities


361,165


337,355


23,810Liabilities:Notes Payable:Asset-backed secured financings


1,692,472


2,118,179


425,707


11

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Following
is a summary of financial statement items that are measured at estimated fair value on a recurring basisincluding assets measured under the fair value option as of
March 31, 2008:

|             |                                             | Level 1                           |   | Level 2   |         | Level 3 |            | Netting Adjustments (1) |   | Total     
|------------ | ------------------------------------------- | --------------------------------- | - | --------- | ------- | ------- | ---------- | ----------------------- | - | ----------
|
|Assets:      |                                             |                                   |   |           |         |         |            |                         |   |           
|             | Mortgage loans held for sale                |                                   | $ |          |         | $       | 9,073,370  |                         | $ | 2,411,044 
|             | Trading securities                          |                                   |   | 2,078,174 |         |         | 17,142,362 |                         |   | 1,346,992 
|             | Investments in other financial instruments: |                                   |   |           |         |         |            |                         |   |           
|             |                                             | Investment securities             |   |           | 320,413 |         |            | 2,325,802               |   |           
|             |                                             | Retained interests                |   |           |        |         |            |                        |   |           
|             |                                             | Interest rate lock commitments(2) |   |           |        |         |            |                        |   |           
|             |                                             | Other derivative instruments      |   |           | 94,904  |         |            | 5,609,091               |   |           
|             | Mortgage servicing rights                   |                                   |   |          |         |         |           |                         |   | 17,154,574
|Liabilities: |                                             |                                   |   |           |         |         |            |                         |   |           
|             | Trading securities sold, not yet purchased  |                                   |   | 2,009,411 |         |         | 3,122,917  |                         |   |          
|             | Notes Payable:                              |                                   |   |           |         |         |            |                         |   |           
|             |                                             | Asset-backed secured financings   |   |           |        |         |            |                        |   |           
|             | Accounts payable and accrued liabilities:   |                                   |   |           |         |         |            |                         |   |           
|             |                                             | Interest rate lock commitments(2) |   |           |        |         |            |                        |   |           
|             |                                             | Other derivative instruments      |   |           |        |         |            | 1,925,286               |   |           

---

12

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Following is a summary of changes in balance sheet line items measured using Level 3 inputs:

|                                                                                     |                                           |                                        |           |          |          | Investments in Other
Financial Instruments |          |          |            |          |         
|------------------------------------------------------------------------------------ | ----------------------------------------- | -------------------------------------- | --------- | -------- | -------- | ------------------------------------------ | -------- | -------- | ---------- | -------- | --------
|
|
|Assets:                                                                              |                                           |                                        |           |          |          |                                            |          |          |            |          |         
|Balance, December 31,
2007                                                           |                                           | $                                      | 3,480,673 |          | $        | 1,924,558                                  |          | $        | 16,330,950 |          | $       
|                                                                                     | Impact of SFAS 157 and SFAS 159 adoption  |                                        |           | 237      |          |                                            |         |          |            |         |         
|                                                                                     |                                           |                                        |           |          |          |                                            |          |          |            |          |         
|Balance, January 1, 2008                                                             |                                           |                                        | 3,480,910 |          |          | 1,924,558                                  |          |          | 16,330,950 |          |         
|                                                                                     | Total gains (losses):                     |                                        |           |          |          |                                            |          |          |            |          |         
|                                                                                     |                                           | Included in earnings                   |           |          | (458,183 | )                                          |          | (204,945 | )          |          | (34,032 
|                                                                                     |                                           | Included in other comprehensive income |           |          |         |                                            |          |         |            |          | (928,065
|                                                                                     | Purchases, issuances and settlements      |                                        |           | (527,549 | )        |                                            | (372,621 | )        |            | (710,755 | )       
|                                                                                     | Transfers to mortgage loans held for sale |                                        |           |          |          |                                            |          |          |            |          |         
|                                                                                     |                                           |                                        | Level 2   |          |          |                                           |          |          |           |          |         
|                                                                                     |                                           |                                        | Level 3   |          |          | (84,134                                    | )        |          |           |          |         
|                                                                                     |                                           |                                        |           |          |          |                                            |          |          |            |          |         
|Balance, March 31, 2008                                                              |                                           | $                                      | 2,411,044 |          | $        | 1,346,992                                  |          | $        | 14,658,098 |          | $       
|                                                                                     |                                           |                                        |           |          |          |                                            |          |          |            |          |         
|Changes in unrealized gains (losses) relating to assets still held at March 31, 2008 |                                           | $                                      | (476,327  | )        | $        | (163,756                                   | )        | $        | (33,998    | )        | $       
|                                                                                     |                                           |                                        |           |          |          |                                            |          |          |            |          |         

|
|

|                                                                                |                                          | Notes Payable:
Asset-Backed Secured Financings |          
|------------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------- | ---------
|
|Liabilities:                                                                    |                                          |                                                |          
|Balance, December 31, 2007                                                      |                                          | $                                              | 2,353,250
|                                                                                | Impact of SFAS 157 and SFAS 159 adoption |                                                |          
|                                                                                |                                          |                                                |          
|Balance, January 1, 2008                                                        |                                          |                                                | 2,302,190
|                                                                                | Total gains:                             |                                                |          
|                                                                                |                                          | Included in earnings                           |          
|                                                                                | Purchases, issuances and settlements     |                                                |          
|                                                                                |                                          |                                                |          
|Balance, March 31, 2008                                                         |                                          | $                                              | 1,692,472
|                                                                                |                                          |                                                |          
|Change in unrealized gains relating to liabilities still held at March 31, 2008 |                                          | $                                              | 351,116  
|                                                                                |                                          |                                                |          

Gains and losses from changes in the estimated fair value of mortgage loans held for sale, IRLCs, trading securities and asset-backed secured
financings are included in gain on sale of loans and securities. Gains and losses from changes in the estimated fair value of investment securities are included in other income. Gains and losses from
changes in the estimated fair value of retained interests are included in impairment of retained interests. Gains and losses from changes in the

13

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

estimated
fair value of mortgage servicing rights are included in realization of expected cash flows from mortgage servicing rights and change in fair value of mortgage servicing rights.



For a complete discussion of valuation techniques used to value financial instruments, refer to Note 19Fair Value of
Financial Instrumentsin the consolidated financial statements thereto included in the Company's 2007 Annual Report. The following describes the methods used by the Company in
estimating the fair values of Level 3 financial statement items:



The Company estimates the fair value of Level 3 loans held for sale based on relevant factors, including dealer price quotations, whole loan bid sheets,
prices available for similar securities, and valuation models intended to approximate the amounts that would be received from a third party. These techniques and related assumptions are used to
approximate the whole loan price that would be received from an unaffiliated buyer.

The
Company regularly compares the values developed from our valuation models to executed trades to assure that the valuations are reflective of actual sale prices. However, due to the
illiquidity of the mortgage marketplace prevalent at March 31, 2008, which resulted in a lack of executed trades that could be used to assure that the valuations are reflective of fair value,
it was necessary to look for alternative sources of value, including the whole loan purchase market for similar loans, and to apply more judgment to the valuations of non-conforming prime,
home equity and nonprime loans, which represented approximately 23% of mortgage loans originated or purchased for resale excluding loans secured by commercial real estate at March 31, 2008.



Level 3 trading securities primarily represent collateralized mortgage obligations for which fair value is estimated using valuation models and observable
and unobservable assumptions intended to approximate the amounts that would be received from an unaffiliated buyer.



14

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The Company estimates the fair value of its MSRs using a process that combines the use of a discounted cash flow model and analysis of current market data to
arrive at an estimate of fair value at each balance sheet date. The cash flow assumptions (which consider only contractual cash flows) and prepayment assumptions used in Countrywide's discounted cash
flow model are based on market

15

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

factors
and encompass the historical performance of our MSRs, which management believes are consistent with assumptions and data used by market participants valuing similar MSRs. The key assumptions
used in the valuation of MSRs include mortgage prepayment speeds and discount rates (projected London Inter Bank Offering Rate ("LIBOR") plus option-adjusted spread). These variables can, and
generally do, change from quarter to quarter as market conditions and projected interest rates change. The current market data utilized in the MSR valuation process and in the assessment of the
reasonableness of the MSR valuation are obtained from peer group MSR valuation surveys, MSR market trades, MSR broker valuations and prices of interest-only securities.

The
cash flow model and underlying prepayment and interest rate models used to value the MSRs are subjected to validation in accordance with the Company's model validation policies. This
process includes review of the theoretical soundness of the models and the related development process, back testing of actual results to model predictions, benchmarking to commercially available
models and ongoing performance monitoring.



The Company estimates the fair value of Level 3 asset-backed secured financings based on relevant factors expected to reflect the amounts that would be
received by an unaffiliated seller of the financings from an unaffiliated buyer, including dealer price quotations, prices available for similar instruments, and valuation models.

Mortgage
loans held for sale which are not accounted for at estimated fair value under SFAS 159 are recorded initially at the principal amount outstanding adjusted for any
purchase premiums or discounts and the fair value of any related loan commitments at the time of origination. Subsequent to origination or purchase, mortgage loans held for sale are carried at the
aggregate lower of cost or estimated fair value. When a loan is transferred between balance sheet categories (i.e. held for sale and held for investment) it is transferred at the lower of cost
or estimated fair value at the time of transfer.
Fair value is estimated using the same approach as discussed in the approach to valuation of mortgage loans held for sale discussed in Note 6Mortgage Loans
Held for Sale.

Following
is a summary of items that are measured at estimated fair value on a nonrecurring basis at period end or during the quarter ended March 31, 2008:

|              |                                                                                     | Level 1 |   | Level 2 |  | Level 3 |           | Total |   | Gain (Loss) | 
|------------- | ----------------------------------------------------------------------------------- | ------- | - | ------- |  | ------- | --------- | ----- | - | ----------- | 
|
|Period end:   |                                                                                     |         |   |         |  |         |           |       |   |             | 
|              | Mortgage loans held for sale                                                        |         | $ |        |  | $       | 1,419,505 |       | $ | 2,749,471   | 
|Transactions: |                                                                                     |         |   |         |  |         |           |       |   |             | 
|              | Mortgage loans held for sale transferred from mortgage loans held for investment(1) |         | $ |        |  | $       | 363,354   |       | $ | 2,042,953   | 
|              | Mortgage loans held for investment transferred from mortgage loans held for sale    |         | $ |        |  | $       | 1,058,803 |       | $ | 14,872      | 

---

16

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



During the first quarter of 2008, management observed continued disruption in the mortgage markets. As a result of this development, management updated its
estimates of the fair value of financial instruments subject to the disclosure requirements of Statement of Financial Accounting Standards No. 107,Disclosures about
Fair Value of Financial Instruments, not otherwise included above:

March 31, 2008

December 31, 2007Carrying Amount

Estimated Fair Value

Carrying Amount

Estimated Fair Value(in thousands)Assets:Securities purchased under agreements to resell, securities borrowed and federal funds sold

$
7,786,346

$
7,760,488

$
9,640,879

$
9,626,088Loans held for investment


95,264,500


87,420,372


98,000,713


92,699,625Liabilities:Deposit liabilities


63,293,392


63,757,523


60,200,599


60,452,898Securities sold under agreements to repurchase


17,862,890


17,840,237


18,218,162


18,193,563Notes payable


85,958,959


79,447,343


97,227,413


85,931,899


The
preceding disclosure of the estimated fair value of financial instruments as of March 31, 2008 and December 31, 2007, is made by the Company using available market
information and valuation methods which management believes are appropriate for each instrument. In some cases, considerable judgment is required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or
estimation methods may have a material effect on the estimated fair value amounts.

The
fair value estimates as of March 31, 2008 and December 31, 2007 were based on pertinent information that was available to management as of the respective dates. Such
amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts
presented herein.

Note 5Derivative Financial Instruments

Derivative Financial Instruments

A significant market risk facing the Company is interest rate risk, which includes the risk that changes in market interest rates will result in unfavorable
changes in the value of our assets or liabilities ("price risk") and the risk that net interest income from our mortgage loan and investment portfolios will change in response to changes in interest
rates. This risk includes both changes in "risk-free" rates (usually the U.S. Treasury rate for an asset of the same duration) and changes in the premiums to risk-free rates of
return required by investors, which may be the result of liquidity and/or investor perceptions of risk ("Market Spread"). The overall objective of the Company's interest rate risk management
activities is to reduce the variability of earnings caused by changes in interest rates.

17

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

The
Company manages interest rate risk with derivative financial instruments and by the structure of its activities as follows:



Risk Management Activities Related to Mortgage Loan Inventory and Interest Rate Lock Commitments

To manage the price risk associated with the IRLCs, the Company generally uses a combination of net forward sales of Mortgage-Backed Securities ("MBS") and put
and call options on MBS, Treasury futures and Eurodollar futures. The Company generally enters into forward sales of MBS in an amount equal to the portion of the IRLCs expected to close, assuming no
change in mortgage interest rates. The Company acquires put and call options to protect against the variability of loan closings caused by changes in mortgage rates. The Company may enter into credit
default swaps or similar instruments as part of its management of Market Spread risk.

The
Company manages the price risk related to the Mortgage Loan Inventory primarily by entering into forward sales of MBS and Eurodollar futures. The value of these forward MBS sales and
Eurodollar futures moves in opposite direction to the value of the Mortgage Loan Inventory. The Company may enter into credit default swaps or similar instruments as part of its management of Market
Spread-driven changes associated with its Mortgage Loan Inventory. The Company actively manages the risk profiles of its IRLCs and Mortgage Loan Inventory on a daily basis.

The
Company manages the price risk related to its commercial mortgage loans using interest rate swaps, total rate of return and credit default swaps.

18

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

During
the quarter ended March 31, 2008, the interest rate risk management activities associated with 13% of the fixed-rate mortgage loan inventory and 11% of the
adjustable-rate mortgage loan inventory were accounted for as fair value hedges. These percentages decreased from prior periods because the Company began accounting for a substantial
portion of its inventory at its estimated fair value. For the quarters ended March 31, 2008 and 2007, the Company recognized pre-tax losses of $12.9 million and
$6.2 million, respectively, representing the ineffective portion of the hedges of its Mortgage Loan Inventory that qualified as fair value hedges.

Risk Management Activities Related to Mortgage Servicing Rights and Retained Interests

To moderate the impact on earnings caused by a rate-driven decline in fair value of its MSRs and retained interests from securitization, the Company
maintains a portfolio of financial instruments, including derivatives and securities, which generally increase in value when interest rates decline. During early 2007, the Company used credit-related
derivative financial instruments to moderate the negative impact on earnings caused by a Market Spread-driven decline in fair value. This portfolio of financial instruments is collectively referred to
as the "Servicing Hedge."

The
following table summarizes the activity for derivative contracts included in the Servicing Hedge expressed by notional amounts:

Balance,
December 31,
2007

Additions

Dispositions/
Expirations

Balance,
March 31,
2008(in millions)Interest rate swaptions

$
102,410

$
52,075

$
(69,720
)
$
84,765Interest rate swaps


47,675


44,741


(21,715
)

70,701Treasury futures


45,000


38,400


(50,000
)

33,400Call options on interest rates futures


15,500


49,500


(60,000
)

5,000Mortgage forward rate agreements


13,000


41,100


(9,000
)

45,100MBS forward contracts


9,500


47,250


(45,000
)

11,750Put options on interest rate futures





2,000


(2,000
)




Risk Management Activities Related to Issuance of Long-Term Debt

The Company has entered into interest rate swap contracts in which the rate received is fixed and the rate paid is adjustable and is indexed to LIBOR. These
interest rate swaps enable the Company to convert a portion of its fixed-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt (notional amount of
$2.3 billion as of March 31, 2008) and a portion of its foreign currency-denominated fixed and floating-rate, long-term debt to U.S. dollar LIBOR-based
floating-rate debt (notional amount of $4.0 billion as of March 31, 2008). These transactions are generally designated as fair value hedges. For the quarters ended
March 31, 2008 and 2007, the Company recognized pre-tax gains of $27.7 million and $8.0 million, respectively, representing the ineffective portion of its fair value
hedges of debt.

Risk Management Activities Related to Deposit Liabilities

The Company has entered into interest rate swap contracts that have the effect of converting a portion of its fixed-rate deposit liabilities to
LIBOR-based variable-rate deposit liabilities. These transactions are designated as fair value hedges. For the quarters ended March 31, 2008 and 2007, the Company recognized
pre-tax gains of $8.3 million and $1.3 million, respectively, representing the hedge ineffectiveness related to these contracts.

19

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Risk Management Activities Related to the Broker-Dealer Securities Trading Portfolio

In connection with its broker-dealer activities, the Company maintains a trading portfolio of fixed-income securities, primarily MBS. The Company is exposed to
price changes in its trading portfolio arising from interest rate changes during the period it holds the securities. To manage this risk, the Company utilizes derivative instruments including forward
sales/purchases of To-Be-Announced ("TBA") MBS, interest rate futures contracts, interest rate swaps, total rate of return swaps, put/call options on interest rate futures
contracts, interest rate caps, receiver swaptions, credit default swaps and forward rate agreements.

Note 6Mortgage Loans Held for Sale

Mortgage loans held for sale include the following:

March 31,
2008

December 31,
2007(in thousands)Mortgage loans carried at estimated fair value:Prime

$
9,112,579

$
Nonprime


1,940,606


Commercial real estate


431,229


11,484,414


Mortgage loans carried at lower of amortized cost or estimated fair value:Prime


3,567,859


7,815,880Commercial real estate


551,783


1,055,343Nonprime


171,142


3,038,980Prime home equity


33,064


82,131Deferred premiums, discounts, fees and costs, net


(36,765
)

(167,945
)Lower of cost or market valuation allowance


(118,107
)

(143,115
)4,168,976


11,681,274$
15,653,390

$
11,681,274


The
Company generally estimates the fair value of loans held for sale based on quoted market prices for securities backed by similar types of loans. If quoted market prices are not
available, fair value is estimated based on other relevant factors, including dealer price quotations, prices available for similar instruments, and valuation models intended to approximate the
amounts that would be received from a third party. We regularly compare the values developed from our valuation models to executed trades to assure that the valuations are reflective of actual sale
prices. However, due to the illiquidity of the mortgage marketplace prevalent at March 31, 2008, which resulted in a lack of executed trades that could be used to assure that the valuations are
reflective of fair value, it was necessary to look for alternative sources of value, including the whole loan purchase market for similar loans, and to apply more judgment to the valuations of
non-conforming prime, prime home equity and nonprime loans, which represented approximately 23% of mortgage loans held for sale excluding loans secured by commercial real estate at
March 31, 2008.

20

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

At
March 31, 2008, the Company had pledged mortgage loans held for sale with unpaid principal balances totaling $0.1 billion, $0.01 billion, $2.6 billion and
$0.8 billion to secure a secured revolving line of credit, securities sold under agreements to repurchase, collateral for asset-backed secured financings and to secure Federal Home Loan Bank
("FHLB") advances, respectively.

At
December 31, 2007, the Company had pledged mortgage loans held for sale with unpaid principal balances totaling $0.3 billion, $0.01 billion, $4.4 billion
and $0.8 billion to secure a secured revolving line of credit, securities sold under agreements to repurchase, collateral for asset-backed secured financings and to secure FHLB advances,
respectively.

Note 7Trading Securities and Trading Securities Sold, Not Yet Purchased

Trading securities, which consist of trading securities owned and trading securities pledged as collateral, include the following:

March 31,
2008

December 31,
2007(in thousands)Agency mortgage pass-through securities:Fixed-rate

$
13,642,971

$
13,480,019Adjustable-rate


21,975


287,249Total agency mortgage pass-through securities


13,664,946


13,767,268U.S. Treasury securities


1,242,062


3,974,806Collateralized mortgage obligations


1,051,198


1,988,054Interest-only securities


562,271


404,364Obligations of U.S. Government-sponsored enterprises


505,940


781,470Derivative financial instruments


205,984


231,587Asset-backed securities


162,937


121,582Mark-to-market on TBA securities


62,361


67,213Residual securities


1,813


857Other


559


5,406$
17,460,071

$
21,342,607


21

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Trading
securities by credit rating were as follows:

|                                                     |                 | March 31, 2008                               
|---------------------------------------------------- | --------------- | ---------------------------------------------
|
|
|
|Agency mortgage pass-through securities:             |                 |                                              
|                                                     | Fixed-rate      |                                              
|                                                     | Adjustable-rate |                                              
|                                                     |                 |                                              
|                                                     |                 | Total agency mortgage pass-through securities
|U.S. Treasury securities                             |                 |                                              
|Collateralized mortgage obligations                  |                 |                                              
|Interest-only securities                             |                 |                                              
|Obligations of U.S. Government-sponsored enterprises |                 |                                              
|Asset-backed securities                              |                 |                                              
|Residual securities                                  |                 |                                              
|Other                                                |                 |                                              
|                                                     |                 |                                              
|                                                     |                 | $                                            
|                                                     |                 |                                              

---

As
of March 31, 2008, $14.3 billion of the Company's trading securities had been pledged as collateral for financing purposes, of which the counterparty had the contractual
right to sell or re-pledge $3.4 billion.

As
of December 31, 2007, $15.4 billion of the Company's trading securities had been pledged as collateral for financing purposes, of which the counterparty had the
contractual right to sell or re-pledge $6.8 billion.

22

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Trading
securities sold, not yet purchased, include the following:

March 31,
2008

December 31,
2007(in thousands)U.S. Treasury securities

$
1,208,850

$
2,744,206Obligations of U.S. Government-sponsored enterprises


406,328


401,298Mark-to-market on TBA securities


393,513


196,733Derivative financial instruments


152,426


343,782Mortgage pass-through securities


18,157


Other


1,680


959$
2,180,954

$
3,686,978


Note 8Securities Purchased Under Agreements to Resell, Securities Borrowed and Federal Funds Sold

The following table summarizes securities purchased under agreements to resell, securities borrowed and federal funds sold:

March 31,
2008

December 31,
2007(in thousands)Securities purchased under agreements to resell

$
5,493,282

$
5,384,569Securities borrowed


1,718,064


928,857Federal funds sold


575,000


3,327,453$
7,786,346

$
9,640,879


As
of March 31, 2008, the Company had accepted collateral related to securities purchased under agreements to resell and securities borrowed with a fair value of
$34.6 billion, that it had the contractual ability to sell or re-pledge, including $24.9 billion related to amounts offset by securities sold under agreements to repurchase
under master netting arrangements. As of March 31, 2008, the Company had re-pledged $32.9 billion of such collateral for financing purposes.

The
Company has an informal agreement with one of its primary securities custodial banks to have on deposit adequate cash to ensure orderly clearance and settlement of securities and
financing transactions on the date of settlement. At March 31, 2008, Countrywide had $489.4 million on deposit with the custodial bank available to clear future transactions.

As
of December 31, 2007, the Company had accepted collateral related to securities purchased under agreements to resell and securities borrowed with a fair value of
$17.6 billion that it had the contractual ability to sell or re-pledge, including $9.0 billion related to amounts offset by securities sold under agreements to repurchase
under master netting arrangements. As of December 31, 2007, the Company had re-pledged $14.3 billion of such collateral for financing purposes.

23

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 9Loans Held for Investment, Net

Loans held for investment include the following:

March 31,
2008

December 31,
2007(in thousands)Mortgage loans:Banking Operations:Prime

$
53,084,595

$
52,258,640Prime home equity


33,478,420


34,103,449Nonprime


639,882


679,532Commercial real estate


175,617


245,84587,378,514


87,287,466Mortgage Banking:Prime


1,817,503


1,768,448Prime home equity


514,409


435,695Nonprime


1,907,752


2,045,8754,239,664


4,250,018Capital Marketscommercial real estate


20,000


20,000Total mortgage loans


91,638,178


91,557,484Defaulted FHA-insured and VA-guaranteed loans repurchased from securities


3,071,946


2,691,563Warehouse lending advances secured by mortgage loans


1,146,138


887,13495,856,262


95,136,181Premiums, discounts and deferred loan origination fees and costs, net


(378,880
)

(363,560
)Allowance for loan losses


(3,351,304
)

(2,399,491
)92,126,078


92,373,130Mortgage Loans Held in SPEs


3,138,422


5,627,583Loans held for investment, net

$
95,264,500

$
98,000,713


During
the quarter ended March 31, 2008, the Company transferred prime and prime home equity mortgage loans with an unpaid principal balance of $1.0 billion and
$0.1 billion, respectively, from mortgage loans held for sale to mortgage loans held for investment, as management made the decision in the first quarter of 2008 to hold those loans for the
foreseeable future. In connection with these transfers, impairment in the amount of $19.5 million was recorded as a component of gain on sale of loans and securities. Loans are transferred from
mortgage loans held for sale to mortgage loans held for investment when the Company makes the decision to hold such loans for the foreseeable future, which has been defined as the next twelve months,
and has made an assessment that the Company has the ability to hold them for that time.

Mortgage
loans with unpaid principal balances totaling $57.5 billion and $62.6 billion were pledged to secure FHLB advances and to enable additional borrowings from the
FHLB at March 31, 2008 and December 31, 2007, respectively.

24

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Mortgage
loans held for investment with unpaid principal balances totaling $8.8 billion and $6.0 billion were pledged to secure an unused borrowing facility with the
Federal Reserve Bank ("FRB") at March 31, 2008 and December 31, 2007, respectively.

Defaulted
FHA-insured and VA-guaranteed loans repurchased from securities totaling $1.2 billion and $1.3 billion were pledged to secure securities
sold under agreements to repurchase at March 31, 2008 and December 31, 2007, respectively.

Mortgage
loans with unpaid principal balances totaling $0.4 billion and $1.9 billion were pledged to secure a revolving line of credit at March 31, 2008 and
December 31, 2007, respectively.

Mortgage
loans held in special purpose entities ("SPEs") with carrying values totaling $3.1 billion and $5.6 billion were pledged to secure asset-backed secured financings
at March 31, 2008 and December 31, 2007, respectively. These assets were re-recognized on the Company's consolidated balance sheets at their estimated fair value after
management concluded that certain securities collateralized by these loans it had reacquired as part of its market-making activities would be held for an other-than-temporary
period. The carrying value of the mortgage loans held in SPEs includes fair value discounts of $539.4 million and $960.7 million at March 31, 2008 and December 31, 2007,
respectively.

As
of March 31, 2008 and December 31, 2007, the Company had accepted mortgage loan collateral of $1.2 billion and $1.0 billion, respectively, that it had the
contractual ability to re-pledge. The collateral secures warehouse lending advances.

The
Company modified loans for borrowers who were not otherwise able to refinance based on the terms provided under the modified loan. Other loans were modified to retain borrowers with
good payment history but the modifications were considered to represent concessions. These transactions were classified as troubled debt restructurings. The majority of these transactions involved
modifications of current loans from payment option adjustable-rate mortgage ("ARM") loans to payment advantage ARM loans with fixed interest rates for five years. However, because these modifications
were not comparable to market terms that would be offered if the modified loans were fully underwritten, the Company categorized these transactions as troubled debt restructurings. Accordingly, unless
the borrower had a history of making payments on a timely basis and the Company determined that payments under the modified terms were likely to continue to be received on a timely basis, these loans
were placed on nonaccrual status pending a satisfactory period of performance under the modified terms.

Troubled
debt restructurings at March 31, 2008 and December 31, 2007 totaled $461.8 million and $282.6 million, respectively, the majority of which were the
conversions of current payment-option ARM loans to payment-advantage ARM loans. Of the troubled debt restructurings, $415.1 million and $6.3 million were on accrual status as of
March 31, 2008 and December 31, 2007, respectively. An impairment allowance of $13.1 million and $11.0 million relating to these loans is included in the
allowance for loan losses as of March 31, 2008 and December 31, 2007, respectively. Management considered $32.6 million and $37.3 million of warehouse lending loans to be
impaired as of March 31, 2008 and December 31, 2007, respectively. The average investment in impaired loans, consisting of troubled debt restructurings and nonperforming warehouse lines
of credit, during the quarter ended March 31, 2008 was $406.3 million and none during the quarter ended March 31, 2007.

25

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Changes
in the allowance for loan losses, the composition of the provision for loan losses and the allowance for loan losses were as follows:

Quarters Ended
March 31,2008

2007(in thousands)Balance, beginning of period

$
2,399,491

$
326,817Provision for loan losses before pool mortgage insurance recoveries


1,558,078


175,963Charge-offs


(629,603
)

(41,069
)Recoveries


23,338


2,420Balance, end of period

$
3,351,304

$
464,131


|
|

Quarters Ended
March 31,2008

2007(in thousands)Provision for loan losses before estimated pool mortgage insurance recoveries

$
1,558,078

$
175,963Change in estimate of amounts recoverable from pool mortgage insurance


(56,726
)

(24,001
)Provision for loan losses

$
1,501,352

$
151,962


|
|

March 31,2008

2007(in thousands)Allowance for loan losses

$
3,351,304

$
464,131Estimated amount recoverable from pool mortgage insurance


(612,530
)

(89,764
)Allowance for loan losses, net of pool mortgage insurance

$
2,738,774

$
374,367


The
Company has recorded a liability for losses on unfunded loan commitments in accounts payable and accrued liabilities totaling $65.8 million and $38.4 million at
March 31, 2008 and December 31, 2007, respectively. The provision for these losses is recorded in other expenses. The following is a summary of changes in the liability:

Quarters Ended
March 31,2008

2007(in thousands)Balance, beginning of period

$
38,384

$
8,104Provision for losses on unfunded loan commitments


27,451


5,655Balance, end of period

$
65,835

$
13,759


26

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 10Investments in Other Financial Instruments, at Estimated Fair Value

Investments in other financial instruments include the following:

|                                                                                                                       |                                                            | March 31,
2008                                             |                                                                 | December 31,
2007                                              
|---------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------------------------
|
|Securities accounted for as available-for-sale:                                                                        |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       | Prime non-agency mortgage-backed securities                |                                                            | $                                                               | 14,655,604                                                     
|                                                                                                                       | Prime agency mortgage-backed securities                    |                                                            |                                                                 | 1,640,924                                                      
|                                                                                                                       | Nonprime mortgage-backed securities                        |                                                            |                                                                 | 1,111                                                          
|                                                                                                                       | Obligations of U.S. Government-sponsored enterprises       |                                                            |                                                                 | 229,410                                                        
|                                                                                                                       | Municipal bonds                                            |                                                            |                                                                 | 173,808                                                        
|                                                                                                                       | U.S. Treasury securities                                   |                                                            |                                                                 | 91,003                                                         
|                                                                                                                       | Other                                                      |                                                            |                                                                 | 76,438                                                         
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            | Subtotal                                                   |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       | Interests retained in securitizationnon credit-sensitive: |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            | Mortgage-backed pass-through securities                    |                                                                 |                                                                
|                                                                                                                       |                                                            | Prime interest-only and principal-only securities          |                                                                 |                                                                
|                                                                                                                       |                                                            | Prepayment penalty bonds                                   |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            | Total interests retained in securitizationnon credit-sensitive |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       | Interests retained in securitizationcredit-sensitive(1):  |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            | Mortgage-backed pass-through securities                    |                                                                 |                                                                
|                                                                                                                       |                                                            | Prime residual securities                                  |                                                                 |                                                                
|                                                                                                                       |                                                            | Prime home equity retained interests                       |                                                                 |                                                                
|                                                                                                                       |                                                            | Prime home equity interest-only securities                 |                                                                 |                                                                
|                                                                                                                       |                                                            | Nonprime interest-only securities                          |                                                                 |                                                                
|                                                                                                                       |                                                            | Nonprime residuals and other related securities            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            | Total interests retained in securitizationcredit-sensitive(1)  |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 | Total securities accounted for as available-for-sale           
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|Financial instruments with changes in unrealized gains and losses recognized in earnings in the period of change:      |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       | Securities accounted for as trading:                       |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            | Interests retained in securitizationnon credit-sensitive: |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            | Mortgage-backed pass-through securities                         |                                                                
|                                                                                                                       |                                                            |                                                            | Prime interest-only and principal-only securities               |                                                                
|                                                                                                                       |                                                            |                                                            | Prepayment penalty bonds                                        |                                                                
|                                                                                                                       |                                                            |                                                            | Interest rate swaps                                             |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 | Total interests retained in securitizationnon credit-sensitive
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            | Interests retained in securitizationcredit-sensitive(1):  |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            | Mortgage-backed pass-through securities                         |                                                                
|                                                                                                                       |                                                            |                                                            | Prime residual securities                                       |                                                                
|                                                                                                                       |                                                            |                                                            | Prime home equity retained interests                            |                                                                
|                                                                                                                       |                                                            |                                                            | Nonprime residuals and other related securities                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 | Total interests retained in securitizationcredit-sensitive(1) 
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            | Servicing Hedge principal-only securities                  |                                                                 |                                                                
|                                                                                                                       |                                                            | Municipal bonds                                            |                                                                 |                                                                
|                                                                                                                       |                                                            | Other                                                      |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 | Total securities accounted for as trading                      
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       | Hedging and pipeline derivatives                           |                                                            |                                                                 | 1,746,047                                                      
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|Total financial instruments with changes in unrealized gains and losses recognized in earnings in the period of change |                                                            |                                                            | 3,615,137                                                       |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                
|                                                                                                                       |                                                            |                                                            | Total investments in other financial instruments                |                                                                
|                                                                                                                       |                                                            |                                                            |                                                                 |                                                                

---

27

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Investments in other financial instruments by credit rating were as follows:

|                                                                                                                  |                                                            | March 31, 2008                                            
|----------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------------------------
|
|
|
|Securities accounted for as available-for-sale:                                                                   |                                                            |                                                           
|                                                                                                                  | Prime non-agency mortgage-backed securities                |                                                           
|                                                                                                                  | Prime agency mortgage-backed securities                    |                                                           
|                                                                                                                  | Nonprime mortgage-backed securities                        |                                                           
|                                                                                                                  | Obligations of U.S. Government-sponsored enterprises       |                                                           
|                                                                                                                  | Municipal bonds                                            |                                                           
|                                                                                                                  | U.S. Treasury securities                                   |                                                           
|                                                                                                                  | Other                                                      |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            | Subtotal                                                  
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  | Interests retained in securitizationnon credit-sensitive: |                                                           
|                                                                                                                  |                                                            | Mortgage-backed pass-through securities                   
|                                                                                                                  |                                                            | Prime interest-only and principal-only securities         
|                                                                                                                  |                                                            | Prepayment penalty bonds                                  
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  | Interests retained in securitizationcredit-sensitive:     |                                                           
|                                                                                                                  |                                                            | Mortgage-backed pass-through securities                   
|                                                                                                                  |                                                            | Prime residual securities                                 
|                                                                                                                  |                                                            | Prime home equity retained interests                      
|                                                                                                                  |                                                            | Prime home equity interest-only securities                
|                                                                                                                  |                                                            | Nonprime interest-only securities                         
|                                                                                                                  |                                                            | Nonprime residuals and other related securities           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  | Total securities accounted for as available-for-sale       |                                                           
|                                                                                                                  |                                                            |                                                           
|Financial instruments with changes in unrealized gains and losses recognized in earnings in the period of change: |                                                            |                                                           
|                                                                                                                  | Securities accounted for as trading:                       |                                                           
|                                                                                                                  |                                                            | Interests retained in securitizationnon credit-sensitive:
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            | Interests retained in securitizationcredit-sensitive:    
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            | Municipal bonds                                           
|                                                                                                                  |                                                            | Other                                                     
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  | Total securities accounted for as trading                  |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           
|                                                                                                                  |                                                            |                                                           

---

28

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

At March 31, 2008, the Company had pledged $0.08 billion of MBS to secure securities sold under agreements to repurchase, which the
counterparty had the contractual right to re-pledge. At March 31, 2008, the Company had also pledged $0.06 billion of MBS to secure its derivative instrument liabilities and
$0.03 billion of MBS to secure a borrowing facility with the FRB.

At
December 31, 2007, the Company had pledged $0.08 billion of MBS to secure securities sold under agreements to repurchase, which the counterparty had the contractual
right to re-pledge. At December 31, 2007, the Company had also pledged $0.01 billion of MBS to secure margin calls on derivative instruments and $1.6 billion of MBS to
secure a borrowing facility with the FRB.

At
March 31, 2008 and December 31, 2007, the Company had pledged $13.8 billion and $13.4 billion of MBS to enable future borrowings with the FHLB.

Amortized
cost and fair value of available-for-sale securities were as follows:

March 31, 2008Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value(in thousands)Prime non-agency mortgage-backed securities

$
15,989,445

$
27

$
(1,333,868
)
$
14,655,604Prime agency mortgage-backed securities


1,628,839


16,251


(4,166
)

1,640,924Nonprime mortgage-backed securities


1,112


6


(7
)

1,111Obligations of U.S. Government-sponsored enterprises


221,528


7,882





229,410Municipal bonds


171,256


2,643


(91
)

173,808U.S. Treasury securities


85,169


5,834





91,003Interests retained in securitization


377,308


71,540


(28,746
)

420,102Other


72,300


4,138





76,438$
18,546,957

$
108,321

$
(1,366,878
)
$
17,288,400


|
|

December 31, 2007Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value(in thousands)Prime non-agency mortgage-backed securities

$
16,734,057

$
10,147

$
(415,924
)
$
16,328,280Prime agency mortgage-backed securities


2,942,460


18,628


(16,878
)

2,944,210Nonprime mortgage-backed securities


35








35Obligations of U.S. Government-sponsored enterprises


249,826


5,379





255,205Municipal bonds


415,420


4,678


(558
)

419,540U.S. Treasury securities


89,142


3,760


(2
)

92,900Interests retained in securitization


392,966


63,690


(20,552
)

436,104Other


72,519


2,127


(3
)

74,643$
20,896,425

$
108,409

$
(453,917
)
$
20,550,917


29

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

The
Company's available-for-sale securities in an unrealized loss position were as follows:

March 31, 2008Less Than 12 Months

12 Months or More

TotalFair Value

Gross
Unrealized
Loss

Fair Value

Gross
Unrealized
Loss

Fair Value

Gross
Unrealized
Loss(in thousands)Prime non-agency mortgage-backed securities

$
10,747,591

$
(879,361
)
$
3,902,646

$
(454,507
)
$
14,650,237

$
(1,333,868
)Prime agency mortgage-backed securities


206,482


(751
)

377,793


(3,415
)

584,275


(4,166
)Nonprime mortgage-backed securities








156


(7
)

156


(7
)Municipal bonds








5,377


(91
)

5,377


(91
)Interests retained in securitization


58,936


(12,517
)

114,113


(16,229
)

173,049


(28,746
)Other








50





50


Total impaired securities

$
11,013,009

$
(892,629
)
$
4,400,135

$
(474,249
)
$
15,413,144

$
(1,366,878
)


|
|

December 31, 2007Less Than 12 Months

12 Months or More

TotalFair Value

Gross
Unrealized
Loss

Fair Value

Gross
Unrealized
Loss

Fair Value

Gross
Unrealized
Loss(in thousands)Prime non-agency mortgage-backed securities

$
10,000,860

$
(262,031
)
$
3,210,776

$
(153,893
)
$
13,211,636

$
(415,924
)Prime agency mortgage-backed securities


196,561


(842
)

833,354


(16,036
)

1,029,915


(16,878
)Municipal bonds


11,144


(63
)

99,658


(495
)

110,802


(558
)U.S. Treasury securities








7,498


(2
)

7,498


(2
)Interests retained in securitization


14,720


(887
)

114,343


(19,665
)

129,063


(20,552
)Other


305


(3
)

50





355


(3
)Total impaired securities

$
10,223,590

$
(263,826
)
$
4,265,679

$
(190,091
)
$
14,489,269

$
(453,917
)


Countrywide's Investment Management Committee ("IMC"), a subcommittee of its Asset/Liability Committee, assesses securities classified as
available-for-sale for other-than-temporary impairment on a quarterly basis. This assessment evaluates whether the Company intends to and is able to
recover the amortized cost of the securities when taking into account the Company's present investment objectives and liquidity requirements and whether the creditworthiness of the issuer calls the
realization of contractual cash flows into question.

During
the quarter ended March 31, 2008, the IMC determined that it was no longer reasonably assured that the decline in value would be recovered during the holding period for
certain obligations of U.S. Government sponsored enterprises. Such securities had a carrying value of $97.0 million when this determination was made. As a result of this determination,
unrealized losses recorded in accumulated other comprehensive income totaling $31.1 million were transferred to earnings during the quarter ended March 31, 2008. No such losses were
recorded during the quarter ended March 31, 2007.

30

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Gross
gains and losses realized on the sales of available-for-sale securities (excluding recognition of other than temporary impairment) were as follows:

Quarters Ended
March 31,2008

2007(in thousands)Prime non-agency mortgage-backed securities:Gross realized gains

$
79

$
Gross realized losses


(441
)

Net


(362
)

Prime agency mortgage-backed securities:Gross realized gains


10,807


Gross realized losses


(2,115
)

Net


8,692


Municipal bonds:Gross realized gains





24Gross realized losses





(53
)Net





(29
)Obligations of U.S. Government-sponsored enterprises:Gross realized gains





11Gross realized losses





Net





11Interests retained in securitization:Gross realized gains





1,021Gross realized losses


(1,285
)

Net


(1,285
)

1,021Total gains and losses on available-for-sale securities:Gross realized gains


10,886


1,056Gross realized losses


(3,841
)

(53
)Net

$
7,045

$
1,003


31

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 11Mortgage Servicing Rights, at Estimated Fair Value

The activity in MSRs was as follows:

Quarters Ended
March 31,2008

2007(in thousands)Balance at beginning of period

$
18,958,180

$
16,172,064Additions:Servicing resulting from transfers of financial assets


834,778


1,898,903Purchases of servicing assets


420


116,592Total additions


835,198


2,015,495Less sale of MSRs


(424,465
)

Change in fair value:Due to changes in valuation inputs or assumptions used in valuation model(1)


(1,460,713
)

54,183Other changes in fair value(2)


(753,626
)

(799,882
)Balance at end of period

$
17,154,574

$
17,441,860


---

Note 12Other Assets

Other assets include the following:

March 31,
2008

December 31,
2007(in thousands)Reimbursable servicing advances, net

$
4,378,797

$
3,981,703Margin accounts


2,123,485


669,391Investments in FRB and FHLB stock


2,098,782


2,172,987Real estate acquired in settlement of loans


863,070


807,843Interest receivable


792,508


932,477Estimated amounts recoverable from pool mortgage insurance


612,530


555,803Receivables from custodial accounts


399,334


387,509Capitalized software, net


389,656


385,276Prepaid expenses


382,263


374,943Cash surrender value of assets held in trust for deferred compensation plans


285,835


307,902Securities broker-dealer receivables


239,303


203,206Cash surrender value of Company-owned life insurance


217,988


229,835Mortgage guaranty insurance tax and loss bonds


188,667


165,066Restricted cash


115,569


86,078Receivables from sale of securities





98,021Other


1,110,765


1,192,735$
14,198,552

$
12,550,775


32

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

The
Company had pledged $0.01 billion of receivables from sale of securities to secure securities sold under agreements to repurchase at March 31, 2008 and
December 31, 2007.

Note 13Deposit Liabilities

Deposit liabilities include the following:

March 31,
2008

December 31,
2007(in thousands)Non-interest-bearing checking accounts

$
545,796

$
457,487Retail savings and money market accounts


8,212,377


8,268,969Commercial money market accounts


3,286,248


4,051,209Time deposits:Retail


29,540,914


25,119,310Brokered


8,197,622


8,947,958CommercialPremier business banking


542,230


545,118Other


148,556


202,711690,786


747,82938,429,322


34,815,097Company-administered custodial deposit accounts(1)


12,787,381


12,591,40163,261,124


60,184,163Basis adjustment through application of hedge accounting


32,268


16,436$
63,293,392

$
60,200,599


---

33

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Substantially
all of the time deposits outstanding were interest-bearing. The contractual maturities of those deposits as of March 31, 2008, are shown in the following table:

Time Deposit
Maturities

Weighted
Average Rate(dollar amounts in thousands)Quarter ending:June 30, 2008

$
11,183,299

5.11
%September 30, 2008


13,993,517

4.94
%December 31, 2008


6,773,559

5.20
%March 31, 2009


2,665,837

4.20
%Total twelve months ending March 31, 2009


34,616,212

4.99
%Twelve months ending March 31,2010


1,371,670

4.50
%2011


402,431

4.85
%2012


226,684

5.17
%2013


258,961

5.06
%Thereafter


1,553,364

5.75
%38,429,322

5.00
%Basis adjustment through application of hedge accounting


32,268$
38,461,590


Note 14Securities Sold Under Agreements to Repurchase

The Company routinely enters into short-term financing arrangements to sell securities under agreements to repurchase ("repurchase agreements"). The
repurchase agreements are collateralized by mortgage loans and securities. All securities underlying repurchase agreements are held in safekeeping by broker-dealers or banks. All agreements are to
repurchase the same or substantially identical securities.

At
March 31, 2008, repurchase agreements were secured by $0.01 billion of mortgage loans held for sale, $14.3 billion of trading securities, $32.9 billion of
securities purchased under agreements to resell and securities borrowed, $1.2 billion in loans held for investment, $0.1 billion in investments in other financial instruments and
$0.01 billion of other assets. At March 31, 2008, $24.9 billion of the pledged securities purchased under agreements to resell and securities borrowed related to amounts offset
against securities sold under agreements to repurchase pursuant to master netting agreements.

At
December 31, 2007, repurchase agreements were secured by $0.01 billion of mortgage loans held for sale, $15.4 billion of trading securities, $14.3 billion
of securities purchased under agreements to resell and securities borrowed, $1.3 billion in loans held for investment, $0.1 billion in investments in other financial instruments and
$0.01 billion of other assets. At December 31, 2007, $9.0 billion of the pledged securities purchased under agreements to resell and securities borrowed related to amounts offset
against securities sold under agreements to repurchase pursuant to master netting agreements.

34

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 15Notes Payable

The following table summarizes notes payable:

March 31,
2008

December 31,
2007(in thousands)Secured revolving lines of credit

$
288,232

$
1,547,648Unsecured revolving lines of credit


10,820,000


10,820,000Unsecured bank loan


660,000


660,000Borrowings from the Federal Reserve Bank





750,000Federal Home Loan Bank advances


46,025,000


47,675,000Medium-term notes:Floating-rate


9,517,333


10,779,722Fixed-rate


8,089,073


8,221,44517,606,406


19,001,167Asset-backed secured financings


3,161,420


9,453,478Asset-backed secured financings at estimated fair value


1,692,472


Convertible debentures


4,000,000


4,000,000Junior subordinated debentures


2,280,951


2,219,511Subordinated debt


1,085,224


1,067,010Other


31,726


33,599$
87,651,431

$
97,227,413


Secured Revolving Lines of Credit

The Company formed a special purpose entity (Park Monaco) to finance inventory with funding provided by a group of bank-sponsored conduits that were
financed through the issuance of asset-backed commercial paper. The entity incurred interest based on prevailing money market rates approximating the cost of asset-backed commercial paper.

At
March 31, 2008, the entity had aggregate commitments from the banks that sponsor the conduits totaling $10.4 billion and had $0.3 billion of outstanding
borrowings, secured by $0.1 billion of mortgage loans held for sale and $0.4 billion of loans held for investment. For the quarter ended March 31, 2008, the average borrowings
under this facility totaled $0.9 billion and the weighted-average interest rate was 4.54%. At March 31, 2008, the weighted-average interest rate was 3.36%. For the quarter ended
March 31, 2007, the average borrowings under this facility totaled $0.7 billion and the weighted-average interest rate was 5.33%. At March 31, 2007, the weighted-average interest
rate was 5.34%.

As
detailed in Note 26Subsequent Events, in connection with a ratings downgrade by Standard & Poor's on May 2, 2008,
the Company repaid the outstanding balance of $244 million and on May 9, 2008, the Company terminated the facility.

During
2007, the Company had a $4.0 billion master trust facility, to finance Countrywide Warehouse Lending ("CWL") receivables backed by mortgage loans through the
sale of such receivables to a multi-asset conduit finance company financed by issuing extendable maturity asset-backed commercial paper. At March 31, 2007, the Company had pledged
$1.3 billion in loans held for

35

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

investment
to secure this facility. For the quarter ended March 31, 2007, the average borrowings under this facility totaled $1.2 billion and the weighted-average interest rate was
5.39%. At March 31, 2007, the weighted-average interest rate was 5.38%. This facility was terminated during 2007.

Unsecured Revolving Lines of Credit and Unsecured Bank Loan

As of March 31, 2008, the Company had unsecured credit agreements (revolving credit facilities) with a group of commercial banks permitting the Company to
borrow an aggregate maximum total amount of $11.5 billion. In August 2007, the Company borrowed $11.5 billion from these revolving credit facilities, of which $0.7 billion was
converted to an unsecured term bank loan with a one-year maturity in November 2007. For the quarter ended March 31, 2008, the average outstanding borrowings under the remaining
revolving credit facilities totaled $10.8 billion and the weighted-average interest rate was 3.76%. At March 31, 2008, the weighted-average interest rate was 2.88%. No amount was
outstanding under this facility at March 31, 2007. For the quarter ended March 31, 2008, the average outstanding borrowings under the unsecured bank loan totaled $0.7 billion and
the average interest rate was 4.33%. At March 31, 2008, the interest rate was 3.42%.

Backup Credit Facilities

As of March 31, 2008, the Company had pledged $8.8 billion and $0.03 billion of mortgage loans held for investment and MBS, respectively, to
secure an unused borrowing facility with the FRB.

Federal Home Loan Bank Advances

During the quarter ended March 31, 2008, the Company obtained $0.5 billion of advances from the FHLB, all of which are fixed-rate. At
March 31, 2008, the Company had pledged $57.5 billion and $13.8 billion respectively, of mortgage loans and investments in other financial instruments to secure its outstanding
FHLB advances and enable future advances.

At
December 31, 2007, the Company had pledged $62.6 billion and $13.4 billion, respectively, of mortgage loans and investments in other financial instruments to
secure its outstanding FHLB advances and enable future advances.

Medium-Term Notes

During the quarter ended March 31, 2008, the Company did not issue any medium-term notes and redeemed $1.7 billion of maturing
medium-term notes.

As
of March 31, 2008, $4.0 billion of foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Euros, Pounds Sterling,
Australian Dollars, Canadian Dollars, and Swiss Francs. These notes have been effectively converted to U.S. dollar-denominated debt through currency swaps.

Asset-Backed Secured Financings

The Company records certain mortgage loan securitization transactions as secured borrowings when they do not meet the accounting requirements for sales treatment.
The transactions accounted for as secured borrowings totaled $1.7 billion and $3.8 billion at March 31, 2008 and December 31, 2007, respectively. At March 31, 2008
and December 31, 2007, the Company had pledged mortgage loans held for sale with unpaid principal balances totaling $2.6 billion and $4.4 billion, respectively, to secure these
borrowings.

36

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

In
its market-making and trading activities, Countrywide Securities Corporation ("CSC") reacquires securities with embedded derivatives created in Countrywide loan sales activities.
After reacquiring certain of those securities during 2007, the market for non-agency MBS was disrupted. Management subsequently concluded that certain securities it owned on both
March 31, 2008 and December 31, 2007 no longer would be held only temporarily. When the Company holds beneficial interests in its securitizations that include embedded derivatives, the
applicable accounting standards require that the transactions be re-characterized as financing transactions. As a result, liabilities of $3.1 billion and $5.6 billion and
related Mortgage Loans Held in SPEs in loans held for investment were included on the Company's balance sheet at March 31, 2008 and December 31, 2007, respectively.

Junior Subordinated Debentures

As more fully discussed in Note 15Notes Payableincluded in the consolidated financial
statements of the 2007 Annual Report, the Company has issued junior subordinated debentures to non-consolidated subsidiary trusts. The trusts finance their holdings of the junior
subordinated debentures by issuing Company-guaranteed capital securities.

The
Company guarantees the indebtedness of Countrywide Home Loans ("CHL") to one of its subsidiary trusts, Countrywide Capital III, which is excluded from the Company's consolidated
financial statements. Following is summarized information for that trust:

March 31,
2008

December 31,
2007(in thousands)Balance Sheets:Junior subordinated debentures receivable

$
205,367

$
205,356Other assets


4,841


692Total assets

$
210,208

$
206,048Notes payable

$
6,175

$
6,175Other liabilities


4,841


692Company-obligated guaranteed redeemable capital trust pass-through securities


199,192


199,181Shareholder's equity





Total liabilities and shareholder's equity

$
210,208

$
206,048


|
|

Quarters Ended
March 31,2008

2007(in thousands)Statements of Operations:Revenues

$
4,161

$
4,161Expenses


(4,161
)

(4,161
)Provision for income taxes





Net earnings

$


$



37

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Subordinated Debt

The Company has outstanding $1.0 billion of 6.25% fixed rate unsecured subordinated notes maturing in May 2016. The notes rank subordinate and junior to
all of the Company's senior indebtedness, and rank senior to the Company's junior subordinated debentures underlying the Company's trust preferred securities.

Maturities of Notes Payable

Maturities of notes payable are as follows:

Principal, Net
of Premiums
and Discounts

Hedge Basis
Adjustment

Total(in thousands)Quarter ending:June 30, 2008

$
7,744,615

$
397,867

$
8,142,482September 30, 2008


1,200,984


45,142


1,246,126December 31, 2008


3,631,111


386


3,631,497March 31, 2009


1,806,799


101,975


1,908,774Total twelve months ending March 31, 2009


14,383,509


545,370


14,928,879Twelve months ending March 31,2010


9,438,135


42,808


9,480,9432011


19,599,404


345,391


19,944,7952012


17,821,716


31


17,821,7472013


8,425,335


153,250


8,578,585Thereafter


16,749,376


147,106


16,896,482Total

$
86,417,475

$
1,233,956

$
87,651,431


Note 16Regulatory and Agency Capital Requirements

Countrywide Bank is regulated by the Office of Thrift Supervision ("OTS") and is therefore subject to OTS capital requirements. At March 31, 2008 and
December 31, 2007, the Bank's regulatory capital ratios and amounts and minimum required capital ratios to maintain a "well capitalized" status were as follows:

March 31, 2008

December 31, 2007Minimum
Required(1)Ratio

Amount

Ratio

Amount(dollar amounts in thousands)Tier 1 Capital

5.0
%
7.7
%
$
9,348,045

7.2
%
$
8,753,678Risk-Based Capital:Tier 1

6.0
%
12.2
%
$
9,348,045

11.8
%
$
8,753,678Total

10.0
%
13.4
%
$
10,329,310

14.4
%
$
10,692,593


---

Management intends to maintain capital at levels that are higher than those required to be considered "well capitalized."

38

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

The
Bank is required by OTS regulations to maintain tangible capital of at least 1.5% of assets. However, the Bank is also required to maintain a tangible equity ratio of at least 2% to
avoid being classified as "critically undercapitalized." Critically undercapitalized institutions are subject to the prompt corrective action provisions of the Financial Institution Reform Recovery
and Enforcement Act of 1989. The Bank's tangible capital ratio was 7.7% and 8.0% at March 31, 2008 and December 31, 2007, respectively.

The
OTS has prescribed that the Company and its affiliates are not authorized to receive, and the Bank is not authorized to pay the Company or its affiliates, capital distributions
without receipt of prior written OTS non-objection.

The
Company is also subject to U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac and Government National Mortgage Association ("Ginnie Mae") net worth
requirements. Management believes the Company is in compliance with those requirements.

Note 17Supplemental Cash Flow Information

The following table presents supplemental cash flow information:

Quarters Ended
March 31,2008

2007(in thousands)Cash used to pay interest

$
2,060,236

$
2,635,330Cash used to pay income taxes


11,075


3,646Non-cash investing activities:Transfer of loans from mortgage loans held for sale at lower of cost or estimated fair value to loans held for investment


1,073,675


713,050Transfer of loans held for investment to mortgage loans held for sale


2,406,307


Transfer of real estate acquired in settlement of loans from loans receivable to other assets


436,717


183,716Servicing resulting from transfers of financial assets


834,778


1,898,903Retention of other financial instruments classified as available-for-sale in securitization transactions


14,627


998Unrealized (loss) gain on available-for-sale securities, foreign currency translation adjustments, cash flow hedges and change in unfunded liability relating to defined benefit plans, net of tax


(547,749
)

1,021Remeasurement of financial assets and liabilities upon adoption of SFAS 159


34,249


Remeasurement of income taxes payable upon adoption of FIN 48





(12,719
)Non-cash financing activities:Decrease in Mortgage Loans Held in SPEs and asset-backed secured financings


(4,548,527
)




39

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 18Net Interest Income

The following table summarizes net interest income:

Quarters Ended
March 31,2008

2007(in thousands)Interest income:Loans

$
1,962,233

$
2,120,045Trading securities


213,864


318,952Securities purchased under agreements to resell, securities borrowed and federal funds sold


221,620


661,279Investments in other financial instruments


270,494


127,491Other


138,348


124,215Total interest income


2,806,559


3,351,982Interest expense:Deposit liabilities


588,928


499,839Securities sold under agreements to repurchase


310,799


890,667Trading securities sold, not yet purchased


32,790


62,129Notes payable


1,044,211


1,057,233Other


98,511


111,177Total interest expense


2,075,239


2,621,045Total net interest income

$
731,320

$
730,937


Note 19Restructuring Charges

During the third quarter of 2007, the Company initiated a program to reduce costs and improve operating efficiencies in response to lower mortgage market
origination volumes and other market conditions. As part of this plan, the Company expects to incur lease and other contract termination costs. Management recorded restructuring charges totaling
$144.6 million in 2007 and recorded an additional $14.6 million in the first quarter of 2008. Specific actions taken in 2007 included reducing the workforce by approximately 11,000 and
the closure of 259 branches. These reductions occurred in most
geographic locations and levels of the organization. The restructuring charges were recorded in the "Other" segment. During the first quarter of 2008, the specific actions included reducing the
workforce by approximately 1,500.

The
following table summarizes the restructuring liability balance, recorded in accounts payable and accrued liabilities at March 31, 2008, and related activity during the quarter
ended March 31, 2008:

UtilizedBalance
December 31,
2007





Balance
March 31,
2008Additions

Reversals

Cash

Non-Cash(in thousands)Severance and benefits

$
2,959

$
3,262

$


$
(4,853
)
$


$
1,368Lease termination costs


45,399


9,089





(12,900
)

(5,692
)

35,896Other costs





2,211








(2,211
)

$
48,358

$
14,562

$


$
(17,753
)
$
(7,903
)
$
37,264


40

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 20Pension Plans

The Company provides retirement benefits to its employees using a variety of plans. For employees hired prior to January 1, 2006, the Company has a defined
benefit pension plan (the "Pension Plan"). For employees hired after December 31, 2005, the Company makes supplemental contributions to employee 401(k) Plan accounts.

Net
periodic benefit cost for the pension plan during the quarters ended March 31, 2008 and 2007, includes the following components:

Quarters Ended
March 31,2008

2007(in thousands)Service cost

$
17,404

$
22,078Interest cost


7,158


5,982Expected return on plan assets


(5,950
)

(5,491
)Amortization of prior service cost


87


87Net periodic benefit cost

$
18,699

$
22,656


Note 21Segments and Related Information

The Company has five business segments: Mortgage Banking, Banking, Capital Markets, Insurance and Global Operations.

The
Mortgage Banking Segment is comprised of three sectors: Loan Production, Loan Servicing and Loan Closing Services.

The
Loan Production Sector originates prime and nonprime loans for sale or securitization through a variety of channels on a national scale. Historically, mortgage banking loan
production has occurred in CHL. Over the past several years, the Company has been transitioning this production to its bank subsidiary, Countrywide Bank. Effective January 1, 2008, the
Company's production channels have moved into the Bank, completing the migration of substantially all of Countrywide's loan production activities from CHL to the Bank. During the quarter ended
March 31, 2008, over 96% of Countrywide's mortgage loan production occurred in Countrywide Bank. The mortgage loan production, the related balance sheet and the income relating to the holding
and sale of these loans is included in the Mortgage Banking Segment regardless of whether the activity occurred in CHL or Countrywide Bank.

The
Loan Production Sector is comprised of three lending channels:



41

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The
Loan Servicing Sector includes investments in MSRs, retained interests including senior and mezzanine mortgage-backed securities which remain unsold from prior securitizations, the
Mortgage Banking investment loan portfolio as well as the Company's loan servicing operations and subservicing for other domestic financial institutions. Subsequent to sale, adjustments to the
liability for representations and warranties are included in this sector. The Loan Closing Services Sector is comprised of the LandSafe companies, which provide credit reports, appraisals, title
reports and flood determinations to the Company's Loan Production Sector, as well as to third parties.

The
Banking Segment includes Banking Operationsprimarily the investment and fee-based activities of Countrywide Banktogether with the activities of
Countrywide Warehouse Lending and certain loans held for investment and owned by Countrywide Home Loans. Banking Operations invests in mortgage loans sourced from the Loan Production Sector and
mortgage loans and high-quality MBS purchased from non-affiliated entities. Countrywide Warehouse Lending provides third-party mortgage lenders with temporary financing secured
by mortgage loans.

The
Capital Markets Segment includes the operations of Countrywide Securities Corporation, a registered broker-dealer specializing in the mortgage securities market. It also includes the
operations of Countrywide Asset Management Corporation, Countrywide Commercial Real Estate Finance Inc., Countrywide Servicing Exchange, Countrywide Alternative Investments Inc., CSC
Futures Inc., Countrywide Capital Markets Asia (H.K.) Limited, CAA Management Inc., Countrywide Sunfish Management LLC and Countrywide Derivative Products, Inc.

The
Insurance Segment includes Balboa Insurance Group, a national provider of property, casualty, life, disability and credit insurance; Balboa Reinsurance Company, a primary mortgage
reinsurance company; and Countrywide Insurance Services, a national insurance agency offering a specialized menu of insurance products directly to consumers.

The
Global Operations Segment includes Countrywide International Technology Holdings Limited, a licensor of loan origination processing, servicing and residential real estate value
assessment technology; CFC India Private Limited, a provider of call center, data processing and information technology related services; and CFC International (Processing Services), Limited, located
in Costa Rica, a provider of call center and data processing services.

Segment
selection was based upon internal organizational structures, and the process by which these operations are managed and evaluated, including how resources are allocated to the
operations. Certain amounts reflected in the prior period have been adjusted to conform to the current period presentation.

Intersegment
transactions are generally recorded on an arms-length basis. However, prior to October 2007, the fulfillment fees paid by Banking Operations to the Production
Sector for origination costs incurred on mortgage loans funded by Banking Operations were generally determined on an incremental cost basis, which may be less than the fees that Banking Operations
would pay to a third party.

42

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)

Financial
highlights by operating segments are as follows:

|                           |              | Quarter Ended March 31, 2008 |           
|-------------------------- | ------------ | ---------------------------- | ----------
|
|
|
|Revenues:                  |              |                              |           
|                           | External     |                              | $         
|                           | Intersegment |                              |           
|                           |              |                              |           
|Total Revenues             |              | $                            | 1,104,318 
|                           |              |                              |           
|Pre-tax Earnings (Loss)    |              | $                            | 232,375   
|                           |              |                              |           
|Total Assets at Period End |              | $                            | 18,427,197
|                           |              |                              |           

|
|

|                           |              | Quarter Ended March 31, 2007
|-------------------------- | ------------ | ----------------------------
|
|
|
|Revenues:                  |              |                             
|                           | External     |                             
|                           | Intersegment |                             
|                           |              |                             
|Total Revenues             |              | $                           
|                           |              |                             
|Pre-tax Earnings (Loss)    |              | $                           
|                           |              |                             
|Total Assets at Period End |              | $                           
|                           |              |                             

Included in the columns above labeled "Other" are the holding company activities including restructuring charges of $14.6 million during
the quarter ended March 31, 2008 and certain reclassifications to conform management reporting to the consolidated financial statements.

43

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 22Summarized Financial Information

Summarized financial information for Countrywide Financial Corporation (parent only) and subsidiaries is as follows:

|                          |                                                                                             | March 31, 2008               |  
|------------------------- | ------------------------------------------------------------------------------------------- | ---------------------------- | -
|
|
|Balance Sheets:           |                                                                                             |                              |  
|                          | Mortgage loans held for sale                                                                |                              | $
|                          | Trading securities, at estimated fair value                                                 |                              |  
|                          | Securities purchased under agreements to resell, securities borrowed and federal funds sold |                              |  
|                          | Loans held for investment, net                                                              |                              |  
|                          | Investments in other financial instruments, at estimated fair value                         |                              |  
|                          | Mortgage servicing rights, at estimated fair value                                          |                              |  
|                          | Investments in subsidiaries                                                                 |                              |  
|                          | Other assets                                                                                |                              |  
|                          |                                                                                             |                              |  
|                          |                                                                                             | Total assets                 |  
|                          |                                                                                             |                              |  
|                          | Deposit liabilities                                                                         |                              | $
|                          | Securities sold under agreements to repurchase                                              |                              |  
|                          | Notes payable                                                                               |                              |  
|                          | Other liabilities                                                                           |                              |  
|                          | Equity                                                                                      |                              |  
|                          |                                                                                             |                              |  
|                          |                                                                                             | Total liabilities and equity |  
|                          |                                                                                             |                              |  
|                          |                                                                                             |                              |  
|
|
|
|Statements of Operations: |                                                                                             |                              |  
|                          | Revenues                                                                                    |                              | $
|                          | Expenses                                                                                    |                              |  
|                          | (Benefit) provision for income taxes                                                        |                              |  
|                          | Equity in net loss of subsidiaries                                                          |                              |  
|                          |                                                                                             |                              |  
|                          |                                                                                             | Net loss                     |  
|                          |                                                                                             |                              |  

44

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

|
|

|                          |                                                                                             | December 31, 2007           
|------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------
|
|
|Balance Sheets:           |                                                                                             |                             
|                          | Mortgage loans held for sale                                                                |                             
|                          | Trading securities, at estimated fair value                                                 |                             
|                          | Securities purchased under agreements to resell, securities borrowed and federal funds sold |                             
|                          | Loans held for investment, net                                                              |                             
|                          | Investments in other financial instruments, at estimated fair value                         |                             
|                          | Mortgage servicing rights, at estimated fair value                                          |                             
|                          | Investments in subsidiaries                                                                 |                             
|                          | Other assets                                                                                |                             
|                          |                                                                                             |                             
|                          |                                                                                             | Total assets                
|                          |                                                                                             |                             
|                          | Deposit liabilities                                                                         |                             
|                          | Securities sold under agreements to repurchase                                              |                             
|                          | Notes payable                                                                               |                             
|                          | Other liabilities                                                                           |                             
|                          | Equity                                                                                      |                             
|                          |                                                                                             |                             
|                          |                                                                                             | Total liabilities and equity
|                          |                                                                                             |                             
|                          |                                                                                             |                             
|
|
|
|Statements of Operations: |                                                                                             |                             
|                          | Revenues                                                                                    |                             
|                          | Expenses                                                                                    |                             
|                          | (Benefit) provision for income taxes                                                        |                             
|                          | Equity in net earnings of subsidiaries                                                      |                             
|                          |                                                                                             |                             
|                          |                                                                                             | Net earnings                
|                          |                                                                                             |                             

Note 23Borrower and Investor Custodial Accounts

As of March 31, 2008 and December 31, 2007, the Company managed $21.6 billion and $19.2 billion, respectively, of borrower and
investor custodial cash accounts. These custodial accounts relate to the Company's mortgage servicing activities. Of these amounts, $12.8 billion and $12.6 billion,

45

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

respectively,
were deposited at the Bank, and included in the Company's deposit liabilities as custodial deposit accounts. The remaining balances were deposited with other depository institutions and
are not recorded on the Company's balance sheets.

Note 24Loan Commitments

The following table summarizes the Company's outstanding contractual loan commitments for the periods indicated:

March 31,
2008

December 31,
2007(in thousands)Commitments to fund mortgage loans

$
35,705,628

$
23,940,795Commitments to fund commercial real estate loans


207,050


480,872Undisbursed home equity lines of credit


7,149,045


9,073,370Undisbursed construction loans


685,731


714,896Undisbursed warehouse lines of credit


1,285,987


938,089


Note 25Legal Proceedings

Countrywide and certain subsidiaries are defendants in various legal proceedings involving matters generally incidental to their businesses.

In
addition, lawsuits alleging claims for derivative relief on behalf of the Company and securities, retirement plan, and other class action suits have recently been brought against
Countrywide, and certain of its current and former officers, directors and retirement plan administrators in either federal district court or state superior court in Los Angeles, California or federal
district court or state court in Delaware. Among other things, these lawsuits allege breach of state law fiduciary duties and violation of the federal securities laws and the Employee Retirement
Income Security Act of 1974 ("ERISA"). These cases allege, among other things, that Countrywide did not disclose complete and accurate information about its mortgage lending practices and financial
condition. The shareholder derivative cases are brought on Countrywide's behalf and do not seek recovery of damages from the Company. The shareholder derivative claims filed in Los Angeles superior
court have been stayed in favor of the derivative litigation pending in Los Angeles federal court. Motions to dismiss the federal derivative litigation are pending, as are motions to dismiss the
Delaware federal court derivative litigation and to transfer that litigation to Los Angeles federal court. The federal court has declined to grant defendants' motions to dismiss the ERISA class action
claims, and the Court has certified a class of participants in the Company's retirement plan. The Company and the other defendants are seeking leave to appeal the dismissal and certification rulings
immediately to the federal Court of Appeals for the Ninth Circuit.

Various
class action lawsuits relating to Countrywide's proposed merger with Bank of America have been filed in the state courts of California and Delaware and in federal district court
in Los Angeles, California on behalf of a proposed class of Countrywide shareholders against the Company, its directors and Bank of America. These lawsuits allege that the Company's directors breached
their fiduciary duties to the Company's shareholders by entering into the merger agreement with Bank of America and also allege that Bank of America aided and abetted those alleged breaches. The
merger-related claims filed in the California courts have been stayed in favor of the merger-related litigation

46

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

pending
in Delaware, in which the plaintiffs have filed a motion to preliminarily enjoin the closing of the transaction.

Although
management believes it has meritorious defenses to each of these actions and intends to defend them vigorously, it is difficult to predict the resulting outcome of these
proceedings, particularly where investigations and proceedings are in early stages. Given the inherent difficulty in predicting the outcome of legal proceedings, management cannot estimate losses or
ranges of losses for legal proceedings where there is only a reasonable possibility that a loss may be incurred, such as those discussed in the two immediately preceding paragraphs. The Company
provides for potential losses that may arise out of legal proceedings to the extent such losses are deemed probable and can be estimated. Although the ultimate outcome of the Company's legal
proceedings discussed above cannot be ascertained at this time, management believes that any resulting liability will not materially affect its consolidated financial position; such resolution,
however, could be material to its operating results for a particular future period depending upon the outcome of the proceedings and the operating results for a particular period. This assessment is
based, in part, on the existence of insurance coverage.

From
time to time we are subject to investigations and reviews in the ordinary course of business involving various regulatory agencies, including the SEC and various state attorneys
general, and in connection therewith such regulatory agencies request materials from us pertaining to our business operations and other matters. It is the Company's policy to fully cooperate with its
regulators and, where appropriate, to take remedial action. Certain news reports beginning in March 2008, indicated that numerous industry participants, including the Company, were subject to an
investigation by the Federal Bureau of Investigation ("FBI") in connection with mortgage business practices. The Department of Justice has stated to the Company that the FBI cannot confirm or deny
whether it is conducting an investigation of it.

Note 26Subsequent Events

On May 2, 2008, Standard and Poor's lowered its rating of CFC and CHL from BBB+ to BB+, a non-investment grade rating. Standard and Poor's also lowered its
rating of the Bank from A- to BBB. The Rating Outlook for all three entities was changed from Credit Watch Positive to Credit Watch Developing. Standard and Poor's ratings actions were in
connection with the disclosure by Bank of America related to their expected treatment of CFC's debt following the planned merger. The immediate impact of this downgrade is that the
$10.4 billion Park Monaco secured revolving credit facility is no longer available as a source of contingent liquidity. The Company repaid the outstanding balance of $244 million on
May 2, 2008, and terminated the facility on May 9, 2008.

On
April 7, 2008 the Company received a refund of $728.4 million of federal income taxes that it had previously paid for the tax years ended December 31, 2005 and
2006. The refund resulted from carrying back the federal tax loss for the year ended December 31, 2007.

On
April 29, 2008, the Company announced that its Board of Directors declared dividends of $1,812.50 per share on its Series B preferred stock and $0.15 per common share.
The preferred stock dividend is
payable on May 15, 2008, and the common stock dividend is payable on June 2, 2008 to shareholders of record on May 14, 2008.

47

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 27Recently Issued Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations, ("SFAS 141(R)"). SFAS 141(R)
expanded the scope of SFAS 141 to all business combinations which previously applied only to business combinations for which control was obtained by transferring consideration. Under
SFAS 141(R), the acquisition date is the date at which control is obtained, requiring the acquirer to recognize and measure the fair value of the acquiree as a whole, and the assets acquired
and liabilities assumed at their full fair value as of the date of control, regardless of the percentage ownership in the acquiree. The Company has determined that it will adopt SFAS 141(R) on
its effective date of January 1, 2009 and the financial impact, if any, upon adoption has not yet been determined.

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interest in Consolidated Financial Statements, and amendment of ARB
No. 51, ("SFAS 160"). SFAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a separate component of equity in the
consolidated financial statements and requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Under SFAS 160, expanded disclosures are required to
identify and distinguish between the interests of the parent's owners and the interests of the noncontrolling owners of a subsidiary. The Company has determined that it will adopt SFAS 160 on
its effective date of January 1, 2009 and the financial impact, if any, upon adoption has not yet been determined.

In
February 2008, the FASB issued FASB Staff Position No. FSP 140-3, Accounting for Transfers of Financial Assets and Repurchasing Transactions, ("FSP 140-3").
FSP 140-3 addresses accounting for repurchase agreements related to previously transferred financial assets when the repurchase arrangement is between the same parties as the original
transfer. This FSP presumes that an initial transfer of a financial asset and a repurchase agreement are considered part of the same arrangement under Statement of Financial Accounting Standards
No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities("SFAS 140"). However, if certain
criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and instead should be evaluated separately under SFAS 140. This FSP is effective
for financial statements issued for fiscal years beginning after November 15, 2008 and shall be applied prospectively to initial transfers and repurchase financings for which the initial
transfer is executed on
or after the beginning of the fiscal year this FSP is initially applied. The Company has not yet determined the financial impact, if any, upon adoption.

In
March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment to FASB Statement
No. 133, ("SFAS 161"). SFAS 161 was issued to improve transparency of a company's derivative instruments and hedging activities by requiring qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosure about credit-risk related
features in derivative agreements. This Statement also requires that the overall objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation.
SFAS 161 is effective prospectively for financial statements beginning after November 15, 2008.

48

---





Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

As used in this Report, references to "we," "our," "the Company" or "Countrywide" refer to Countrywide Financial Corporation and its consolidated subsidiaries
unless otherwise indicated. This discussion includes forward-looking statements which are subject to certain risks and uncertainties as discussed in the sectionFactors That
May Affect Our Future Resultsof this Report.

Overview

This section gives an overview of critical items that are discussed in more detail throughout Management's Discussion and Analysis of Financial Condition and
Results of Operations.



Following is a summary of our results of operations for the quarters ended March 31, 2008 and 2007:

Quarters Ended March 31,% Change2008

2007(dollar amounts in thousands,
except per share data)Consolidated CompanyRevenues

$
678,874

$
2,405,776

(72
%)Net (loss) earnings

$
(893,053
)
$
433,981

N/MDiluted (loss) earnings per share

$
(1.60
)
$
0.72

N/MTotal assets at period end

$
199,017,793

$
207,183,318

(4
%)Key Segment Pre-tax (Loss) EarningsMortgage Banking

$
(551,996
)
$
100,304

N/MBanking

$
(960,371
)
$
288,094

N/MCapital Markets

$
997

$
132,208

(99
%)Insurance

$
35,501

$
179,658

(80
%)


The
results for the quarter ended March 31, 2008 resulted from high credit-related costs during the quarter. Increased credit-related charges were driven by increased levels of
mortgage delinquencies,
defaults and loss severities, as well as downward revisions in expectations of home prices relative to prior quarters. These credit charges were recorded with respect to the following assets and
liabilities:

|                                                           |  | Quarter Ended March 31, 2008
|---------------------------------------------------------- |  | ----------------------------
|
|
|
|
|Provision for credit losses                                |  | $                           
|Provision for losses on representation and warranty claims |  |                             
|Impairment of credit-sensitive retained interests          |  |                             
|Provision for mortgage reinsurance claims                  |  |                             
|Impairment of mortgage-backed securities                   |  |                             
|Inventory adjustments                                      |  |                             
|                                                           |  |                             
|                                                           |  | $                           
|                                                           |  |                             

49

---



Also
affecting the results of the quarter was the secondary market disruption that began in the third quarter of 2007 and has continued through the date of the filing of this Report. The
market disruption has affected the type and volume of loans produced and loans and securities sold in our Mortgage Banking and Capital Markets Segments.

We
discuss our results of operations in detail in the following section,Results of Operations ComparisonQuarters Ended March 31, 2008 and
2007.



During the quarter ended March 31, 2008, our portfolio of loans held for investment and other credit-sensitive assets were affected by the deteriorating
real estate market and economic conditions that have not abated through the date of filing of this Report. We expect credit quality to continue to deteriorate in the near term, which will continue to
cause us to record significant provisions for credit losses and charge-offs relating to these assets.

50

---



Following
is a summary of key credit quality and performance indicators at and for the period ended March 31:

Quarters Ended March 31,% Change2008

2007(dollar amounts in thousands)Key Credit Quality & Performance IndicatorsLoans held for investment at period end(1)

$
95,477,382

$
75,551,461

26
%Nonperforming assets at period end:Nonaccrual loans(2)

$
5,129,562

$
833,238

516
%Foreclosed real estate


863,070


386,219

123
%Total nonperforming assets

$
5,992,632

$
1,219,457

391
%Troubled debt restructurings on accrual status

$
415,147

$


N/MCarrying value of credit-sensitive retained interests at period end

$
483,091

$
1,836,872

(74
%)Loss Reserves and Liabilities:Allowances for credit losses

$
3,417,139

$
477,890

615
%Liability for representations and warranties at period end


935,360


365,254

156
%Liability for impairment losses related to future draw obligations


797,624




N/MLiability for corporate guarantees at period-end


73,243


55,035

33
%$
5,223,366

$
898,179

482
%Provisions for Losses:Credit losses(3)

$
1,528,803

$
157,617

870
%Impairment of credit-sensitive retained interests


441,287


365,553

21
%Representations and warranties


428,469


17,082

N/MCorporate guarantees


28,418


11,041

157
%$
2,426,977

$
551,293

340
%Losses Charged to Reserves and Credit-Sensitive Retained Interests During the Period:Net loan charge-offs

$
606,265

$
38,649

1,469
%Losses absorbed by credit-sensitive retained interests


923,311


81,014

1,040
%Representations and warranties


132,746


41,939

217
%Losses charged to corporate guarantees


1,377


1,431

(4
%)$
1,663,699

$
163,033

920
%


---

51

---





March 31,2008

2007(in thousands)Loans held for sale

$
375,298

$
479,527Government guaranteed loans, held for investment


340,364


307,895$
715,662

$
787,422


Quarters Ended
March 31,2008

2007(in thousands)Provision for loan losses before pool mortgage insurance recoveries

$
1,558,078

$
175,963Provision for losses on unfunded commitments


27,451


5,655Change in estimate of amounts recoverable from pool mortgage insurance


(56,726
)

(24,001
)$
1,528,803

$
157,617




During the second half of 2007, our access to capital was severely challenged when the non-agency segments of the secondary mortgage market and the
commercial paper, medium-term notes and repurchase agreements segments of the public corporate debt markets were severely restricted by illiquidity, particularly for mortgage companies and other
financial institutions. These conditions have not abated through the date of this Report.

In
response to the disruption in the second half of 2007, we accelerated the integration of our mortgage banking activities into our bank subsidiary which has access to stable,
non-capital markets based funding; significantly changed our underwriting standards to focus the majority of our loan production on loans that are available for direct sale or
securitization into programs sponsored by the government-sponsored agencies; issued $2.0 billion of 7.25% convertible cumulative preferred stock; borrowed $11.5 billion from our
unsecured revolving credit facilities; and modified our funding structure to that of a thrift holding company. Because of the adjustments we made to our operations, as of March 31, 2008, we
maintained excess borrowing capacity totaling $27.7 billion from sources we judge to be reliable. On a pro forma basis giving effect to the ratings
action taken by Standard & Poor's on May 2, 2008, discussed below, excess borrowing capacity would have been $17.3 billion as of March 31, 2008.

On
May 2, 2008, Standard & Poor's announced a downgrade of the debt ratings for all Countrywide entities (CFC, CHL and Countrywide Bank), including downgrades of CFC and
CHL's long-term ratings from BBB+ to BB+, a non-investment grade rating. The downgrades were in connection with the disclosure by Bank of America related to
their expected treatment of CFC's debt following the planned merger. After the Standard & Poor's rating action, Moody's issued a comment reaffirming Countrywide's ratings and its Review for
Upgrade status and on May 5, 2008, Fitch Ratings changed its ratings outlook for Countrywide from Rating Watch Positive to Rating Watch Evolving, also due to this disclosure.

Because
of Standard & Poor's downgrade of our debt ratings below investment grade, one of our on-balance sheet financing facilities, Park Monaco, with a capacity of
$10.4 billion will no longer be

52

---



available
to us. The primary purpose of this facility was to provide contingent liquidity. We repaid $244 million outstanding under Park Monaco and we terminated this facility on May 9,
2008. Our liquidity planning provides for several contingencies, including the loss of availability of Park Monaco.



As more fully detailed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2008, and the
Registration Statement on Form S-4 of Bank of America filed on February 12, 2008, as amended by Amendment No. 1 filed on March 27, 2008 and Amendment
No. 2 filed on April 30, 2008, we have entered into a Merger Agreement with Bank of America. The Merger Agreement provides for Countrywide to merge with and into a wholly-owned merger
subsidiary of Bank of America ("Merger Sub"), with Merger Sub continuing as the surviving company.

The
terms of the Merger Agreement provide for the conversion of each share of Countrywide common stock into 0.1822 of a share of Bank of America common stock. Consummation of the Merger,
which is currently anticipated to occur in the third quarter of 2008, is subject to certain conditions, including, among others, Countrywide stockholder and regulatory approvals.

The
Merger Agreement contains certain termination rights for Countrywide and Bank of America, as the case may be, applicable upon the occurrence of certain events specified in the Merger
Agreement.
The Merger Agreement provides that, in the event of the termination of the Merger Agreement under specified circumstances, Countrywide may be required to pay Bank of America a termination fee equal to
$160 million.

The
Merger Agreement provides for both Countrywide and Bank of America to conduct their respective businesses in the ordinary course until the Merger is completed and not to take certain
actions during the period from the date of the Merger Agreement until the date of completion of the Merger.

Critical Accounting Policies

The accounting policies with the greatest impact on our financial condition and results of operations that require the most judgment, and which are most likely to
result in materially different amounts being recorded under different conditions or using different assumptions, pertain to our measurement of provisions and reserves associated with credit risk
inherent in our operations; our mortgage loan sale and securitization activities, including valuation of loans pending sale; our investments in MSRs and retained interests and our use of derivatives
to manage interest rate risk, including the valuation of interest rate lock commitments. A discussion of the critical accounting policies related to these activities is included in our 2007 Annual
Report.

Effective
January 1, 2008, we adopted SEC Staff Accounting Bulletin No. 109 ("SAB 109"). SAB 109 supersedes Staff Accounting Bulletin No. 105
("SAB 105"),Application of Accounting Principles to Loan Commitments. SAB 109 changed the requirements of SAB 105 to require that
the expected net future cash flows related to the servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The
guidance is effective on a prospective basis to derivative loan commitments issued or modified after December 31, 2007. The effect of this guidance on Countrywide is for us to recognize higher
estimated fair values of our interest rate lock commitments when the commitments are made, effectively changing the timing of revenue recognition to the time a derivative loan commitment is issued.
Before adoption of SAB 109, revenue was recognized upon transfer of the loans in transactions that met the accounting requirements for sale accounting. The effect of adoption of SAB 109
was to increase gain on sale of loans and securities by $357.7 million. This amount represents the revenue recognized at the time the loan commitment was issued that is included in the value of
our interest rate lock commitments or Mortgage Loan Inventory at March 31, 2008.

53

---



For
loan commitments issued after December 31, 2007, the Company estimates the fair value of an IRLC based on the estimated fair value of the underlying mortgage loan less the
commitment price
adjusted for the probability that the mortgage loan will fund within the terms of the IRLC. The Company generally estimates the fair value of the underlying loan based on quoted market prices for
securities backed by similar types of loans together with estimated servicing value adjusted for the estimated costs and profit margin associated with securitization. The estimated probability of
mortgage loan funding is based on the Company's historical experience and is adjusted to reflect the risk of variability in such probability using an option pricing model. If quoted market prices for
relevant securities are not available, fair value is estimated based on other relevant factors, including dealer price quotations, prices available for similar securities, and valuation models
intended to approximate the amounts that would be received from a third party.

As
detailed in Item 7Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting
Policiesof our 2007 Annual Report, many of our key accounting policies rely on estimates of value. The estimates for those items identified in that Section of the 2007 Annual
Report all fall in Level 3 of the fair value hierarchy. Accordingly, many of our estimates of the fair value amounts included in our financial statements depend on significant assumptions that
are difficult to observe or derive from marketplace data.

54

---



Changes in significant assumptions underlying our estimates can have a significant effect on the values we have recorded. Following is an illustration of the effect of a change in key
assumptionswhere applicable to the specific instrument typeson our estimates of value of these items as of March 31, 2008:

|                                             |                                |   |           |          |   | Investments in Other Financial Instruments |         |   |           
|-------------------------------------------- | ------------------------------ | - | --------- | -------- | - | ------------------------------------------ | ------- | - | ----------
|
|
|Assets:                                      |                                |   |           |          |   |                                            |         |   |           
|Level 3 balances at March 31, 2008:          |                                | $ | 2,411,044 |          | $ | 1,346,992                                  |         | $ | 14,658,098
|                                             |                                |   |           |          |   |                                            |         |   |           
|Weighted-average rate(1) or OAS:             |                                |   |           |          |   |                                            |         |   |           
|                                             | Effect of 20% adverse change   |   | $         | (113,940 | ) | $                                          | (53,962 | ) | $         
|                                             | Effect of 20% favorable change |   | $         | 132,713  |   | $                                          | 82,956  |   | $         
|Weighted-average prepayment speed:           |                                |   |           |          |   |                                            |         |   |           
|                                             | Effect of 20% adverse change   |   |           |         |   | $                                          | (84,316 | ) | $         
|                                             | Effect of 20% favorable change |   |           |         |   | $                                          | 106,419 |   | $         
|Weighted-average net lifetime credit losses: |                                |   |           |          |   |                                            |         |   |           
|                                             | Effect of 20% adverse change   |   |           |         |   |                                            |        |   |           
|                                             | Effect of 20% favorable change |   |           |         |   |                                            |        |   |           
|Weighted-average funding ratio:              |                                |   |           |          |   |                                            |         |   |           
|                                             | Effect of 20% adverse change   |   |           |         |   |                                            |        |   |           
|                                             | Effect of 20% favorable change |   |           |         |   |                                            |        |   |           

|
|

|                                    |                                | Asset-backed Secured Financings |          
|----------------------------------- | ------------------------------ | ------------------------------- | ---------
|
|Liabilities:                        |                                |                                 |          
|Level 3 balances at March 31, 2008: |                                | $                               | 1,692,472
|                                    |                                |                                 |          
|Weighted-average rate(1)            |                                |                                 |          
|                                    | Effect of 20% adverse change   |                                 | $        
|                                    | Effect of 20% favorable change |                                 | $        

---

The
sensitivities shown are solely for illustrative purposes and should be used with caution. This information is furnished to provide the reader with a basis for assessing the
sensitivity of the values presented to changes in key assumptions. Certain key assumptions are common to several of the financial statement items that are measured at their estimated fair value. While
the qualitative nature of the assumption may be the same, the assumptions vary by specific instrument and do not necessarily change at the same rate. A 20% change in an assumption for one of the
financial statement items does not necessarily imply that assumption would also change in the same direction or by the same amount for other items. As the figures indicate, changes in fair value based
on a given percentage variation in individual assumptions generally cannot be extrapolated. In the preceding table, the effect of a variation in a particular assumption on the fair value of the item
is calculated without changing any other assumption. In reality, changes in one factor may coincide with changes in another, which could compound or counteract the sensitivities.

55

---



Results of Operations ComparisonQuarters Ended March 31, 2008 and 2007



We recorded a net loss for the quarter ended March 31, 2008 of $893.1 million, as compared to net earnings of $434.0 million in the
year-ago period. Our diluted loss per share was $1.60 compared to diluted earnings per share of $0.72 in the year-ago period.

Pre-tax
(loss) earnings by segment are summarized below:

Quarters Ended
March 31,2008

2007(in thousands)Mortgage Banking:Loan Production

$
232,375

$
170,654Loan Servicing


(817,546
)

(100,306
)Loan Closing Services


33,175


29,956Total Mortgage Banking


(551,996
)

100,304Banking


(960,371
)

288,094Capital Markets


997


132,208Insurance


35,501


179,658Global Operations


10,979


4,006Other(1)


(27,337
)

(3,475
)Total

$
(1,492,227
)
$
700,795


---

The
Mortgage Banking Segment incurred a pre-tax loss of $552.0 million, a decline of $652.3 million from the year-ago period. This change was
largely attributable to increases in credit-related charges of $852.2 million in the Loan Servicing Sector combined with reduced loan sales in the Loan Production Sector, partially offset by a
$357.7 million positive impact on gain on sale due to the adoption of the SEC's Staff Accounting Bulletin No. 109 in the first quarter of 2008.

The
Banking Segment incurred a pre-tax loss of $960.4 million in the first quarter of 2008, a $1,248.5 million decline from the year-ago period,
largely due to an increase in the provision for credit losses of $1,186.1 million.

The
Capital Markets Segment was negatively affected by the continued disruption in the capital markets and declines in the value of non-agency securities and loans. As a
result, the Capital Markets Segment reported pre-tax earnings of $1.0 million during the quarter ended March 31, 2008, a decline of $131.2 million from the
year-ago period.

The
Insurance Segment was negatively affected by an increase in the provision for mortgage reinsurance claims arising from a worsening housing market and resulting higher actual and
projected default rates. For the quarter ended March 31, 2008, the provision for mortgage reinsurance claims was $235.9 million, an increase of $295.8 million from the
year-ago quarter. Partially offsetting this decline is increased profitability in Balboa Life and Casualty of $124.8 million from the first quarter of 2007 to the first quarter of
2008.

56

---



Operating Segment Results

Total loan production by segment and product, net of intercompany sales, is summarized below:

Quarters Ended
March 31,2008

2007(in millions)Segment:Mortgage Banking

$
67,370

$
110,567Banking Operations


5,640


2,568Capital MarketsConduit acquisitions from nonaffiliates


3


1,829Total Residential Mortgage Loan Fundings


73,013


114,964Commercial Real Estate


76


2,011$
73,089

$
116,975Product:Prime Mortgage

$
70,792

$
96,544Prime Home Equity


2,221


10,539Nonprime Mortgage





7,881Commercial Real Estate


76


2,011$
73,089

$
116,975


Our
total loan production was $73.1 billion during the quarter ended March 31, 2008, as compared to $117.0 billion in the year-ago period. Loan
production decreased due to an estimated 31% decline in the total mortgage market from the year-ago period and a decrease in our market share from 15.4% to 14.0% (based on our internal
market estimates), primarily in our Wholesale Lending Channel and Correspondent Lending Channel. The mortgage market declined from the year-ago period largely as a result of an
industry-wide tightening of underwriting and loan program guidelines made in response to increased marketplace concerns about mortgage loan performance, and as a result of a weakening
housing market. The tightening of underwriting and loan program guidelines included reductions in the availability of reduced documentation loans and loans on investor-owned properties and a reduction
in the maximum loan-to-value or combined loan-to-value ratios. We discontinued production of Nonprime Mortgage loans in late 2007.

The
following table summarizes loan production by purpose and by interest rate type:

Quarters Ended
March 31,2008

2007(in millions)Purpose:Non-purchase

$
52,344

$
72,601Purchase


20,745


44,374$
73,089

$
116,975Interest Rate Type:Fixed

$
60,861

$
75,695Adjustable


12,228


41,280$
73,089

$
116,975


57

---



Mortgage Banking Segment

The Mortgage Banking Segment includes the Loan Production, Loan Servicing and Loan Closing Services Sectors.



The Loan Production Sector sources mortgage loans through our three production channelsthe Retail Channel (Consumer Markets and Full Spectrum
Lending), Wholesale Lending Channel and Correspondent Lending Channel of Countrywide Bank, FSB ("Countrywide Bank" or the "Bank"). As a result of the market disruption that began in late 2007, we
decided to accelerate our plans to migrate virtually all of our loan production from CHL into the Bank, which has greater access to sources of liquidity. Effective January 1, 2008, our
production channels had moved into the Bank. During the quarter ended March 31, 2008, 96% of the loans funded in the Mortgage Banking Segment were funded through the Bank compared to 37% during
the year-ago period. The mortgage loan production, the related balance sheet and the income relating to the holding and sale of these loans are included in our Mortgage Banking Segment
regardless of whether the activity occurred in CHL or Countrywide Bank.

The
following table summarizes Mortgage Banking loan production by channel, by mortgage loan type, by purpose and by interest rate type:

Quarters Ended
March 31,2008

2007(in millions)Channel:Originated:Retail:Consumer Markets

$
22,341

$
29,382Full Spectrum Lending


5,678


9,60228,019


38,984Wholesale Lending


8,719


22,176Total originated


36,738


61,160PurchasedCorrespondent Lending


30,632


49,407$
67,370

$
110,567Mortgage Loan Type:Prime Mortgage

$
66,322

$
93,833Prime Home Equity


1,048


9,234Nonprime Mortgage





7,500$
67,370

$
110,567Purpose:Non-purchase

$
48,171

$
68,692Purchase


19,199


41,875$
67,370

$
110,567Interest Rate Type:Fixed

$
59,986

$
72,516Adjustable


7,384


38,051$
67,370

$
110,567


58

---



The
pre-tax earnings of the Loan Production Sector are summarized below:

Quarters Ended March 31,2008

2007Amount

Percentage of Loan Production Volume

Amount

Percentage of Loan Production Volume(dollar amounts in thousands)Revenues:Prime Mortgage

$
1,221,369



$
989,956Nonprime Mortgage


(106,180
)



(2,744
)Prime Home Equity


(10,871
)



176,931Total revenues


1,104,318

1.64
%

1,164,143

1.05
%Expenses:Compensation


510,820

0.76
%

535,380

0.48
%Other operating


246,218

0.37
%

320,322

0.29
%Allocated corporate


114,905

0.17
%

137,787

0.13
%Total expenses


871,943

1.30
%

993,489

0.90
%Pre-tax earnings

$
232,375

0.34
%
$
170,654

0.15
%Total Mortgage Banking loan production

$
67,370,000



$
110,567,000


Revenues
decreased from the year-ago period driven primarily by a $47.2 billion decrease in the volume of loans sold, partially offset by an increase in margins on
Prime Mortgage Loans caused in part by the change in accounting for loan origination costs and fees discussed below. In the quarter ended March 31, 2008, $61.4 billion of mortgage loans,
or 91% of Mortgage Banking loan production, was sold compared to $108.6 billion, or 98% of Mortgage Banking loan production in the quarter ended March 31, 2007. In addition, the
Company's adoption of SAB 109 aided profitability in the quarter ended March 31, 2008 by $357.7 million. The adoption of this guidance results in revenue being recorded upon
initial recognition of derivative interest rate lock commitments. In prior periods, revenue was recorded at the time of the sale of loans.

Expenses
decreased from the prior year driven primarily by a reduction in variable compensation expenses that resulted from the decline in the volume of loans produced, partially offset
by a reduction in the amount of origination expenses deferred. Effective January 1, 2008, we adopted SFAS 159 and elected to account for the majority of our loans held for sale at
estimated fair value. Because of this
election, origination costs and fees are recorded in earnings as incurred instead of being deferred. Significant adjustments have been made to our infrastructure and staffing levels as appropriate for
a smaller origination market.

59

---



Following
is a summary of our loan origination channels' sales organizations:

March 31,2008

2007Facilities



FacilitiesSales Force

Branches

Call Centers

Sales Force

Branches

Call CentersChannel:Retail:Consumer Markets

8,446

638

5

9,126

769

5Full Spectrum Lending

2,262

93

4

6,233

224

1010,708

731

9

15,359

993

15Wholesale Lending

552

39



1,410

52

Correspondent Lending

114





182



11,374

770

9

16,951

1,045

15


The
following table summarizes the number of people included in the Loan Production Sector workforce:

March 31,2008

2007Sales

11,374

16,951Operations:Regular employees

7,114

10,126Temporary staff

673

1,4077,787

11,533Administration and support

3,139

3,365Total Loan Production Sector workforce

22,300

31,849




The results of our Loan Servicing Sector include fees and other income earned and expenses incurred for servicing loans for others; the financial performance of
our investments in MSRs, retained interests, the Mortgage Banking Segment's portfolio of loans held for investment and the risk management activities related to these assets; and profits from our
subservicing activities. The long-term performance of this sector is affected primarily by the level and direction of interest rates, the level of projected and actual prepayments in our
servicing portfolio, projected and actual credit losses, our operational effectiveness and our ability to manage interest-rate and credit-spread risk.

Our
servicing portfolio grew to $1.5 trillion at March 31, 2008, a 10% increase from the year-ago period. At the same time, the overall weighted-average note rate of
loans in our servicing portfolio remained unchanged at 6.5%.

60

---



The following table summarizes the pre-tax results of operations for the Loan Servicing Sector:

Quarters Ended March 31,2008

2007Amount

Percentage of Average Servicing Portfolio(4)

Amount

Percentage of Average Servicing Portfolio(4)(dollar amounts in thousands)Servicing fees, net of guarantee fees

$
1,174,406

0.320
%
$
1,079,980

0.328
%Escrow balance income


68,598

0.018
%

203,820

0.062
%Miscellaneous fees


168,010

0.046
%

208,839

0.063
%Income from retained interests


98,369

0.027
%

147,544

0.045
%Realization of expected cash flows from mortgage servicing rights


(753,626
)
(0.205
%)

(799,882
)
(0.243
%)Operating revenues


755,757

0.206
%

840,301

0.255
%Direct expenses


268,467

0.073
%

178,694

0.054
%Allocated corporate expenses


24,068

0.007
%

22,066

0.007
%Total expenses


292,535

0.080
%

200,760

0.061
%Operating earnings


463,222

0.126
%

639,541

0.194
%Change in fair value of mortgage servicing rights(1)


(1,558,309
)
(0.424
%)

(8,839
)
(0.003
%)Servicing Hedge gain (loss)(1)(2)


1,667,107

0.454
%

(161,438
)
(0.048
%)Valuation changes, net of Servicing Hedge


108,798

0.030
%

(170,277
)
(0.051
%)Interest expense


(129,896
)
(0.036
%)

(213,006
)
(0.065
%)Loan Servicing Sector earnings before credit charges


442,124

0.120
%

256,258

0.078
%Credit charges:Adjustment to representations and warranty liability


(404,173
)
(0.110
%)

(31,213
)
(0.009
%)Impairment of credit-sensitive retained interests, net of hedge


(444,487
)
(0.121
%)

(317,853
)
(0.097
%)Provision for loan losses


(208,875
)
(0.057
%)

(7,498
)
(0.002
%)Change in fair value of senior and mezzanine securities(3)


(202,135
)
(0.055
%)



0.000
%Credit charges


(1,259,670
)
(0.343
%)

(356,564
)
(0.108
%)Pre-tax loss

$
(817,546
)
(0.223
%)
$
(100,306
)
(0.030
%)Average servicing portfolio

$
1,468,544,000



$
1,316,260,000


---

61

---



The
Loan Servicing Sector pre-tax loss was $817.5 million during the quarter ended March 31, 2008 compared to a loss of $100.3 million in the
year-ago period. The decline in profitability is due primarily to higher credit charges in the quarter ended March 31, 2008 driven by increased levels of mortgage delinquencies,
defaults and loss severity levels, as well as downward revisions in expectations of future home prices compared to prior quarters. A decrease in income from escrow balances caused by lower earnings
rates due to lower short-term interest rates in the 2008 quarter also contributed to the increase in the pre-tax loss. These declines were partially offset by improvement in
the MSR valuation changes, net of the Servicing Hedge. The decline in interest rates during the current period resulted in a decline in the value of the MSRs and gains in the Servicing Hedge. However,
the MSR valuation was positively impacted by slower current and expected prepayment speeds resulting from the market disruption in late 2007. These factors produced a gain of $108.8 million in
valuation changes, net of the Servicing Hedge in the current period compared to an expense of $170.3 million in the year-ago period.



This sector is comprised of the LandSafe companies, which provide credit reports, flood determinations, appraisals and title reports primarily to the Loan
Production Sector and to third parties as well.

The
LandSafe companies produced $33.2 million in pre-tax earnings during the quarter ended March 31, 2008, representing an increase of $3.2 million, or
11%, from the year-ago period.

During
the quarter ended March 31, 2008, Fannie Mae and Freddie Mac announced a change in their policies governing acceptable appraisal practices for loans they purchase from
mortgage lenders. The revised standards, which are effective for loans originated beginning on January 1, 2009, will prohibit Countrywide from using in-house appraisal staff from
conducting initial appraisals and prohibit use by the Company of appraisal management companies it owns or controls. The effect of this policy will preclude LandSafe from providing appraisal services
in support of the Company's loan production activities. Currently, approximately 44% of LandSafe's revenues come from property appraisals made in support of loan originations. While we have not
developed specific plans on adapting our operations to these new policies, we have concluded that this change in the policies of the GSEs will not have a significant effect on our consolidated results
of operations.

Banking Segment

The Banking Segment includes Banking Operationsprimarily the investment and fee-based activities of Countrywide Bankalong
with the activities of Countrywide Warehouse Lending ("CWL"). Banking Operations invests in mortgage loans sourced from the Loan Production Sector, and to a lesser extent, loans and
mortgage-backed securities purchased from nonaffiliates. CWL provides other mortgage lenders with temporary financing secured by mortgage loans. The Banking Segment incurred a pre-tax loss
of $960.4 million during the quarter ended March 31, 2008, compared to pre-tax earnings of $288.1 million during the year-ago period.

62

---



Following
is the composition of pre-tax results:

Quarters Ended
March 31,2008

2007(in thousands)Banking Operations

$
(925,225
)
$
294,073CWL


(1,551
)

9,844Allocated corporate expenses


(33,595
)

(15,823
)Total Banking Segment pre-tax (loss) earnings

$
(960,371
)
$
288,094


The
revenues and expenses of Banking Operations are summarized in the following table:

Quarters Ended
March 31,2008

2007(dollar amounts in thousands)Interest income

$
1,805,273

$
1,388,263Interest expense


(1,171,818
)

(891,523
)Net interest income


633,455


496,740Provision for credit losses(1)


(1,315,859
)

(129,217
)Net interest income after provision for credit losses


(682,404
)

367,523Non-interest income


6,292


40,734Non-interest expense:Mortgage insurance expense


(27,227
)

(19,394
)Other non-interest expense


(221,886
)

(94,790
)Pre-tax (loss) earnings

$
(925,225
)
$
294,073Efficiency ratio(2)


43
%

22
%After-tax return on average assets


(1.93
%)

0.88
%


---

Banking
Operations incurred a pre-tax loss of $925.2 million during the quarter ended March 31, 2008, a decrease of $1,219.3 million from
pre-tax earnings of $294.1 million for the year-ago period. This decrease resulted primarily from a higher provision for credit losses and an increase in
non-interest expense, partially offset by an increase in net interest income. The Banking Operations' provision for credit losses increased by $1.2 billion during the quarter ended
March 31, 2008 compared to the year-ago period. The increase in the provision for credit losses was primarily due to increased losses inherent in the loan portfolio, resulting from
increased levels of mortgage delinquencies, defaults and loss severities along with downward revisions in expectations of home prices relative to prior quarters. The provision for credit losses and
the related allowance for credit losses is affected by many factors, including economic conditions (for example, housing prices, interest rates and unemployment rates), borrower credit profiles,
delinquency and loan seasoning and prepayments. Non-interest expense increased $134.9 million, primarily due to increases in loan fulfillment costs charged to Banking Operations and
to losses on foreclosed real estate.

63

---



The
components of net interest income of Banking Operations are summarized below:

|                                             |                                            | Quarters Ended March 31,                          |  
|-------------------------------------------- | ------------------------------------------ | ------------------------------------------------- | -
|
|
|
|Interest-earning assets:                     |                                            |                                                   |  
|                                             | Loans(1)                                   |                                                   | $
|                                             | Securities available for sale(2)           |                                                   |  
|                                             | Short-term investments                     |                                                   |  
|                                             | FHLB securities and FRB stock              |                                                   |  
|                                             |                                            |                                                   |  
|                                             |                                            | Total earning assets                              |  
|                                             | Allowance for loan losses                  |                                                   |  
|                                             | Other assets                               |                                                   |  
|                                             |                                            |                                                   |  
|                                             |                                            | Total assets                                      |  
|                                             |                                            |                                                   |  
|Interest-bearing liabilities:                |                                            |                                                   |  
|                                             | Money market deposits and savings accounts |                                                   | $
|                                             | Company-administered custodial deposits(3) |                                                   |  
|                                             | Time deposits                              |                                                   |  
|                                             |                                            |                                                   |  
|                                             |                                            | Total interest-bearing deposits.                  |  
|                                             | Borrowings                                 |                                                   |  
|                                             |                                            |                                                   |  
|                                             |                                            | Total interest-bearing liabilities                |  
|Non interest-bearing liabilities and equity: |                                            |                                                   |  
|                                             | Checking accounts                          |                                                   |  
|                                             | Other liabilities                          |                                                   |  
|                                             | Shareholder's equity                       |                                                   |  
|                                             |                                            |                                                   |  
|                                             |                                            | Total non interest-bearing liabilities and equity |  
|                                             |                                            |                                                   |  
|                                             |                                            | Total liabilities and shareholder's equity        |  
|                                             |                                            |                                                   |  
|Net interest income                          |                                            |                                                   |  
|                                             |                                            |                                                   |  
|Net interest spread(4)                       |                                            |                                                   |  
|Net interest margin(5)                       |                                            |                                                   |  

---

64

---



The
dollar amounts of interest income and interest expense vary depending upon changes in interest rates and upon the relative volumes of our various interest-earning assets and
interest-bearing liabilities. Changes attributable to (i) changes in volume (changes in average outstanding balances multiplied by the prior period's average interest rate), (ii) changes
in rate (changes in average interest rate multiplied by the prior period's volume) and (iii) changes in rate/volume (changes in rate multiplied by the change in volume)which were
allocated proportionately to the changes in volume and the changes in rate and included in the relevant column beloware as follows:

Quarter Ended
March 31, 2008 vs. March 31, 2007Increase (Decrease)
Due toVolume

Rate

Total Changes(in thousands)Interest-earning assets:Loans

$
290,500

$
(68,651
)
$
221,849Securities available for sale


132,760


5,275


138,035Short-term investments


46,368


(591
)

45,777FHLB securities and FRB stock


11,687


(338
)

11,349Total interest income

$
481,315

$
(64,305
)
$
417,010Interest-bearing liabilities:Money market deposits and savings accounts

$
(30,322
)
$
32,913

$
2,591Company-administered custodial deposits


49,226


58,690


107,916Time deposits


(99,987
)

(2,085
)

(102,072
)Total deposits


(81,083
)

89,518


8,435Total borrowings


(255,791
)

(32,939
)

(288,730
)Total interest expense


(336,874
)

56,579


(280,295
)Net interest income

$
144,441

$
(7,726
)
$
136,715


The
increase in net interest income was primarily due to a $31.9 billion, or 40% increase in average interest-earning assets offset by a 20 basis point decrease in net interest
margin. The decrease in the net interest margin was primarily a result of the negative effect on our yields from interest reversals on nonaccrual loans combined with relative increases in the rates
offered on deposit accounts.

65

---



Banking
Operations balance sheets are as follows:

March 31, 2008

December 31, 2007Amount

Rate

Amount

Rate(dollar amounts in thousands)AssetsShort-term investments

$
4,004,747

3.00
%
$
3,770,100

4.74
%Loans, net of allowance for loan losses of $3,005,345 and $2,141,247, respectively


84,774,353

7.19
%

85,431,706

7.55
%Securities available for sale


14,818,166

5.62
%

17,730,604

5.41
%FHLB securities and FRB stock


2,096,434

6.00
%

2,170,683

6.00
%Total interest-earning assets


105,693,700

6.79
%

109,103,093

7.08
%Other assets


4,496,462




3,953,630Total assets

$
110,190,162



$
113,056,723Liabilities and EquityDeposits:(1)Customer

$
50,844,002

4.66
%
$
48,057,474

5.15
%Company-administered escrow deposit accounts


10,138,657

3.12
%

9,604,446

4.76
%Borrowings


36,729,232

4.73
%

42,569,657

4.82
%Total interest-bearing liabilities


97,711,891

4.52
%

100,231,577

4.98
%Non-interest bearing deposits:Company-administered escrow deposit accounts


2,648,724




2,986,955Other


634,173




535,526Other liabilities


1,095,663




944,699Shareholder's equity


8,099,711




8,357,966Total liabilities and equity

$
110,190,162



$
113,056,723Primary spread(2)




2.27
%



2.10
%Nonaccrual loans

$
4,083,061



$
2,884,067


---

The
Banking Segment also includes the operations of CWL. CWL's pre-tax results declined by $11.4 million during the quarter ended March 31, 2008
in comparison to the year-ago period. This decline was largely due to a 67% decrease in average mortgage warehouse advances, which resulted primarily from a decrease in overall market
funding activity, product restrictions and a reduction in the number of mortgage lending customers. Warehouse lending advances were $1.1 billion at March 31, 2008 and had an average
yield of 4.8% during the quarter ended March 31, 2008.

Capital Markets Segment

Our Capital Markets Segment recorded pre-tax earnings of $1.0 million during the quarter ended March 31, 2008, a decrease of
$131.2 million from the year-ago period.

The
market dislocation that began in the third quarter of 2007 and has persisted through the date of this Report caused significant disruption to the activities of our Capital Markets
Segment. Specifically, the markets in which this segment operates became illiquid and the availability of financing

66

---



for
certain of the segment's activities was severely reduced. As a result, we curtailed Capital Markets business activities.

The
following table shows revenues, expenses and pre-tax earnings of the Capital Markets Segment:

Quarters Ended
March 31,2008

2007(in thousands)Revenues:Conduit

$
43,872

$
68,818Commercial real estate


41,509


48,232Underwriting


12,441


67,388Brokering


10,151


12,377Securities trading


(24,911
)

34,764Other


(1,617
)

29,077Total revenues


81,445


260,656Expenses:Operating expenses


76,413


121,985Allocated corporate expenses


4,035


6,463Total expenses


80,448


128,448Pre-tax earnings

$
997

$
132,208


During
the quarter ended March 31, 2008, conduit revenues decreased compared to the year-ago period due to a reduction in volume of loans sold. Conduit revenues were
aided in the first quarter of 2008 by income in the amount of $37.9 million, which partially reversed
losses recorded in the latter part of 2007 on previously securitized loans that qualified for sale accounting in the current quarter.

During
the quarter ended March 31, 2008, the commercial real estate finance activities of the Capital Markets Segment generated revenues totaling $41.5 million compared to
$48.2 million in the year-ago period. The decrease in revenue was due primarily to a decrease in the volume of loans sold partially offset by hedging gains, including
$33.9 million of credit default swap gains. From late 2007 our commercial real estate lending activities were substantially curtailed because of the loss of available outside financing and
disruptions in the securities market for commercial mortgage-backed securities.

During
the quarter ended March 31, 2008, both our securities trading and underwriting revenues were negatively impacted by the continued disruption in the capital markets and
declines in the value of non-agency securities and loans resulting from credit spread widening partially offset by gains on credit default swaps related to our trading portfolio.

67

---



The following table shows the composition of Countrywide Securities Corporation ("CSC") securities trading volume, which includes intersegment trades with the Mortgage Banking Segment,
by instrument:

Quarters Ended
March 31,2008

2007(in millions)Mortgage-backed securities

$
686,041

$
560,269Asset-backed securities


390


33,641Other


15,748


38,703Subtotal(1)


702,179


632,613U.S. Treasury securities


225,584


365,329Total securities trading volume

$
927,763

$
997,942


---

Insurance Segment

The Insurance Segment's pre-tax earnings decreased by $144.2 million over the year-ago period to $35.5 million during the
quarter ended March 31, 2008. The following table shows pre-tax earnings by component:

Quarters Ended
March 31,2008

2007(in thousands)Balboa Reinsurance Company

$
(136,140
)
$
131,123Balboa Life & Casualty(1)


181,444


56,612Allocated corporate expenses


(9,803
)

(8,077
)Total Insurance Segment pre-tax earnings

$
35,501

$
179,658


---

The
following table shows net insurance premiums earned:

Quarters Ended
March 31,2008

2007(in thousands)Balboa Reinsurance Company

$
89,975

$
63,260Balboa Life & Casualty


398,854


270,917Total net insurance premiums earned

$
488,829

$
334,177


68

---



The
following table shows insurance claim expenses:

Quarters Ended March 31,2008

2007Amount

As Percentage of Net Earned Premiums

Amount

As Percentage of Net Earned Premiums(dollar amounts in thousands)Balboa Reinsurance Company

$
235,937

262
%
$
(59,835
)
N/MBalboa Life & Casualty


119,714

30
%

117,140

43
%Total insurance claim expenses

$
355,651



$
57,305


Our
mortgage reinsurance business's pre-tax loss totaled $136.1 million, a decline in results of $267.3 million from the year-ago period, driven by
a $295.8 million increase in mortgage reinsurance claims provision during the quarter ended March 31, 2008, as compared to the year-ago period. The increase in the provision
for mortgage reinsurance claims is due to increased projection for future claims payments, driven primarily by a worsening housing market and resulting higher actual and projected default rates. The
year-ago period included a $74.0 million reversal of loss reserves related to the 2003 books of business, on which negligible remaining loss exposure was deemed to exist in the
first quarter of 2007.

During
the first quarter of 2008, Freddie Mac announced a temporary change to its private mortgage insurer requirements. Effective for loans funded on or after June 1, 2008,
Freddie Mac-approved private mortgage insurers may not cede new risk if the gross risk or gross premium ceded to captive mortgage companies, such as Balboa Reinsurance Company, is greater
than 25%. Because the companies for which Balboa Reinsurance Company provides reinsured mortgage insurance are all Freddie Mac-approved private mortgage insurers, this temporary policy
change will have a direct impact on all of our reinsurance business.

Presently,
private mortgage insurers cede on average 38% of their premiums to us. Therefore, while Freddie Mac's temporary policy change is in effect, Countrywide will not be able to
underwrite the same level of risk or realize the same level of premium revenue on new business as it has in the past. The effect of this temporary change on the profitability of our reinsurance
business has not yet been determined and will depend, in part, on the agreements we negotiate with the private mortgage insurance companies whose risk we reinsure during the coming months.

Our
Life and Casualty insurance business produced pre-tax earnings of $181.4 million, an increase of $124.8 million, from the year-ago period. The
increase in earnings was primarily driven by a $127.9 million, or 47%, increase in net earned premiums during the quarter ended March 31, 2008 in comparison to the year-ago
period while insurance claims expense only increased slightly. The increase in net earned premiums was primarily attributable to growth in lender-placed insurance. The small increase in insurance
claim expenses was the result of growth in premiums partially offset by an improvement in claims loss experience and a decrease in catastrophe losses.

Global Operations Segment

Global Operation's pre-tax earnings totaled $11.0 million during the quarter ended March 31, 2008, an increase of $7.0 million
from the year-ago period. The increase in earnings was primarily due to continued offshore expansion efforts in India and the UK.

69

---



Detailed Line Item Discussion of Consolidated Revenue and Expense Items



Gain on sale of loans and securities is summarized below:

Quarters Ended March 31,2008

2007Gain on Sale



Gain on SaleLoans Sold

Amount

Margin(2)

Loans Sold

Amount

Margin(2)(dollar amounts in thousands)Mortgage Banking:Prime Mortgage Loans

$
60,751,809

$
1,167,990

1.92
%
$
92,879,139

$
931,571

1.00
%Nonprime Mortgage Loans


3,281


(108,506
)
N/M


7,890,022


(37,815
)
N/MPrime Home Equity Loans:Initial sales


4,585


(28,360
)
N/M


6,786,835


143,204

2.11
%Subsequent draws


657,228


14,420

2.19
%

1,043,140


27,462

2.63
%661,813


(13,940
)
N/M


7,829,975


170,666

2.18
%Total Production Sector


61,416,903


1,045,544

1.70
%

108,599,136


1,064,422

0.98
%Servicing Sector





(404,173
)
N/M





(31,262
)
N/M$
61,416,903


641,371

1.04
%
$
108,599,136


1,033,160

0.95
%Capital Markets:Conduit activities(1)

$
1,850,481


36,723

1.98
%
$
7,434,385


57,283

0.77
%Underwriting


N/A


9,279

N/A


N/A


64,166

N/ACommercial real estate

$
161,529


31,708

N/M

$
1,490,272


37,565

2.52
%Securities trading and other


N/A


(71,936
)
N/A


N/A


30,782

N/A5,774







189,796Inter-sector hedge allocation


N/A


(340,500
)
N/A


N/A




N/AOther


N/A


(17,334
)
N/A


N/A


11,148

N/A$
289,311






$
1,234,104


---



Mortgage Banking gain on sale decreased in the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007, due primarily to lower
sales and a higher provision expense applicable to estimated future representations and warranty claims.

70

---





Gain on sale of Prime Mortgage Loans increased in the quarter ended March 31, 2008 as compared to the quarter ended March 31, 2007, due primarily to
the Company's adoption of SAB 109, which aided profitability in the quarter ended March 31, 2008 by $357.7 million. The adoption of this guidance results in revenue being recorded
upon initial recognition of derivative interest rate lock commitments. Prior to adoption, revenue was recorded when the loans were sold. In addition, our election to account for the majority of our
loans held for sale at estimated fair value effective January 1, 2008 positively impacted prime gain on sale margins. Because of this election, origination costs and fees are recorded in
earnings as incurred instead of being deferred, which resulted in increased prime gain on sale margins of approximately $104 million. This amount is offset by higher production expenses.
Increased gain on sale margins on Prime Mortgage Loans also contributed to the increase in gain on sale of Prime Mortgage Loans. These positive factors were partially offset by a 35% decline in the
volume of loans sold.

Loss
on sale of Nonprime Mortgage Loans increased in the quarter ended March 31, 2008 as compared to the year-ago period due primarily to a decline in the volume of
nonprime loans produced and sold because we discontinued production of Nonprime Mortgage Loans in late 2007. The loss in the quarter ended March 31, 2008 consisted primarily of valuation
adjustments on nonprime loans held for sale due to lessened liquidity for non-agency loans and credit spread widening. These loans included $1.9 billion of loans that have
previously been securitized but which did not qualify as sales in accordance with SFAS 140.

Gain
on sale of Prime Home Equity Loans decreased in the quarter ended March 31, 2008 as compared to the year-ago period due primarily to a decrease in sales of such
loans.



We estimate our liability for representations and warranties at the time of sale and update our estimates quarterly. At the time of sale, the liability incurred
adjusts our gain on sale. Subsequent to sale, adjustments to our liability for representations and warranties are included in our Loan Servicing Sector. The expense applicable to estimated future
representations and warranty claims increased to $456.4 million in the quarter ended March 31, 2008 from $41.7 million in the year-ago period. Of these amounts,
$404.2 million and $31.3 million for the current quarter and the year-ago quarter, respectively, were adjustments made subsequent to sale and are included in the Loan
Servicing Sector loss on sale of loans. The increase was primarily driven by worsening trends and expectations for delinquencies and home prices and the related increase in the projection of future
defaults to which representation and warranty claims are correlated.



During the quarter ended March 31, 2008, conduit gain on sale decreased compared to the year-ago period due to a reduction in the volume of
loans. Gain on sale was aided by income in the amount of $37.9 million, which partially reversed losses recorded in 2007 on previously securitized loans that qualified for sales accounting
under SFAS 140 in the first quarter of 2008.

During
the quarter ended March 31, 2008, both our securities trading and underwriting revenues were negatively impacted by the continued disruption in the capital markets and
declines in the value of non-agency securities and loans resulting from credit spread widening.

During
the quarter ended March 31, 2008, commercial real estate gain on sale was aided by $33.9 million gains on credit default swaps.

71

---





As discussed in the section of this Report entitledManagement's Discussion and Analysis of Financial Condition and Results of
OperationsQuantitative and Qualitative Disclosures About Market Risk, during the quarter ended March 31, 2008 we managed in aggregate the changes in value
of our Mortgage Banking assets arising from Market Spread risk, while maintaining separate portfolios of financial instruments to manage the interest rate risk inherent in our production and servicing
assets. Accordingly, changes in the value of sector assets and the related hedge instruments (collectively the "Position") arising from changes in Market Spreads were allocated between Loan Production
and Loan Servicing sectors. In the quarter ended March 31, 2008, Market Spreads declines in the value of the Loan Production Sector Position of $340.5 million were allocated to the Loan
Servicing Sector.



Net interest income is summarized below:

Quarters Ended
March 31,2008

2007(in thousands)Net interest income (expense):Banking Segment loans and securities

$
634,576

$
510,753Mortgage Banking Segment:Loans and securities


37,060


110,383Loan Servicing Sector:Net interest income on custodial balances


68,598


203,820Interest expense, net


(128,236
)

(228,524
)Capital Markets Segment securities inventory


61,992


24,480Other


57,330


110,025Net interest income


731,320


730,937Provision for loan losses


(1,501,352
)

(151,962
)Net interest (expense) income after provision for loan losses

$
(770,032
)
$
578,975


The
increase in net interest income from the Banking Segment was attributable to growth in average interest-earning assets partially offset by a decrease in the net interest margin.
Average interest-earning assets in the Banking Segment increased to $112.5 billion during the quarter ended March 31, 2008, an increase of $28.9 billion, or 35%, over the
year-ago period. Net interest margin in the Banking Segment decreased to 2.24% during the quarter ended March 31, 2008, from 2.42% during the year-ago period primarily
as a result of increasing levels of non accrual loans along with relative increases in deposit rates offered.

The
decrease in net interest income from the Mortgage Banking Segment loans and securities reflects a decrease in the balance of average interest-earning assets resulting from lower
mortgage loan production, partially offset by an increase in net interest margin from the year-ago period. The Mortgage Banking Segment loan and securities inventory is financed in part
with borrowings tied to short-term indices. During the current quarter the difference between long-term and short-term interest rates was more favorable than in the
year-ago period, causing the increase in net interest margin.

In
the Loan Servicing Sector, interest income on custodial balances decreased from the prior year due to a reduction in the earnings rate along with a reduction in average balances,
partially offset by a decrease in interest expense on paid-off loans resulting from a decrease in payoffs. Interest income on custodial balances is reduced by the interest we are required
to pass through to security holders on

72

---



paid-off
loans, which was $67.5 million and $88.2 million during the quarters ended March 31, 2008 and 2007, respectively.

Interest
expense, net, included in the Loan Servicing Sector decreased primarily due to an increase in total Loan Servicing Sector assets partially offset by a reduction in rates and
increased interest income on a larger mortgage loan investment portfolio in the Mortgage Banking Segment.

The
increase in net interest income from the Capital Markets Segment securities inventory is attributable to an increase in the net interest margin from 0.14% during the quarter ended
March 31, 2007 to 0.62% during the quarter ended March 31, 2008, partially offset by a 43% decrease in the average inventory of securities held. Capital Markets' revenues from its
securities trading activities consist of gain on sale and interest income. In a steep yield curve environment, net interest income will comprise a larger percentage of total securities trading
revenue. As the yield curve flattens and inverts, the mix of revenues will shift toward gain on sale of securities. During the first quarter of 2008, the yield curve steepened, which resulted in a
shift in trading revenues from gain on sale to interest income, which caused the increase in the net interest margin earned on the securities portfolio.

The
increase in the provision for loan losses was primarily due to increased losses inherent in the loan portfolio, resulting from increased levels of mortgage delinquencies, defaults
and loss severities, as well as downward revisions in expectations of home prices relative to prior quarters.



Loan servicing fees and other income from MSRs and retained interests are summarized below:

Quarters Ended
March 31,2008

2007(in thousands)Servicing fees, net of guarantee fees(1)

$
1,150,860

$
1,038,643Income from retained interests


98,943


148,322Late charges


107,175


90,273Prepayment penalties


15,044


78,796Ancillary fees


34,387


31,255Total loan servicing fees and income from MSRs and retained interests

$
1,406,409

$
1,387,289


---

The
increase in servicing fees, net of guarantee fees, was principally due to a 13% increase in the average servicing portfolio, partially offset by a decrease in the overall annualized
net service fee earned from 0.336% of the average portfolio balance during the quarter ended March 31, 2007 to 0.328% during the quarter ended March 31, 2008.

The
decrease in income from retained interests was due primarily to a 21% decrease in the average investment in these assets from the quarter ended March 31, 2007 to the current
quarter, combined with a reduction in the average yield on such instruments from 17% during the year-ago period to 15% during the current quarter. Income from retained interests excludes
any impairment
charges or recoveries, which are included in impairment of retained interests in the consolidated statement of operations. These investments include interest-only,
principal-only, certain mortgage pass-through and residual securities that arise from the securitization of mortgage loans, primarily Nonprime Mortgage and Prime Home Equity
Loans.

73

---





The change in fair value of MSRs that is included in operations during the quarters ended March 31, 2008 and 2007 consists of two primary
componentsa reduction in fair value due to the realization of expected cash flows from the MSRs and a change in fair value resulting from changes in interest rates and other market
factors. The realization of expected cash flows from MSRs resulted in a value reduction of $753.6 million and $799.9 million during the quarters ended March 31, 2008 and 2007,
respectively. This amount declined because of a decrease in the prepayment rate of loans in our MSR portfolio due to a worsening housing market and lesser credit availability in the mortgage market.



We recorded a decrease in the fair value of the MSRs in the quarter ended March 31, 2008 of $1,460.7 million, primarily as a result of decreasing
mortgage rates which increased expected future prepayment speeds of our agency servicing portfolio. The impact of decreasing interest rates on expected future prepayments in other products was
moderated by lower levels of housing turnover and lesser refinance activity due to weakening housing market conditions, reduced secondary market liquidity and significant tightening of available
credit. We recorded an increase in the fair value of the MSRs in the quarter ended March 31, 2007 of $54.2 million, primarily as a result of the effect of a steepening yield curve during
the quarter which lowered expected future prepayment speeds.



Impairment of retained interests is summarized below:

Quarters Ended March 31,2008

2007Impairment

Asset Balance at Period End

Impairment

Asset Balance at Period End(in thousands)Credit-sensitive retained interests

$
441,287

$
483,091

$
365,553

$
1,836,872Non credit-sensitive retained interests


299,733


1,370,086


64,048


1,096,565Impairment of retained interests

$
741,020

$
1,853,177

$
429,601

$
2,933,437


In
the quarter ended March 31, 2008, we recognized impairment of credit-sensitive retained interests of $441.3 million, including $347.1 million related to
subordinated interests on Prime Home Equity securitizations and $66.5 million related to Nonprime and related residual interests. The impairment on Prime Home Equity securitizations consists of
impairment of retained interests of $192.7 million and impairment losses of $154.4 million related to estimated future draw obligations on the securitizations that have entered or are
probable to enter rapid amortization status. These impairment charges were primarily the result of the effect of increased estimates for future losses on the loans underlying these securities driven
by weakening housing market conditions and significant tightening of available credit. The loss estimate, as measured by gross undiscounted losses embedded in the valuation of subordinated interests
as a percentage of the unpaid principal balance of the loans underlying such interests,
increased from 4.1% in the quarter ended March 31, 2007 to 14.4% in the quarter ended March 31, 2008.

During
the quarter ended March 31, 2007, impairment of credit-sensitive retained interests was due to increased loss estimates and higher investor yield requirements.

In
the quarter ended March 31, 2008, impairment of the non credit-sensitive retained interests was related to interest-only securities together with senior and
mezzanine securities that we began retaining as a result of the market disruption during 2007. The impairment in the current quarter is due mainly

74

---



to
a decrease in the value of senior and mezzanine securities resulting from higher investor yield requirements for such securities combined with a reduction in the value of interest-only
securities caused by increased prepayment speeds as a result of declining interest rates.

During
the quarter ended March 31, 2007, impairment of non credit-sensitive retained interests was due primarily to a decline in the value of interest-only securities
resulting from increased market yield requirements.



The Servicing Hedge is designed to supplement the macro hedge and to offset a portion of the change in value of MSRs and retained interests recorded in the
current quarter. The values of the derivatives and securities that are the primary components of the Servicing Hedge are tied to long-term mortgage, swap and Treasury rates. Overall, these
rates decreased and volatility of these rates increased during the current period and as a result, the Servicing Hedge produced a gain of $2,004.4 million, including $423.4 million of
time value decay of the options included in the Servicing Hedge (our "hedge cost").

During
the quarter ended March 31, 2007, rates decreased slightly. In addition, we supplemented the Servicing Hedge with credit default swaps to moderate a negative impact on
earnings caused by credit spread-driven declines in fair value of our retained interests during the early part of 2007. During this period, credit spreads widened, resulting in a gain related to the
credit default swaps. During the quarter ended March 31, 2007, the Servicing Hedge incurred a loss of $113.7 million, including $114.3 million of hedge cost and a
$57.2 million gain related to credit default swaps.

In
a stable interest rate environment, we expect to incur no significant declines in value of MSRs other than recovery of our investment through the realization of cash flows. However,
we expect to incur hedge cost. The level of Servicing Hedge gains or losses in any period depends on various factors such as the size and composition of the hedge, the shape of the yield curve and the
level of implied interest rate volatility.



The $154.7 million increase in net insurance premiums earned was primarily attributable to growth in lender-placed policies.



Other revenue consists of the following:

Quarters Ended
March 31,2008

2007(in thousands)Appraisal fees, net

$
53,138

$
40,135Gain (loss) on sale of fixed and intangible assets(1)


34,664


(2,740
)Title services


21,479


14,353Credit report fees, net


12,254


18,138Writedown of securities classified as available for sale


(31,117
)

Other


124,891


90,383Total other revenue

$
215,309

$
160,269


---

75

---





Compensation expenses decreased $21.4 million, or 2%, during the quarter ended March 31, 2008 as compared to the year-ago period as
summarized below:

Quarters Ended
March 31,2008

2007(in thousands)Base salaries

$
559,014

$
573,752Incentive bonus and commissions


334,232


446,943Payroll taxes and other benefits(1)


185,099


223,975Deferral of loan origination costs


(24,360
)

(169,262
)Total compensation expenses

$
1,053,985

$
1,075,408


---

Average
workforce by segment is summarized below:

Quarters Ended
March 31,2008

2007Mortgage Banking

33,183

40,583Banking

2,679

1,968Capital Markets

730

928Insurance

2,628

2,049Global Operations

4,845

2,872Corporate Administration

6,293

6,819Average workforce, including temporary staff

50,358

55,219


Compensation
expense reductions occurred in the Mortgage Banking and Capital Markets Segments, as well as in Corporate Administration.



Effective
January 1, 2008, we adopted SFAS 159 and have elected to account for most of our mortgage loans originated or purchased for sale at their estimated fair value.
Because of this election, fees and costs are recorded in earnings as incurred instead of being deferred. Accordingly, the deferral of loan origination costs declined by 86% from the prior period.

76

---





Occupancy and other office expenses are summarized below:

Quarters Ended
March 31,2008

2007(in thousands)Office and equipment rentals

$
57,044

$
66,398Depreciation


55,983


57,311Utilities


38,227


40,613Postage and courier service


26,805


25,151Office supplies


18,688


19,949Dues and subscriptions


12,936


15,100Repairs and maintenance


11,732


16,304Other(1)


21,364


23,387Total occupancy and other office expenses

$
242,779

$
264,213


---

During
the quarter ended March 31, 2008, occupancy and other office expenses decreased by 8%, or $21.4 million, reflecting our activities to adjust our operations to the
expected near-term mortgage market.



Insurance claim expenses were $355.7 million during the quarter ended March 31, 2008 as compared to $57.3 million during the
year-ago period. The increase in insurance claim expenses was primarily the result of a $295.8 million increase in the provision for mortgage reinsurance claims arising from an
increase in the projection for future claims payments caused by a worsening housing market and resulting higher actual and projected default rates. The year-ago period included a
$74.0 million reversal of loss reserves related to the 2003 books of business, on which negligible remaining loss exposure was deemed to exist in the first quarter of 2007.



Advertising and promotion expenses increased 5% from the year-ago period, as a result of the increasing competition for lending business as mortgage
market volumes decline.

77

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Other operating expenses are summarized below:

Quarters Ended
March 31,2008

2007(in thousands)Losses on servicing-related advances

$
59,001

$
9,753Legal, consulting, accounting and auditing expenses


53,234


38,525Insurance commission expense


51,703


49,872Operations of foreclosed real estate


39,972


13,887Mortgage insurance


27,227


19,394Insurance


26,297


16,916Taxes and licenses


19,749


17,362Software amortization and impairment


19,378


17,239Travel and entertainment


16,172


21,086Other


135,537


60,329Deferral of loan origination costs


(2,844
)

(26,325
)Total other operating expenses

$
445,426

$
238,038


Losses
on servicing-related advances increased $49.3 million due to increases in the level of defaulted loans in the servicing portfolio.

Liquidity and Capital Resources

We meet our financing requirements using a combination of debt and equity capital. Our short-term financing needs arise primarily from our holding of
mortgage loans pending sale, the trading activities of our broker-dealer and our warehouse lending business. Our long-term financing needs arise primarily from our investments in our
mortgage loan portfolio, MSRs and retained interests and the financial instruments acquired to manage the interest rate risk associated with those investments. The structure and mix of our debt and
equity capital are driven by our strategic objectives, regulatory and credit rating agency requirements and capital markets conditions. These factors affect the type of financing we are able to obtain
and the size of our operations.

Our
primary sources of debt include deposits taken by our Bank, FHLB advances, the public corporate debt markets, unsecured bank lines, repurchase agreements and the secondary mortgage
market. Our primary source of equity capital is retained earnings. From time to time, we may issue common or preferred stock, subordinated debt or other securities that receive equity-like
treatment by the credit rating agencies as a means of increasing our capital base and supporting our operations. To this end, in the third quarter of 2007 we issued 20,000 shares of 7.25%
Series B non-voting convertible preferred stock for an aggregate price of $2.0 billion. The preferred stock ranks senior to our common stock with respect to payment of
dividends and distribution upon liquidation. We also have $2.3 billion outstanding in junior subordinated debentures that receive varying degrees of "equity treatment" from rating agencies,
bank lenders and regulators. In addition, at March 31, 2008, we had a $5.5 billion deferred tax liability related to our MSRs that would offset a portion of any realized loss in the
value of our MSRs, and which is generally offset against our MSRs in determining our capital requirements.

In
response to severe disruption in the secondary mortgage market and short- and long-term and unsecured debt markets that began in the second half of 2007, we took the
following actions to enhance our liquidity and capital position:



78

---





Because
of these changes, our funding structure has evolved such that it more closely resembles that of a thrift holding company rather than that of a finance company with a banking
subsidiary.

Fitch
Ratings took negative ratings actions on CFC during the quarter. Fitch downgraded the long-term debt ratings of all three rated entities (CFC, CHL and the Bank) to
BBB-, the lowest investment-grade rating, on concerns related to increased credit deterioration across the mortgage industry. These actions did not have a material effect on our liquidity
position. On May 5, 2008, Fitch Ratings changed the Rating Outlook status of all of our ratings from Rating Watch Positive to Rating Watch Evolving due to the disclosure by Bank of America that
there is no assurance that all of CFC's debt will be redeemed, assumed or guaranteed after their planned acquisition of Countrywide.

On
May 2, 2008, Standard and Poor's Ratings Service (S&P) lowered its rating of CFC and CHL from BBB+ to BB+, a non-investment grade rating. S&P also lowered its
rating of the Bank from A- to BBB. The Rating Outlook for all three entities was changed from Credit Watch Positive to Credit Watch Developing. As with Fitch Ratings, S&P's ratings actions
were in connection with the disclosure by Bank of America related to their expected treatment of CFC's debt following the planned merger.

Following
are our credit ratings as determined by the nationally recognized statistical rating organizations ("credit rating agencies") as of May 5, 2008:

|                          |  | Countrywide Financial
Corporation |  | Countrywide Home Loans |  | Countrywide Bank                 
|------------------------- |  | --------------------------------- |  | ---------------------- |  | ---------------------------------
|
|Standard & Poor's         |  | B                                 |  | BB+                    |  | Credit Watch Developing          
|Moody's Investors Service |  | P3                                |  | Baa3                   |  | Under Review for Possible Upgrade
|Fitch                     |  | F3                                |  | BBB-                   |  | Rating Watch Evolving            

As a result of S&P's rating action on CFC and CHL's debt, we no longer have access to our $10.4 billion secured revolving
line of credit (Park Monaco). We terminated this facility on May 9, 2008. Furthermore, CFC's current credit ratings make it unlikely that we can access the unsecured public corporate debt
markets at attractive rates when the current disruption abates. Consequently, our relative cost of financing could rise significantly and we could find ourselves at a competitive disadvantage in
pursuing some of our capital-intensive activities, such as our ongoing investment in our portfolio of mortgage loans held for investment, MSRs and retained interests. Investment grade ratings are also
important to counterparties with which we engage in normal-course trading and financing activities and to the GSEs. There has been minimal action taken to date by these constituents; however, the
ultimate reaction of such constituents has yet to be determined.

Despite
the reductions in CFC and CHL's ratings, the Bank still maintains investment grade credit ratings from all three rating agencies and as such, has not lost access
to any of its direct sources of

79

---



liquidity
including deposits and FHLB advances. To date, S&P's actions have not had a material impact on our ability to retain escrow and commercial deposits. However, given the recent timing of the
downgrade, we may not have experienced the full impact of its impact on our operations.

Countrywide
Bank is regulated by the Office of Thrift Supervision ("OTS") and is therefore subject to OTS capital requirements. At March 31, 2008, the Bank's regulatory capital
ratios and amounts and minimum required capital ratios for the Bank to maintain a "well capitalized" status are as follows:

Countrywide BankMinimum Required(1)Ratio

Amount(dollar amounts in thousands)Tier 1 Capital

5.0
%
7.7
%
$
9,348,045Risk-Based Capital:Tier 1

6.0
%
12.2
%
$
9,348,045Total

10.0
%
13.4
%
$
10,329,310


---

Countrywide
Bank is required by OTS regulations to maintain tangible capital of at least 1.5% of assets. However, the Bank is also required to maintain a tangible equity ratio of at
least 2% to avoid being classified as "critically undercapitalized." Critically undercapitalized institutions are subject to the prompt corrective action provisions of the Financial Institution Reform
Recovery and Enforcement Act of 1989. The Bank's tangible capital ratio was 7.7% and 8.0% at March 31, 2008 and December 31, 2007, respectively.

The
OTS has prescribed that the Company and its affiliates are not authorized to receive, and the Bank is not authorized to pay the Company or its affiliates, capital distributions
without receipt of prior written OTS non-objection.

The
Company is also subject to U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac and Government National Mortgage Association ("Ginnie Mae") net worth
requirements. Management believes the Company is in compliance with those requirements.

While
current market conditions present challenges to us, the funding structure that we have migrated toward has allowed us to change our sources of funding away from those that have
higher refinancing risk toward more stable and reliable sources such as deposits and FHLB advances. We classify a facility as reliable when the facility is provided by a government-sponsored
enterprise or when it is contractually committed to us and we have paid a commitment fee in exchange for the facility. These sources include committed secured and unsecured revolving credit facilities
provided by highly rated banks. At March 31, 2008, we estimate that we have reliable sources of liquidity available totaling $27.7 billion. However, on a pro forma basis giving effect to
the ratings action taken by Standard & Poor's on May 2, 2008, excess borrowing capacity would have been $17.3 billion as of March 31, 2008.



Cash provided by operating activities was $0.3 billion for the quarter ended March 31, 2008, compared to cash used by operating activities of
$1.5 billion for the year-ago period. Cash provided by operating activities includes the proceeds from the sales and principal repayments of such mortgages and the cash used for the
origination and purchase of mortgage loans held for sale. We generally retain servicing rights and may retain other interests when these loans are sold. The recognition of the amounts retained is a
non-cash investing activity. See Note 17Supplemental Cash Flow Informationin

80

---



the
financial statement section of this Report. In the quarter ended March 31, 2008, funds used to originate and purchase mortgage loans exceeded proceeds from the sales of mortgage loans by
$2.8 billion. In the year-ago period, funds used to originate and purchase mortgage loans exceeded proceeds from the sales and principal repayments of mortgage loans by
$2.4 billion. Cash provided by operations was primarily due to a decrease in trading securities of $3.9 billion, partially offset by an increase in trading securities sold, not yet
purchased.

Net
cash provided by investing activities was $2.7 billion for the quarter ended March 31, 2008, compared to cash used by investing activities of $5.5 billion for
the year-ago period. The increase in net cash provided by investing activities was attributable to a $12.5 billion increase in net proceeds from investments in other financial
instruments combined with a $3.4 billion decrease in securities purchased under agreements to resell, securities borrowed, and federal funds sold, partially offset by an increase of
$4.9 billion in loans held for investment compared to a decrease of $3.5 billion in the year-ago period.

Net
cash used by financing activities for the quarter ended March 31, 2008 totaled $2.7 billion, compared to net cash provided by financing activities of
$6.8 billion for the year-ago period. In the quarter ended March 31, 2008, there was a $10.3 billion decrease in cash provided by short-term borrowings,
including securities sold under agreements to repurchase. Partially offsetting this decrease, deposit liabilities increased $3.1 billion during the quarter ended March 31, 2008, compared
to an increase of $1.9 billion in the year-ago period.

Credit Risk Management

A significant risk for the Company is credit risk, which is the risk that a borrower will not repay the loan's balance as agreed and the risk that the proceeds
from liquidation of the collateral securing the loan will not be adequate to repay the loan's balance. We also have credit risk that a counterparty will not perform in accordance with contractual
terms and we will not realize uncollateralized gains that have been recorded. Credit risk arises in many of our business activities including lending activities, mortgage banking, securities trading
activities and interest rate risk management activities. We balance the level of credit risk against our expected returns in determining the level of credit risk we retain.



A significant amount of the mortgage loans that we originate or purchase in our Mortgage Banking and Capital Markets Segments are sold into the secondary mortgage
markets primarily in the form of securities, and to a lesser extent as whole loans. When we sell or securitize our loans we retain varying degrees of credit risk from the continuing investments and/or
obligations we retain either in the form of credit-enhancing subordinated interests, corporate guarantees or representations and warranties issued when we sell or securitize loans and through the
structure of certain of our securitizations.

Our
Prime Mortgage Loans generally are sold on a non-recourse basis, while Prime Home Equity and Nonprime Mortgage Loans generally were sold with limited recourse for credit
losses. Almost all of our loan sale transactions retain credit risk in the form of the representations and warranties we provide and that are customary for loan sales transactions.



Our exposure to credit losses related to subordinated interests is limited to the assets' carrying values plus the value of additional draws we may be required to
subordinate if a rapid amortization

81

---



event
occurs in a securitization. We carry subordinated interests at their estimated fair values. The carrying values of our subordinated interests are as follows:

March 31, 2008

December 31, 2007(in thousands)Prime home equity residual securities

$
234,434

$
422,681Nonprime residuals and other related securities


207,249


293,048Subordinated mortgage-backed pass-through securities(1)


116,080


270,744Prime residual securities


28,893


20,557$
586,656

$
1,007,030


---

The
carrying values of our subordinated interests take into account our estimates of losses to be absorbed by the subordinated interests.

The
losses absorbed by our subordinated interests are summarized as follows:

Quarters Ended
March 31,2008

2007(in thousands)Prime home equity residual securities

$
642,387

$
34,249Nonprime residuals and other related securities


277,207


45,081Prime residual securities


3,717


1,684$
923,311

$
81,014


We
estimate our liability for impairment losses related to our future draw obligations and update our estimate quarterly. Our provision for estimated losses arising from future draw
obligations is recorded as a component of impairment of retained interests. The accrued liability for impairment related to future expected funding obligations under a rapid amortization event was
$797.6 million as of March 31, 2008.

As
of March 31 2008, 11 of 57 outstanding home equity line of credit ("HELOC") securitizations, representing 39.2% of the unpaid principal balance of our HELOC securitizations,
were subject to rapid amortization events and 11 of 57 outstanding HELOC securitizations, representing 32.0% of the unpaid principal balance of our HELOC securitizations were probable to become
subject to rapid amortization events. We evaluate all of our HELOC securitizations for their potential to experience a rapid amortization event by estimating the amount and timing of future losses on
the underlying loans and the excess spread available to cover such losses and by evaluating any estimated shortfalls in relation to contractually defined triggers. The available credit lines for the
securitizations subject to or
probable to be subject to a rapid amortization event were approximately $2.2 billion at March 31, 2008. Substantially all of the remaining borrower draw periods for such securitizations
ranged from 21 months to 50 months with a weighted average remaining borrower draw period of 37 months.

Due
to the borrower's ability to pay down and redraw balances in HELOC loans, a maximum funding obligation related to rapid amortization events cannot be defined. The charges we will
ultimately record as a result of the rapid amortization events are dependent on the performance of the loans in the securitizations that are in rapid amortization; the amount of subsequent draws made
by borrowers on such loans; and the timing of such losses, borrower draws, principal repayments and other cash flows related to the securitizations. To mitigate the amount of additional draws we are
required to fund as the result of rapid amortization and, more broadly, as the result of the credit performance of

82

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all
the HELOC loans we service, we have undertaken a review and analysis of the HELOC loans in our servicing portfolio. This analysis may result in us taking actions that are provided for in the
borrowers' line of credit agreements, including suspending borrowers' access to existing lines of credit when their loans enter a specified delinquency status or when their property values decline
below a specified threshold; and not renewing lines of credit. In addition, we are evaluating other courses of action available to us under the terms of the HELOC securitization agreements, including
repurchasing certain delinquent loans and soliciting certain borrowers to refinance their loans.

The
following is a summary of changes in the liability:

Quarters Ended
March 31,2008

2007(in thousands)Beginning balance

$
704,097

$
Provision


154,401


Charge-offs


(60,874
)

Ending balance

$
797,624

$





When we sell a loan, we make various representations and warranties relating to, among other things, the following:



The
specific representations and warranties made by us depend on the nature of the transaction and the requirements of the buyer. Market conditions and credit-rating agency requirements
may also affect representations and warranties and the other provisions we may agree to in loan sales. For example, in some transactions, such as sales of nonprime and prime home equity loans, we may
agree to repurchase a loan if a payment default occurs within a specified period of time (e.g., 30 days) after sale.

In
the event of a breach of our representations and warranties, we may be required to either repurchase the mortgage loans with the identified defects or indemnify the investor or
insurer. In such cases, we bear any subsequent credit loss on the mortgage loans. Our representations and warranties are generally not subject to stated limits. However, our contractual liability
arises only when the representations and warranties are breached and generally only when a loss results from the breach. We attempt to limit our risk of incurring these losses by structuring our
operations to ensure consistent production of quality mortgages and servicing those mortgages at levels that meet secondary mortgage market standards. We make significant investments in personnel and
technology to ensure the quality of our mortgage loan production.

83

---



We
estimate our liability for representations and warranties when we sell loans and update our estimate quarterly. Our provision for estimated losses arising from loan sales is recorded
as an adjustment to gain on sale of loans and securities. Following is a summary of the activity in our liability for representations and warranties for the periods presented:

Quarters Ended
March 31,2008

2007(in thousands)Balance, beginning of period

$
639,637

$
390,111Provisions for losses


428,469


17,082Charge-offs


(132,746
)

(41,939
)Balance, end of period

$
935,360

$
365,254




Our corporate guarantees are contracts written to protect purchasers of our loans from credit losses up to a specified amount. We estimate the losses to be
absorbed by the guarantees when we sell loans with guarantees and update our estimates every quarter. We record our provision for losses arising from the guarantees as a component of gain on sale of
loans and securities. Following is a summary of the activity in our liability for corporate guarantees for the periods presented:

Quarters Ended
March 31,2008

2007(in thousands)Balance, beginning of period

$
46,202

$
45,425Provisions for losses


28,418


11,041Charge-offs


(1,377
)

(1,431
)Balance, end of period

$
73,243

$
55,035Corporate guarantees in excess of recorded liability, end of period

$
466,245

$
522,752




In our Banking Segment, our portfolio of loans held for investment generally includes mortgage loans originated or purchased for investment purposes, mortgage
loans transferred from our held for sale portfolio as a result of the market disruption that began in the third quarter of 2007 and mortgage loan warehouse lending advances. The loans were transferred
from our held for sale portfolio at the lower of cost or estimated fair value at the date of transfer.

In
our Mortgage Banking Segment, loans held for investment include mortgage loans repurchased due to breaches of representations and warranties; government-guaranteed or insured loans
repurchased from Ginnie Mae securitizations in place of continuing to advance delinquent principal and interest installments to security holders; and loans transferred from loans held for sale at the
lower of cost or estimated fair value.

At
the time of all transfers from mortgage loans held for sale to mortgage loans held for investment, management made the decision to hold those loans for the foreseeable future, which
has been defined as the next twelve months from the time of transfer, and made an assessment that the Company had the ability to hold them for that time. This decision and assessment was made
individually with respect to each transfer from mortgage loans held for sale to mortgage loans held for investment, including such transfers made in the fourth quarter of 2007. Management intends to

84

---



maintain
the same decision and assessment process with respect to future transfers from mortgage loans held for sale to mortgage loans held for investment.



Our portfolio of mortgage loans held in our Banking Operations consists primarily of Prime Mortgage and Prime Home Equity Loans, with unpaid principal balances
that amounted to $87.2 billion at March 31, 2008.

Our
primary credit risk management tool for our portfolio of loans held for investment is the origination and purchase of loans underwritten to achieve high credit quality and collateral
support. We assess a loan's quality by considering the borrower's credit profile and the value of collateral securing the loan. Where a proposed first mortgage loan's
loan-to-value ratio is
higher than a specified level, which is usually 80% for conventional loans, we generally require the borrower to supplement the collateral with primary mortgage insurance.

We
actively monitor our portfolio of loans held for investment and work with borrowers who contact us or who become delinquent on their loans in order to minimize credit losses. We use
several tools to establish communication with and assist borrowers in curing defaults on our loans, including frequent outreach efforts throughout the collection process using tools such as brochures,
housing fairs, counseling letters and DVD mailings. Our objective in the loss mitigation process is to develop payment plans or workout options that have both the highest probability of successful
resolution and minimal risk of loss to Countrywide. We have also developed loan modification programs designed to assist borrowers with refinancing their ARM and pay option ARM loans before their
loans reset.

We
have taken steps in recent years to reduce the credit risk in our investment loan portfolio by acquiring supplemental mortgage insurance coverage. As of March 31, 2008,
$21.4 billion of Banking Operations' residential loan portfolio was covered by supplemental mortgage insurance purchased on specified pools of loans, of which $14.6 billion represents
first loss coverage. The maximum loss coverage available under these policies on a combined basis is $1.4 billion. While these policies generally provide for first loss coverage, some policies
require premium adjustments if claims exceed specified levels. Furthermore, coverage limits vary by policy, with some policies having limits at the pool level, and others at the loan level. The effect
of this insurance on our estimate of credit losses is to reduce our provision for loan losses for the quarter ended March 31, 2008, by $56.7 million through the recognition of amounts
recoverable from pool mortgage insurance. Our estimate of the effect of mortgage insurance on the loan loss provision contemplates the effect of claim disputes.

We
purchase credit enhancement from those mortgage insurance providers that have an AA- rating or equivalent from the credit rating agencies. This requirement is consistent
with the eligibility requirements of the government-sponsored enterprises for mortgage insurers. We continue to monitor the respective capital positions of our mortgage insurance providers to assess
their claims paying ability. While the mortgage insurance industry has experienced recent adverse financial results, resulting in ratings downgrades, with the likelihood of further deterioration over
the near term, we have concluded that their claims paying ability is not impaired. In the future, we will adjust our provisions for loan losses and the mortgage insurance recoverable asset if we
conclude that this capacity is impaired.

85

---



Following is a summary of our Banking Operations' residential mortgage loans, together with applicable mortgage insurance, by original combined loan-to-value
ratio at March 31, 2008:

|                |  | March 31, 2008
|--------------- |  | --------------
|
|
|< 50%           |  | $             
|50.01 - 60.00%  |  |               
|60.01 - 70.00%  |  |               
|70.01 - 80.00%  |  |               
|80.01 - 90.00%  |  |               
|90.01 - 100.00% |  |               
|>100.00%        |  |               
|                |  |               
|                |  | $             
|                |  |               

---

While
new originations of these products have been substantially curtailed, Banking Operations holds a substantial investment in pay option ARM and payment advantage ARM loans.

Following
is a summary of pay option ARM loans held for investment by Banking Operations:

March 31,
2008

December 31,
2007(in thousands)Total pay option loan portfolio

$
27,019,890

$
28,423,750Total principal balance of pay option loans with accumulated negative amortization

$
24,786,880

$
25,935,223Accumulated negative amortization (from original loan balance)

$
1,281,886

$
1,215,649Unpaid principal balance of pay option loans with supplemental mortgage insurance coverage

$
17,850,040

$
18,374,251Average original loan-to-value ratio(1)


76
%

76
%Average original combined loan-to-value ratio(2)


79
%

79
%Average original FICO score


716


717Loans underwritten with low or no stated income documentation


82
%

81
%Borrowers electing to make less than full interest payments


68
%

71
%Loans delinquent 90 days or more(3)


8.71
%

5.36
%


---

86

---



The
Company routinely forecasts its exposure to payment recast on negatively amortizing loans. The following assumptions were used to forecast this exposure as of March 31, 2008:



Using
these assumptions as of March 31, 2008, pay option loans that are expected to reset are shown in the following table:

Twelve Months Ended March 31,

Projected
Balance at
Recast or Payoff(in thousands)2009

$
277,3342010


4,522,6982011


4,813,264Thereafter


4,986,932Loans expected to repay before recast


11,070,09425,670,322Loans serviced by others(1)


3,212,593$
28,882,915


---

The
information in the table above is limited in that it was performed at a particular point in time and is subject to the accuracy of various assumptions used, including prepayment
speeds, interest rates and the percentage of loans that negatively amortize.

Banking
Operations' nonperforming assets (comprised of non-accrual loans and foreclosed assets) and troubled debt restructurings and the allowances for credit losses related
to the Banking Operations' investment loan portfolio are summarized as follows:

March 31, 2008

December 31, 2007Amount

% of Banking
Operations
Assets

Amount

% of Banking
Operations
Assets(dollar amounts in thousands)Nonperforming assets:Nonaccrual loans:Residential:With third party credit enhancements(1)

$
1,521,877

1.38
%
$
1,272,116

1.12
%Without third party credit enhancements


2,561,184

2.32
%

1,611,951

1.43
%Total residential


4,083,061

3.70
%

2,884,067

2.55
%Foreclosed real estate:Residential


505,213

0.46
%

394,859

0.35
%Total nonperforming assets

$
4,588,274

4.16
%
$
3,278,926

2.90
%Troubled debt restructurings on accrual status

$
384,310

0.35
%
$
6,320

0.01
%


---

87

---



March 31, 2008

December 31, 2007Amount

% of
Nonaccrual
Loans

Amount

% of
Nonaccrual
Loans(dollar amounts in thousands)Allowances for credit losses:Allowance for loan losses

$
3,005,345



$
2,141,247Liability for unfunded loan commitments


60,899




37,516Estimated amounts recoverable from pool mortgage insurance


(612,530
)



(555,803
)Allowances for credit losses, net of estimated pool mortgage insurance

$
2,453,714

60.09
%
$
1,622,960

56.27
%


|
|

Quarters Ended March 31,2008

2007Amount

Annualized
Net Charge-offs
as % of Average
Investment Loans

Amount

Annualized
Net Charge-offs
as % of Average
Investment LoansNet charge-offs

$
485,106

2.21
%
$
33,057

0.19
%


The
following table shows Banking Operations charge-offs, net of recoveries, by product:

Quarters Ended
March 31,2008

2007(in thousands)Prime Home Equity

$
318,853

$
24,664Prime Mortgage:Pay option


125,298


5,059Other


40,592


3,334Nonprime


363


Total net charge-offs

$
485,106

$
33,057


The
increase in our nonperforming assets and charge-offs from the year-ago period was driven by the impact of a weakening housing market and significant
tightening of available credit resulting from the market disruption that began in the third quarter of 2007 on delinquency and default trends as well as portfolio seasoning. We expect the level of
nonperforming assets and credit losses to increase, both in absolute terms and as a percentage of our loan portfolio as current weakness in the housing market develops and as our loan portfolio
continues to season.



We hold a portfolio of commercial loans made to other mortgage lenders to finance their inventories pending sale to Countrywide and other lenders. Our portfolio
of mortgage loan warehouse advances totaled $1.1 billion and the average loan balance was $10.1 million at March 31, 2008. These loans are underwritten by assessing the
creditworthiness of the warehouse lending borrowers. This includes reviewing both borrower-provided financial information and publicly available credit rating information and press coverage, as well
as understanding the borrowers' operational controls and product risk and assessments of collateral.

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We
monitor the length of time that advances are outstanding against specific residential loans and may require the borrower to pay off aged advances. We also monitor the fair value of
our collateral to ensure that the level of collateral posted is adequate to repay our advance in the event of default by our borrower and we require our warehouse lending borrowers to post specified
levels of cash collateral to supplement the mortgage loan collateral. We also regularly review updated financial information of borrowers, including pipeline and hedging positions. We recorded
negligible charge-offs related to this activity during the quarters ended March 31, 2008 and the year-ago period. Our advance rates and the collateral we advance funds
against are limited to that which we can sell into the presently disrupted secondary market.



The following table shows the unpaid balance of other mortgage loans held for investment:

March 31,
2008

December 31,
2007(in thousands)Prime

$
1,817,503

$
1,768,448Prime Home Equity


514,409


435,695Nonprime


1,907,752


2,045,8754,239,664


4,250,018Defaulted FHA-insured and VA-guaranteed loans repurchased from securities


3,071,946


2,691,563Total unpaid principal balance

$
7,311,610

$
6,941,581


Our
portfolio of other mortgage loans held for investment is in our Mortgage Banking Segment and includes loans we have repurchasedeither to remedy a violation of a
representation or warranty made in a loan sale, to minimize the cost of servicing a severely delinquent loan insured or partially guaranteed by the FHA or VA or in connection with a
clean-up call (a clean-up call represents the repurchase of mortgage loans when the remaining outstanding balance of the mortgage loans falls to a level where the cost of
servicing the loans becomes burdensome in relation to the benefits of servicing).

As
discussed in the preceding sectionLending ActivitiesSale of
LoansRepresentations and Warrantieswe make provisions for losses that may arise from breaches of
representations and warranties when we record the sale of loans and we adjust our estimates for losses quarterly. We record repurchased loans at their estimated fair value when they are repurchased
and any resulting loss is charged against the liability.

We
may determine that a portion of the loans that we originate or purchase for sale will not be sold because of a defect, which may include a document deficiency, changes in secondary
market conditions or deterioration of the credit status of the loan while it was held for sale. Such loans are transferred to our portfolio of loans held for investment at the lower of cost or
estimated fair value on an individual loan basis and any loss is recorded as a component of gain on sale of loans and securities in current period earnings. Subsequent losses that may result from
deteriorations in the credit quality of the loans that have been transferred to the investment portfolio are included in our provision for loan losses.

89

---



Our
non-Banking Operations' nonperforming assets and troubled debt restructurings including mortgage warehouse lending advances, Mortgage Banking loans held for investment
and foreclosed assets, and the related allowance for credit losses are summarized as follows:

March 31, 2008

December 31, 2007Amount



Amount(dollar amounts in thousands)Nonperforming assets:Nonaccrual loans(1)(2):ResidentialLoans held for investmentcredit risk retained by Countrywide(3)

$
1,013,934



$
567,356Commercial(4)


32,567




37,274Total nonaccrual loans


1,046,501




604,630Foreclosed real estate:Residential


357,744




412,984Commercial(4)


113




Total foreclosed real estate


357,857




412,984Total nonperforming assets

$
1,404,358



$
1,017,614Troubled debt restructurings on accrual status

$
30,837



$
Amount

% of
Nonaccrual
Loans

Amount

% of
Nonaccrual
LoansAllowances for credit losses:Allowance for loan losses(5):Residential

$
335,064

33.05
%
$
247,106

43.55
%Commercial(4)


10,895

33.45
%

11,138

29.88
%345,959

33.06
%

258,244

42.71
%Liability for unfunded loan commitments


4,936




868Total allowances for credit losses

$
350,895

33.53
%
$
259,112

42.85
%


|
|

Quarters Ended March 31,2008

2007Amount

Annualized
Net Charge-offs
as % of Average
Investment
Loans

Amount

Annualized
Net Charge-offs
as % of Average
Investment
LoansNet charge-offs

$
121,159

4.20
%
$
5,592

0.44
%


---

90

---



The
increase in our nonperforming assets and charge-offs from March 31, 2007 was driven by the impact of the weakening housing market and significant tightening of
available credit on delinquencies and default trends as well as portfolio seasoning.



Following is a summary of our consolidated allowance for loan losses by activity for the periods presented:

Quarter Ended March 31, 2008Banking OperationsMortgage
Lending

Commercial
Real Estate

Warehouse
Lending

Mortgage
Banking

Total(in thousands)Balance, beginning of period

$
2,140,536

$
711

$
11,138

$
247,106

$
2,399,491Provision for loan losses


1,291,989


489





208,874


1,501,352Change in estimate of amounts recoverable from pool mortgage insurance


56,726











56,726Charge-offs


(494,900
)




(243
)

(134,460
)

(629,603
)Recoveries


9,794








13,544


23,338Balance, end of period

$
3,004,145

$
1,200

$
10,895

$
335,064

$
3,351,304Allowance as a percentage of loans receivable


3.4
%

0.6
%

1.0
%

7.9
%

3.6
%Quarter Ended March 31, 2007Banking OperationsMortgage
Lending

Commercial
Real Estate

Warehouse
Lending

Mortgage
Banking

Total(in thousands)Balance, beginning of period

$
294,410

$
45

$
12,838

$
19,524

$
326,817Provision for loan losses


123,562





543


27,857


151,962Change in estimate of amounts recoverable from pool mortgage insurance


24,001











24,001Charge-offs


(35,318
)







(5,751
)

(41,069
)Recoveries


2,261








159


2,420Reclassifications and other


(1,113
)




1,113





Balance, end of period

$
407,803

$
45

$
14,494

$
41,789

$
464,131Allowance as a percentage of loans receivable


0.6
%

0.1
%

0.5
%

2.7
%

0.6
%


The increase in the allowance and provision for loan losses was due to increased losses inherent in the loan portfolio resulting from increased
level of mortgage delinquencies, defaults and loss severities, as well as downward revisions in expectations of home prices relative to prior quarters.

91

---



Following
is a summary of annual charge-offs and recoveries for the years ended December 31, 2007, 2006, 2005, 2004 and 2003.

|                       |  | Years Ended December 31, |        
|---------------------- |  | ------------------------ | -------
|
|
|Charge-offs            |  | $                        | 725,097
|Recoveries             |  |                          | (21,717
|                       |  |                          |        
|Balance, end of period |  | $                        | 703,380
|                       |  |                          |        

---



At March 31, 2008, mortgage loans held for sale amounted to $15.7 billion. While loans are in inventory, we bear credit risk after taking into
consideration primary mortgage insurance (which is generally required for conventional first mortgage loans with a loan-to-value ratio greater than 80%), FHA insurance or VA
guarantees.

Loans
held for sale that have been placed on nonaccrual status include distressed loans that are generally purchased at a discount as part of the conduit activities of the Capital
Markets Segment and loans whose credit quality has deteriorated during the time that they have been held for sale. Nonaccrual loans held for sale totaled $375.3 million and
$206.7 million at March 31, 2008 and December 31, 2007, respectively. Effective for loan originations beginning on January 1, 2008, most of our new loan production is
carried at the loans' estimated fair values which take into account marketplace perceptions of the loan's credit risk. The remaining mortgage loans held for sale are carried at the lower of cost or
estimated fair value in the aggregate, which takes into account a reduction in value for impaired loans.



We provide mortgage reinsurance on certain mortgage loans included in our servicing portfolio through contracts with several primary mortgage insurance companies.
Under these contracts, we provide aggregate excess loss coverage in a mezzanine layer in exchange for a portion of the pool's mortgage insurance premium. As of March 31, 2008, approximately
$134.4 billion of mortgage loans in our servicing portfolio are covered by such mortgage reinsurance contracts. The reinsurance contracts place limits on our maximum exposure to losses. At
March 31, 2008, the maximum aggregate losses under the reinsurance contracts were limited to $1,143.0 million. We are required to pledge securities to cover this potential liability. The
accumulated liability recorded for estimated reinsurance totaled $384.7 million and $148.8 million at March 31, 2008 and December 31, 2007, respectively. As of
March 31, 2008, the liability for reinsurance claims includes case reserves totaling $103.1 million relating to certain of the pools of loans we have reinsured.



We have exposure to credit loss in the event of contractual non-performance by our trading counterparties and counterparties to the
over-the-counter derivative financial instruments that we use in our interest rate risk management activities. We manage this credit risk by selecting only counterparties we
believe to be financially strong, spreading the credit risk among many such counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty and by
entering into netting agreements with the counterparties, as appropriate.

92

---



The
aggregate amount of counterparty credit exposure after consideration of relevant netting agreements, before and after collateral held by us, are as follows:

March 31,
2008

December 31,
2007(in millions)Aggregate credit exposure before collateral held

$
5,712

$
6,135Less: collateral held


(3,160
)

(3,873
)Net aggregate unsecured credit exposure

$
2,552

$
2,262


For
the quarters ended March 31, 2008 and 2007 we incurred no credit losses due to non-performance of any of our counterparties.

Quantitative and Qualitative Disclosures About Market Risk

A significant market risk facing the Company is interest rate risk, which includes the risk that changes in interest rates will result in changes in the value of
our assets or liabilities ("price risk") and the risk that net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. Interest rate risk
includes both changes in "risk-free" rates (usually the U.S. Treasury rate for an asset of the same duration) and changes in the premiums to risk-free rates of return required
by investors, which may be the result of liquidity and/or investor perceptions of risk ("Market Spread"). The overall objective of our interest rate risk management activities is to reduce the
variability of earnings caused by changes in interest rates. Our Corporate Asset/Liability Management Committee, which is comprised of several of the Company's senior financial executives, is
responsible for management of this risk.

We
manage interest rate risk with derivative financial instruments and by the structure of the Company's activities as follows:



93

---





Impact of Changes in Interest Rates on the Net Value of the Company's Interest Rate-Sensitive Financial Instruments

We perform various sensitivity analyses that quantify the net financial impact of changes in interest rates on our interest rate-sensitive assets,
liabilities and commitments. These analyses incorporate assumed changes in the interest rate environment, including selected hypothetical, instantaneous parallel shifts in the yield curve.

We
employ various commonly used modeling techniques to value our financial instruments in connection with these sensitivity analyses. For mortgage loans, MBS, MBS forward contracts,
collateralized mortgage obligations, interest-only securities and MSRs, we use option-adjusted spread models. The primary assumptions used in these models for the purpose of these
sensitivity analyses are the prepayment speeds, risk-adjusted return requirements and implied market volatility of interest rates. For options and interest rate floors, we use an
option-pricing model. The primary assumption used in this model is implied market volatility of interest rates. For retained interests, with the exception of interest-only securities, we
use a zero volatility discounted cash flow model. The primary assumptions used in these models are prepayment rates, discount rates and credit losses.

The
following table summarizes the estimated change in fair value of our interest-rate-sensitive assets, liabilities and commitments as of March 31, 2008,
given several hypothetical, (instantaneous) parallel shifts in the yield curve:

Change in Fair ValueChange in Interest Rate (basis points)-100

-50

+50

+100(in millions)MSRs and financial instruments:MSRs

$
(4,061
)
$
(2,094
)
$
1,966

$
3,675Retained interests


(143
)

(81
)

66


138Impact of Servicing Hedge:Mortgage-based


808


427


(471
)

(975
)Swap-based


3,985


1,741


(1,177
)

(1,855
)Treasury-based


116


44


(17
)

(21
)MSRs and retained interests, net


705


37


367


962Interest rate lock commitments


381


254


(421
)

(991
)Mortgage Loan Inventory


964


559


(778
)

(1,744
)Impact of associated derivative instruments:Mortgage-based


(1,382
)

(797
)

1,110


2,484U.S. Treasury-based


(10
)

(10
)

50


153Eurodollar-based


(39
)

(20
)

20


39Interest rate lock commitments and Mortgage Loan Inventory, net


(86
)

(14
)

(19
)

(59
)Banking Operations:Securities portfolio


748


432


(498
)

(1,017
)Mortgage loans held for investment


1,102


551


(586
)

(1,217
)Deposit liabilities


(505
)

(261
)

211


427Federal Home Loan Bank advances


(1,327
)

(654
)

632


1,244Banking Operations, net


18


68


(241
)

(563
)Notes payable and capital securities


(883
)

(452
)

423


819Impact of associated derivative instruments:Swap-based


127


66


(71
)

(143
)Notes payable and capital securities, net


(756
)

(386
)

352


676Insurance company investment portfolios


83


43


(46
)

(93
)Net change in fair value related to MSRs and financial instruments

$
(36
)
$
(252
)
$
413

$
923Net change in fair value related to broker-dealer trading securities

$
47

$
23

$
(20
)
$
(38
)


94

---



The following table summarizes the estimated change in fair value of the Company's interest-rate-sensitive assets, liabilities and commitments as of
December 31, 2007, given selected hypothetical (instantaneous) parallel shifts in the yield curve:

Change in Fair ValueChange in Interest Rate (basis points)-100

-50

+50

+100(in millions)Net change in fair value related to MSRs and financial instruments

$
538

$
14

$
395

$
956Net change in fair value related to broker-dealer trading securities

$
41

$
20

$
(17
)
$
(33
)


These sensitivity analyses are limited in that they were performed at a particular point in time; are based on the hedge position in place at that
particular point in time; only contemplate certain movements in interest rates; do not incorporate changes in interest rate volatility or changes in the relationship of one interest rate index to
another; are subject to the accuracy of various assumptions used, including prepayment forecasts and discount rates; and do not incorporate other factors that would impact the Company's overall
financial performance in such scenarios, most significantly the impact of changes in loan production earnings that result from changes in interest rates. Not all of the changes in fair value would
affect current period earnings. For example, changes in fair value of securities accounted for as available-for-sale are recognized as a
component of shareholders' equity, net of income taxes, and our debt is generally carried at its unpaid balances net of issuance discount or premium. Absent hedge accounting, changes in the market
value of our debt are generally not recorded in current-period earnings. For these reasons, the preceding estimates should not be viewed as an earnings forecast.



To diversify our funding sources on a global basis, we issue a portion of our medium-term notes denominated in foreign currencies. We manage the
associated foreign currency risk through cross-currency swap transactions. The terms of the cross-currency swaps have the effect of converting all foreign currency-denominated medium-term
notes into U.S. dollar-denominated obligations, thereby eliminating the associated foreign currency risk. As a result, potential changes in the exchange rates of foreign currencies denominating such
medium-term notes are not expected to have a financial impact on future earnings, fair values or cash flows.

95

---



Loan Servicing

The following table sets forth certain information regarding our servicing portfolio of single-family mortgage loans, including loans held for sale, loans held
for investment and loans serviced under subservicing agreements, for the periods indicated:

Quarters Ended
March 31,2008

2007(in millions)Beginning owned servicing portfolio

$
1,451,990

$
1,280,119Add: Residential loan production(1)


73,013


113,338Purchased MSRs (bulk acquisitions)


64


12,437Less: Principal repayments


(64,384
)

(70,554
)Ending owned servicing portfolio


1,460,683


1,335,340Subservicing portfolio


23,474


16,258Total servicing portfolio

$
1,484,157

$
1,351,598MSR portfolio

$
1,361,945

$
1,242,111Mortgage loans owned


98,738


93,229Subservicing portfolio


23,474


16,258Total servicing portfolio

$
1,484,157

$
1,351,598


---

96

---



March 31,2008

2007(dollar amounts in millions)Composition of owned servicing portfolio at period end:Conventional mortgage

$
1,242,280

$
1,112,107Nonprime Mortgage


104,796


122,679Prime Home Equity


39,695


45,861Government:FHA-insured mortgage


56,465


40,171VA-guaranteed mortgage


17,447


14,522Total owned portfolio

$
1,460,683

$
1,335,340Delinquent mortgage loans(1):30 days


2.91
%

2.40
%60 days


1.28
%

0.81
%90 days or more


2.67
%

1.08
%Total delinquent mortgage loans


6.86
%

4.29
%Loans pending foreclosure(1)


1.28
%

0.69
%Delinquent mortgage loans(1):Conventional


4.21
%

2.31
%Nonprime Mortgage


27.66
%

16.67
%Prime Home Equity


6.59
%

2.96
%Government


11.78
%

11.06
%Total delinquent mortgage loans


6.86
%

4.29
%Loans pending foreclosure(1):Conventional


0.89
%

0.36
%Nonprime Mortgage


6.18
%

3.61
%Prime Home Equity


0.11
%

0.11
%Government


1.31
%

1.21
%Total loans pending foreclosure


1.28
%

0.69
%


---

We attribute the overall increase in delinquencies in our servicing portfolio from March 31, 2007 to March 31, 2008, to increased
production of loans in recent years with higher loan-to-value ratios and reduced documentation requirements, combined with a weakening housing market and significant tightening
of available credit and to portfolio seasoning. This impact most significant on nonprime delinquency rates. We believe the delinquency rates in our servicing portfolio are consistent with rates for
similar mortgage loan portfolios in the industry.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations



In the ordinary course of our business we engage in financial transactions that are not reflected on our balance sheet. (See
Note 2Summary of Significant Accounting Policiesin our 2007 Annual Report for a description of our consolidation policy.) Such
transactions are structured to manage our interest rate, credit or liquidity risks, to diversify funding sources or to optimize our capital.

Most
of our off-balance sheet arrangements relate to the securitization of mortgage loans. Our mortgage loan securitizations are normally structured as sales and involve the
transfer of mortgage loans to qualifying special-purpose entities that are not subject to consolidation. In a securitization, an entity transferring the assets is able to sell those assets for cash.
Special-purpose entities used in such

97

---



securitizations
obtain cash by issuing securities representing beneficial interests in the transferred assets to investors. In a securitization, we customarily provide representations and warranties
with respect to, and we generally retain the right to service, the transferred mortgage loans.

We
also generally have the right to repurchase mortgage loans from the special-purpose entity pursuant to a clean-up call, which is exercised when the costs exceed the
benefits of servicing the remaining loans.

Our
Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity and Nonprime Mortgage Loans generally were securitized with limited
recourse for credit losses. During the quarter ended March 31, 2008, we did not securitize any Nonprime Mortgage or Prime Home Equity Loans. Our exposure to credit losses related to our limited
recourse securitization activities is limited to the carrying value of our subordinated interests, to losses that may arise from rapid amortization events that cause subsequent draws that we are
contractually required to advance to be subordinated to all other interests in these securitizations and to the contractual limit of reimbursable losses under our corporate guarantees less the
recorded liability for such guarantees.

Under
the terms of our HELOC securitizations, we make advances to borrowers when they request a subsequent draw on their line of credit and we are reimbursed for those advances from the
cash flows in the securitization. This reimbursement normally occurs within a short period after the advance. However, in the event that loan losses requiring draws on monoline insurer's policies
(which protect the bondholders in the securitization) exceed a specified threshold or duration, reimbursement of our advances for subsequent draws occurs only after other parties in the securitization
(including the senior bondholders and the monoline insurer) have received all of the cash flows to which they are entitled. This status, known as a rapid amortization event, has the effect of
extending the time period for which
our advances are outstanding, and may result in Countrywide not receiving reimbursement for all of the funds advanced.

During
the fourth quarter of 2007, our off-balance sheet obligations relating to rapid amortization events contained in our home equity line-of-credit
securitizations were triggered as a result of actual and probable future losses relating to loans underlying these securitizations exceeding specified thresholds or durations. Normally, a rapid
amortization event is not expected to occur and is deemed remote. However, sudden deterioration in the housing market experienced in late 2007 resulted in it becoming probable that a rapid
amortization event would occur. Because of these events, we recorded impairment losses of $704.1 million in 2007 related to estimated future draw obligations on the home equity securitizations
that have entered or are probable to enter rapid amortization status. During the quarter ended March 31, 2008, our expectation of loans losses relating to loans underlying these securitizations
increased resulting from higher level of mortgage delinquencies and defaults, as well as downward revisions in expected home prices relative to prior quarters and a change in the estimate of interest
earned on the additional balances. As a result, we recorded impairment losses of $154.4 million in the quarter ended March 31, 2008.

As
of March 31, 2008, 11 of 57 outstanding HELOC securitizations, representing 39.2% of the unpaid principal balance of our HELOC securitizations, were subject to rapid
amortization events and 11 of 57 outstanding HELOC securitizations, representing 32.0% of the unpaid principal balance of our HELOC securitizations, were probable to become subject to rapid
amortization events. We evaluate all of our HELOC securitizations for their potential to experience a rapid amortization event by estimating the amount and timing of future losses on the underlying
loans and the excess spread available to cover such losses and by evaluating any estimated shortfalls in relation to contractually defined triggers. The available credit lines for the securitizations
subject to or probable to be subject to a rapid amortization event are approximately $2.2 billion at March 31, 2008. Substantially all of the remaining borrower draw periods for such
securitizations ranged from 21 months to 50 months with a weighted average remaining borrower draw period of 37 months.

98

---



Due
to the borrower's ability to pay down and redraw balances in HELOC loans, a maximum funding obligation related to rapid amortization events cannot be defined. The charges we will
ultimately record as a result of the rapid amortization events are dependent on the performance of the loans in the securitizations that are in rapid amortization; the amount of subsequent draws made
by borrowers on such loans; and the timing of such losses, borrower draws, principal repayments and other cash flows related to the securitizations. To mitigate the amount of additional draws we are
required to fund as the result of rapid amortization and, more broadly, as the result of the credit performance of all the HELOC loans we service, we have undertaken a review and analysis of the HELOC
loans in our servicing portfolio. This analysis may result in us taking actions that are provided for in the borrowers' line of credit agreements, including suspending borrowers' access to existing
lines of credit when their loans enter a specified delinquency status or when their property values decline below a specified threshold; and not renewing lines of credit. In addition, we are
evaluating other courses of action
available to us under the terms of the HELOC securitization agreements, including repurchasing certain delinquent loans and soliciting certain borrowers to refinance their loans.

For
a further discussion of our exposure to credit risk, see the section in this Report entitledManagement's Discussion and Analysis of Financial Condition and
Results of OperationsCredit Risk Management.

We
do not believe there are any other off-balance sheet arrangements that have had, or are reasonably likely to have, a current or future material effect on our financial
condition, results of operations, liquidity, capital expenditures or capital resources.

Our
material contractual obligations were summarized and included in our 2007 Annual Report. There have been no material changes outside the ordinary course of our business in the
contractual obligations as summarized in our 2007 Annual Report during the three months ended March 31, 2008.

Prospective Trends



We believe the current environment will provide significant continuing challenges for the financial services sector, including Countrywide. Specifically, in the
near term, we have experienced and are likely to continue to experience:



As
a result of these conditions, we are experiencing, among other things, the following:



In
response to the current environment, Countrywide has discontinued Nonprime Mortgage lending, has made changes to tighten the underwriting guidelines for loan products offered and has
adjusted loan pricing to reflect market conditions. The tightening of underwriting guidelines included reductions in the availability of reduced documentation loans and loans on investor-owned
properties and in the maximum loan-to-value or combined loan-to-value ratio. The impact of these changes was

99

---



most
significant to Prime Home Equity and non-conforming prime loans. Further reductions in the Company's funding volume could result.

As
a result of spread widening and lessened liquidity for non-agency fixed-rate mortgages during the first quarter of 2008, management has determined that any
production of such loans will be originated solely for the Company's investment portfolio.

As
long as these conditions persist, we expect our earnings and returns to be below our long-term target levels.

Our
outlook is subject to risks and uncertainties as discussed in the section "Factors That May Affect Our Future Results."



As detailed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2008, and the Registration
Statement on Form S-4 of Bank of America Corporation ("Bank of America") filed on February 12, 2008, as amended by Amendment No. 1 filed on March 27, 2008 and
Amendment No. 2 filed on April 30, 2008, Countrywide entered into an agreement and plan of merger (the "Merger Agreement") with Bank of America. The Merger Agreement provides for
Countrywide to merge (the "Merger") with and into a wholly-owned merger subsidiary of Bank of America ("Merger Sub"), with Merger Sub continuing as the surviving company.

The
terms of the Merger Agreement provide for the conversion of each share of Countrywide common stock into 0.1822 of a share of Bank of America common stock. Consummation of the Merger,
which is currently anticipated to occur in the third quarter of 2008, is subject to certain conditions, including, among others, Countrywide stockholder and regulatory approvals.

The
Merger Agreement contains certain termination rights for Countrywide and Bank of America, applicable upon the occurrence of certain events specified in the Merger Agreement. The
Merger Agreement provides that, in the event of the termination of the Merger Agreement under specified circumstances, Countrywide may be required to pay Bank of America a termination fee equal to
$160 million.

The
Merger Agreement provides for both Countrywide and Bank of America to conduct their respective businesses in the ordinary course until the Merger is completed and not to take certain
actions during the period from the date of the Merger Agreement until the date of completion of the Merger.



The U.S. housing market is undergoing a significant contraction and lenders and investors have tightened their credit standards. Therefore, mortgage origination
volumes are likely to continue decreasing and growth in total mortgage indebtedness is likely to slow in the short term.

Over
time, the level of complexity in the mortgage lending business has increased significantly due to several factors:



100

---





To
compete effectively in this environment, mortgage lenders must have a very high level of operational, technological and managerial expertise. In addition, the residential mortgage
business has become more capital-intensive and therefore access to capital at a competitive cost is critical. As a result of reduced access to capital, general housing trends, rising delinquencies and
defaults and other factors, many mortgage lenders have recently experienced severe financial difficulty, with many exiting the business or filing for bankruptcy protection.

Today,
large and sophisticated financial institutions dominate the residential mortgage industry. These industry leaders are primarily commercial banks operating through their mortgage
banking subsidiaries. According to the trade publicationInside Mortgage Finance, the top five originators produced 56% of all loans originated during
the first three months of the calendar year 2008 as compared to 57% during the three months ended December 31, 2007. (Reprinted with the permission of IMF Copyrighted. All rights reserved by
IMF.)

The
loan volume for the top five originators, according toInside Mortgage Finance, is as follows: (Reprinted with the permission of IMF
Copyrighted. All rights reserved by IMF.)

Three Months EndedInstitution

March 31,
2008

December 31,
2007(in billions)Countrywide

$
69

$
69Wells Fargo Home Mortgage


66


56Chase Home Finance


54


50CitiMortgage


41


37Bank of America Mortgage


40


45Total for Top Five

$
270

$
257


We
believe the consolidation trend in the mortgage industry will continue. Compared to Countrywide, the other industry leaders are less reliant on the secondary mortgage market as an
outlet for
mortgages, due to their greater portfolio lending capacity. This has placed us at a competitive disadvantage in the current disruption of the secondary mortgage market, which has removed a competitive
outlet for our loans. We responded by shifting our production and related financing to our Bank and by focusing on agency-eligible loan production.



Housing values affect us in several ways. Declines in housing values affect us by negatively impacting the demand for mortgage financing, increasing risk of
default by mortgagors and increasing risk of loss on defaulted loans. These factors are somewhat offset by reduced prepayments in our loan servicing portfolio.

Recently,
we have seen broad-based declines in housing values. We expect housing values to continue to decrease during the near term which may increase our credit loss experience and
which has affected our willingness to offer certain mortgage loan products, both of these factors have and may continue to impact our earnings.

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Changes in investor demand for mortgage loans can have a significant impact on our ability to access the secondary mortgage market as a competitive outlet. In the
first quarter of 2008, we saw a continuation of the illiquidity in the secondary mortgage market and a continuation of downgrades by certain credit rating agencies of large numbers of mortgage-backed
securities. These factors have combined to severely decrease demand for and profitability of a large portion of the products we have historically produced. In response to these developments we have
tightened our underwriting and program guidelines and substantially limited our production of non agency-eligible loans to our investment portfolio.



With the current contraction in the U.S. housing market and the resulting declining housing prices, along with worsening economic conditions, we expect elevated
credit losses in the near term. Since 2007, we have observed a marked decline in credit performance (as adjusted for age) for recent vintages, especially those loans with higher risk characteristics,
including reduced documentation, higher loan-to-value ratios or low credit scores. Deterioration in the credit performance of these loans has resulted in materially increased
credit losses, impairment of our related credit-subordinated interests, recognition of losses from rapid amortization events, higher claims under our representations and warranties and elimination of
demand for our mortgage-backed securities and the availability of credit enhancements for the loans and securities we sell and invest in. We expect these factors to continue and for future earnings to
be impacted.



We have contingency planning protocols for funding liquidity that were designed to encompass a wide variety of market conditions. We place major emphasis on the
adequacy, reliability and diversity of our funding sources.

In
2007, funding liquidity in the financial services sector was constrained primarily due to changes in secondary mortgage market investor demand. These conditions worsened throughout
the year and expanded to include the debt markets we have traditionally relied upon to meet our short-term funding needs.

As
discussed in the sectionLiquidity and Capital Resources, we have adjusted our operations and financing sources to address the current
market conditions, including accessing other pre-existing funding liquidity sources, procuring new sources and the integration of our Mortgage Banking Operations into the Bank. While we
believe we currently have adequate funding liquidity, the effect of future developments on the Company may require us to make additional operational adjustments and/or procure additional sources of
financing.

Regulatory Trends

The regulatory environments in which we operate have an impact on the activities in which we may engage, how the activities may be carried out and the
profitability of those activities. Therefore, changes to laws, regulations or regulatory policies can affect whether and to what extent we are able to operate profitably.

Proposed
local, state and federal legislation and regulations targeted at predatory lending could have the unintended consequence of raising the cost or otherwise reducing the
availability of mortgage credit for those potential borrowers with less than prime-quality credit histories. Over the longer term, such legislation and regulations will influence the terms and
underwriting of products that will be offered to nonprime loan applicants. There may be future local, state and federal legislation that

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restricts
our ability to communicate with and solicit business from current and prospective customers in such a way that we are not able to originate new loans or sell other products at acceptable
profit margins.

On
February 13, 2008, the Economic Stimulus Act of 2008 was signed into law. The law provides for, among other things, temporary increases in the loan limits for the FHA's
Single-Family Program and the conforming loan limits for loans eligible for purchase by Fannie Mae and Freddie Mac. The limits are raised to as high as $729,750 from the current $362,790 for the FHA
Single Family program and $417,000 for Fannie Mae and Freddie Mac. The temporary increase applies to loans originated between July 1, 2007 and December 31, 2008.

Implementation
of the law will require Fannie Mae and Freddie Mac to develop the internal systems necessary to handle regional loan limits and develop underwriting, pricing and
securitization standards for these loans and obtain regulatory approval from the Office of Federal Housing Enterprises Oversight. The Office of Federal Housing Enterprises Oversight has estimated that
its approval process could take from one to three months. The effect of the law on our loan production has not yet been determined and will depend, in part, on the regional loan limits and related
loan underwriting guidelines and pricing.

From
time to time we are subject to investigations and reviews in the ordinary course of business involving various regulatory agencies, including the SEC and various state attorneys
general, and in connection therewith such regulatory agencies request materials from us pertaining to our business operations and other matters. It is the Company's policy to fully cooperate with its
regulators and, where appropriate, to take remedial action. Certain news reports beginning in March 2008, indicated that numerous industry participants, including the Company, were subject to an
investigation by the FBI in connection with mortgage business practices. The Department of Justice has stated to the Company that it cannot confirm or deny whether the FBI is conducting an
investigation of it.

For
a further discussion of proposed federal and state laws and regulations, seeRegulationsProposed Federal and State Laws and
Regulationsin Part I, Item 1Businessin our 2007 Annual Report.

Accounting Developments

In December of 2007, The American Securitization Forum ("ASF") issued theStreamlined Foreclosure and Loss Avoidance Framework for
Securitized Adjustable Rate Mortgage Loans(the "ASF Framework"). The ASF Framework was developed to address large numbers of subprime loans that are at risk of default when
the loans reset from their initial fixed interest rates to variable rates during the coming 18 months. The objective of the framework is to provide uniform guidelines for evaluating large
numbers of loans for refinancing in an efficient manner while complying with the relevant tax regulations and off-balance sheet accounting standards for loan securitizations. The ASF
Framework was developed with the participation of representatives of the mortgage securitization industry and the U.S. Government to provide streamlined borrower evaluation procedures in the
evaluation of loan modification options for borrowers with subprime adjustable-rate loans meeting certain criteria. Specifically, the ASF Framework targets loans:



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The
ASF Framework requires the loan servicer to categorize the targeted loans into one of three segments and address the borrowers according to the assigned segment:



The
ASF Framework specifies criteria that borrowers who are evaluated for streamlined modification must meet to qualify for a fast track modification, including property occupancy,
credit score and an
expected payment change threshold when the interest rate resets. Segment 2 borrowers who meet the specified criteria are identified for fast track loan modifications.

On
January 8, 2008, the SEC's Office of the Chief Accountant issued a letter addressing the accounting issues relating to the ASF Framework. The letter concluded that the SEC
would not object to continuing off-balance sheet accounting treatment for Segment 2 loans modified pursuant to the ASF Framework. The SEC's Office of the Chief Accountant also asked the
FASB to address the issues related to the sales accounting guidance in the applicable accounting literature.

We
are evaluating the ASF Framework but have not yet modified a significant volume of loans using the ASF Framework. At March 31, 2008, we serviced subprime ARM loans originated
between January 1, 2005 through July 31, 2007 totaling $19.0 billion that were included in securitization transactions.

For
those current loans that are accounted for off-balance sheet that are modified, but not as part of the ASF Framework above, the servicer must perform on an individual
basis, an analysis of the borrower and the loan to demonstrate it is probable that the borrower will not meet the repayment obligation in the near term. Such analysis shall provide sufficient evidence
to demonstrate that the loan is in imminent or reasonably foreseeable default. The SEC's Office of the Chief Accountant issued a letter in July 2007 stating that it would not object to continuing
off-balance sheet accounting treatment for these loans.

Factors That May Affect Our Future Results

We make forward-looking statements in this Report and in other reports we file with the SEC and in press releases. Our management may make forward-looking
statements orally in a public forum to analysts, investors, the media and others. Generally, forward-looking statements include:



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Readers
are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. We do not undertake to update them to
reflect changes that occur after the date they are made.

Forward-looking
statements give management's expectation about the future and are not guarantees. Words like "believe," "expect," "anticipate," "promise," "plan" and other expressions or
words of similar meanings, as well as future or conditional verbs such as "will," "would," "should," "could" or "may" are generally intended to identify forward-looking statements. There are a number
of factors, many of which are beyond our control, that could cause actual results to differ significantly from historical results or those anticipated include, but are not limited to the following:



Other
risk factors are described elsewhere herein as well as in other reports and documents that we file with or furnish to the SEC including the 2007 Annual Report. Other factors that
could also cause results to differ from our expectations may not be described in any such report or document.

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Each
of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

In response to this Item, the information set forth on pages 93 to 95 of this Form 10-Q is incorporated herein by reference.

Item 4.Controls and Procedures



Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
as of the end of the period covered by this Report as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.



There has been no change in our internal control over financial reporting during the quarter ended March 31, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting except as follows. Effective January 1, 2008, the Company implemented an internally developed loan
inventory software application. This application serves as the Company's primary loan accounting subledger; tracking and recording loans from the date we make a commitment to the borrower up to and
including settlement, payoff or transfers to foreclosed real estate. The application also provides support for portions of the Company's financial reporting disclosures. Management believes that the
loan inventory software application enhances the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows repurchases by the Company of its common stock for each calendar month during the quarter ended March 31, 2008:

Calendar Month

Total Number
of Shares
Purchased(1)

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
or Program(2)

Maximum Amount
That May Yet
be Purchased
Under the Plan
or Program(2)January

3,569

$
7.30

n/a

n/aFebruary

3,280

$
6.90

n/a

n/aMarch

55,580

$
4.54

n/a

n/aTotal

62,429

$
4.83

n/a

$0.1 billion


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Item 6.Exhibits





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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                    |  | COUNTRYWIDE FINANCIAL CORPORATION(Registrant)
|------------------- |  | ---------------------------------------------
|Dated: May 12, 2008 |  | By:                                          
|Dated: May 12, 2008 |  | By:                                          

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COUNTRYWIDE FINANCIAL CORPORATION

FORM 10-Q
March 31, 2008

INDEX OF EXHIBITS

|Exhibit No. |  | Description                                                                                                                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|+10.113*    |  | Letter Agreement dated January 25, 2008 between Angelo R. Mozilo and Countrywide Financial Corporation (the "Company") (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K, filed with the SEC on January 30, 2008).    
|+10.114*    |  | The Company's 401(k) Savings and Investment Plan, as amended and restated effective January 1, 2007 (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 filed with the SEC on March 24, 2008).                                             
|+10.115*    |  | First Amendment dated March 28, 2008 to Employment Agreement dated as of January 1, 2007 between David Sambol and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the
SEC on April 3, 2008).
|+10.116     |  | Form of 2006 Equity Incentive Plan Restricted Stock Unit Award Agreement for Senior Managing Director Cash-Settled Awards.                                                                                                                                 
|+10.117     |  | Form of 2006 Equity Incentive Plan Restricted Stock Unit Award Agreement for Non-Senior Managing Director Cash-Settled Awards.                                                                                                                             
|12.1        |  | Computation of the Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                     
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        
|32.1        |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                               
|32.2        |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                               

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