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 1934For the quarterly period ended June 30, 2008Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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)

26-2209742(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 August 8, 2008Common Stock $0.01 par value

1,000


The
Registrant meets the conditions set forth in general instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this
Form 10-Q with the reduced disclosure format.



---





COUNTRYWIDE FINANCIAL CORPORATION    FORM 10-Q    June 30, 2008    TABLE OF CONTENTS

PagePART I. FINANCIAL INFORMATION

1Item 1.

Financial Statements:Consolidated Balance SheetsJune 30, 2008 and December 31, 2007

1Consolidated Statements of OperationsThree and Six Months Ended June 30, 2008 and 2007

2Consolidated Statement of Changes in Shareholders' EquitySix Months Ended June 30, 2008 and 2007

3Consolidated Statements of Cash FlowsSix Months Ended June 30, 2008 and 2007

4Notes to Consolidated Financial Statements

5Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

55Overview

55Results of Operations ComparisonQuarters Ended June 30, 2008 and 2007

60Results of Operations ComparisonSix Months Ended June 30, 2008 and 2007

68Liquidity and Capital Resources

75Credit Risk Management

78Loan Servicing

91Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

92Prospective Trends

94Regulatory Trends

95Accounting Developments

96Factors That May Affect Our Future Results

98Item 4.

Controls and Procedures

99PART II. OTHER INFORMATION

100Item 1.

Legal Proceedings

100Item 6.

Exhibits

100


---





PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

June 30,
2008

December 31,
2007(Unaudited)(in thousands, except share data)ASSETSCash

$
6,650,317

$
8,810,399Mortgage loans held for sale (includes $8,638,178 carried at estimated fair value at June 30, 2008)


11,816,362


11,681,274Trading securities owned, at estimated fair value


1,193,001


14,504,563Trading securities pledged as collateral, at estimated fair value





6,838,044Securities purchased under agreements to resell, securities borrowed and federal funds sold


6,649,086


9,640,879Loans held for investment, net of allowance for loan losses of $5,035,651 and $2,399,491 at June 30, 2008 and December 31, 2007, respectively (includes $46,120 carried
at estimated fair value at June 30, 2008)


94,230,990


98,000,713Investments in other financial instruments, at estimated fair value


18,847,997


25,817,659Mortgage servicing rights, at estimated fair value


18,402,390


18,958,180Premises and equipment, net


1,539,200


1,564,438Other assets


12,747,151


12,550,775Total assets

$
172,076,494

$
208,366,924LIABILITIESDeposit liabilities

$
62,811,922

$
60,200,599Securities sold under agreements to repurchase


3,544,580


18,218,162Trading securities sold, not yet purchased, at estimated fair value


31,415


3,686,978Notes payable (includes $1,212,252 carried at estimated fair value at June 30, 2008)


82,335,591


97,227,413Accounts payable and accrued liabilities


10,651,933


10,194,358Income taxes payable


2,280,985


4,183,543Total liabilities


161,656,426


193,711,053Commitments and contingencies





SHAREHOLDERS' EQUITYPreferred stock, par value $0.05authorized, 1,500,000 shares; issued and outstanding at June 30, 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


1Common stock, par value $0.05authorized, 1,000,000,000 shares; issued, 583,256,956 shares and 578,881,566 shares at June 30, 2008 and December 31, 2007,
respectively; outstanding 583,256,956 shares and 578,434,243 shares at June 30, 2008 and December 31, 2007, respectively


29,163


28,944Additional paid-in capital


4,223,513


4,155,724Retained earnings


7,208,574


10,644,511Accumulated other comprehensive loss


(1,041,183
)

(173,309
)Total shareholders' equity


10,420,068


14,655,871Total liabilities and shareholders' equity

$
172,076,494

$
208,366,924


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

1

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(Unaudited)(in thousands, except per share data)Revenues(Loss) gain on sale of loans and securities

$
(126,942
)
$
1,493,458

$
162,369

$
2,727,562Interest income


2,462,546


3,499,644


5,269,105


6,851,626Interest expense


(1,806,595
)

(2,771,648
)

(3,881,834
)

(5,392,693
)Net interest income


655,951


727,996


1,387,271


1,458,933Provision for loan losses


(2,330,925
)

(292,924
)

(3,832,277
)

(444,886
)Net interest (expense) income after provision for loan losses


(1,674,974
)

435,072


(2,445,006
)

1,014,047Loan servicing fees and other income from mortgage servicing rights and retained interests


1,337,849


1,421,255


2,744,258


2,808,544Realization of expected cash flows from mortgage servicing rights


(667,652
)

(857,125
)

(1,421,278
)

(1,657,007
)Change in fair value of mortgage servicing rights


1,896,008


1,177,330


435,295


1,231,513Recovery (impairment) of retained interests


35,280


(268,117
)

(705,740
)

(697,718
)Servicing Hedge losses


(2,624,321
)

(1,373,089
)

(619,914
)

(1,486,827
)Net loan servicing fees and other income from mortgage servicing rights and retained interests


(22,836
)

100,254


432,621


198,505Net insurance premiums earned


484,766


352,384


973,595


686,561Realized loss on available for sale investment securities


(467,808
)

(4,889
)

(491,880
)

(3,886
)Other


184,956


172,118


424,337


331,384Total revenues


(1,622,838
)

2,548,397


(943,964
)

4,954,173ExpensesCompensation


996,848


1,109,016


2,050,833


2,184,424Occupancy and other office


249,169


269,017


491,948


533,230Insurance claims


366,469


154,769


722,120


212,074Advertising and promotion


65,638


79,540


138,898


149,557Other


514,874


271,357


960,300


509,395Total expenses


2,192,998


1,883,699


4,364,099


3,588,680(Loss) earnings before income taxes


(3,815,836
)

664,698


(5,308,063
)

1,365,493(Benefit) provision for income taxes


(1,485,737
)

179,630


(2,084,911
)

446,444NET (LOSS) EARNINGS

$
(2,330,099
)
$
485,068

$
(3,223,152
)
$
919,049(Loss) earnings per shareBasic

$
(4.07
)
$
0.83

$
(5.68
)
$
1.57Diluted

$
(4.07
)
$
0.81

$
(5.68
)
$
1.53


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)Convertible
Preferred
Stock

Additional
Paid-in
Capital

Retained
EarningsShares

Amount

Total(Unaudited)(in thousands, except share data)Balance at December 31, 2006

$



585,182,298

$
29,273

$
2,154,438

$
12,151,691

$
(17,556
)
$
14,317,846Remeasurement of income taxes payable upon adoption of FIN 48














(12,719
)




(12,719
)Balance as adjusted, January 1, 2007





585,182,298


29,273


2,154,438


12,138,972


(17,556
)

14,305,127Comprehensive income:Net earnings for the period














919,049





919,049Other comprehensive income (loss), net of tax:Net unrealized losses from available-for-sale securities

















(130,123
)

(130,123
)Net change in foreign currency translation adjustment

















9,237


9,237Change in unfunded liability relating to defined benefit plans

















2,214


2,214Total comprehensive income




















800,377Issuance of common stock pursuant to stock-based compensation





9,887,079


502


226,734








227,236Excess tax benefit related to stock-based compensation plans











68,348








68,348Issuance of common stock, net of treasury stock





652,447


33


25,862








25,895Repurchase and cancellation of common stock





(21,503,512
)

(1,075
)

(862,481
)







(863,556
)Cash dividends paid$0.30 per common share














(177,532
)




(177,532
)Balance at June 30, 2007

$



574,218,312

$
28,733

$
1,612,901

$
12,880,489

$
(136,228
)
$
14,385,895Balance at December 31, 2007

$
1


578,434,243

$
28,944

$
4,155,724

$
10,644,511

$
(173,309
)
$
14,655,871Cumulative effect of adoption of SFAS 159














34,249


(2,197
)

32,052Balance as adjusted, January 1, 2008


1


578,434,243


28,944


4,155,724


10,678,760


(175,506
)

14,687,923Comprehensive income:Net loss for the period














(3,223,152
)




(3,223,152
)Other comprehensive (loss), income net of tax:Net unrealized losses from available-for-sale securities

















(864,910
)

(864,910
)Net change in foreign currency translation adjustment

















(2,410
)

(2,410
)Change in unfunded liability relating to defined benefit plans

















1,643


1,643Total comprehensive loss




















(4,088,829
)Issuance of common stock pursuant to stock-based compensation





4,253,286


191


68,729








68,920Excess tax benefit related to stock-based compensation plans











(4,361
)







(4,361
)Issuance of common stock, net of treasury stock





569,427


28


3,421








3,449Cash dividends paid$0.30 per common share














(174,534
)




(174,534
)Cash dividends paid$3,625 per preferred share














(72,500
)




(72,500
)Balance at June 30, 2008

$
1


583,256,956

$
29,163

$
4,223,513

$
7,208,574

$
(1,041,183
)
$
10,420,068


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

3

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended
June 30,2008

2007(Unaudited)(in thousands)Cash flows from operating activities:Net (loss) earnings

$
(3,223,152
)
$
919,049Adjustments to reconcile net (loss) earnings to net cash provided (used) by operating activities:Gain on sale of loans and securities


(162,369
)

(2,727,562
)Accretion of discount on securities


(172,748
)

(260,618
)Interest capitalized on loans


(307,333
)

(456,973
)Amortization of deferred premiums, discounts, fees and costs, net


(16,001
)

209,442Accretion of fair value adjustments and discount on notes payable


(24,694
)

(29,348
)Change in fair value of hedged notes payable and related interest-rate and foreign-currency swaps


(58,207
)

(9,787
)Amortization of deferred fees on time deposits


13,521


11,113Provision for loan losses


3,832,277


444,886Changes in MSR value due to realization of expected cash flows from mortgage servicing rights


1,421,278


1,657,007Change in fair value of mortgage servicing rights


(435,295
)

(1,231,513
)Impairment of retained interests and accrual for funding obligation under rapid amortization


729,283


759,529Servicing Hedge losses


619,914


1,486,827Write-down of other than temporary impairment on available-for-sale securities


497,963


Stock-based compensation expense


56,385


48,353Depreciation and other amortization


147,849


151,188Provision for restructuring costs


16,073


(Benefit) provision for deferred income taxes


(2,095,292
)

836,807Origination and purchase of loans held for sale


(122,810,313
)

(242,781,618
)Proceeds from sale and principal repayments of loans held for sale


120,459,780


236,898,474Decrease (increase) in trading securities


20,154,728


(1,207,318
)Decrease in other assets


847,619


420,705(Decrease) increase in trading securities sold, not yet purchased, at fair value


(3,655,563
)

731,154(Decrease) increase in accounts payable and accrued liabilities


(1,282,812
)

180,812Increase (decrease) in income taxes payable


719,942


(473,482
)Net cash provided (used) by operating activities


15,272,833


(4,422,873
)Cash flows from investing activities:Decrease in securities purchased under agreements to resell, federal funds sold and securities borrowed


2,991,793


884,808(Additions) repayments to loans held for investment, net


(3,833,715
)

5,158,051Additions to investments in other financial instruments


(3,998,340
)

(18,664,324
)Proceeds from sale and repayment of investments in other financial instruments


8,891,282


2,930,650Sale (purchases) of mortgage servicing rights, net


1,300,151


(184,511
)Purchases of premises and equipment, net


(70,218
)

(135,173
)Net cash provided (used) by investing activities


5,280,953


(10,010,499
)Cash flows from financing activities:Net increase in deposit liabilities


2,597,802


4,703,046Net (decrease) increase in securities sold under agreements to repurchase


(14,673,582
)

4,073,347Net (decrease) increase in short-term borrowings


(2,841,746
)

3,510,080Issuance of long-term debt


500,000


24,026,503Repayment of long-term debt


(8,060,931
)

(21,364,797
)(Expense) benefit related to stock-based compensation


(4,361
)

68,535Repurchase and cancellation of common stock





(863,556
)Issuance of common stock


15,984


204,778Payment of dividends


(247,034
)

(177,532
)Net cash (used) provided by financing activities


(22,713,868
)

14,180,404Net decrease in cash


(2,160,082
)

(252,968
)Cash at beginning of period


8,810,399


1,407,000Cash at end of period

$
6,650,317

$
1,154,032


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

4

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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 real estate finance-related businesses, including mortgage banking, banking and mortgage warehouse lending, dealing in securities and insurance underwriting. As discussed in
Note 2Subsequent EventsMerger and Subsequent Transactions with Bank of America Corporation, effective on July 1,
2008, the Company became a wholly-owned subsidiary of Bank of America Corporation ("Bank of America").

These
financial statements have been prepared assuming that Countrywide will continue to operate as a stand-alone entity and do not take into account any purchase accounting adjustments
that may be recorded pursuant to Bank of America's acquisition of the Company, which was effective on July 1, 2008. These financial statements also do not reflect accounting changes that may be
made to conform Countrywide's accounting policies to those of Bank of America.

The
accompanying consolidated financial statements have been prepared in compliance with U.S. generally accepted accounting principles 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. generally accepted accounting principles for complete financial statements.

Preparation
of financial statements in compliance with U.S. generally accepted accounting principles requires management 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
periods ended June 30, 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").

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

Note 2Subsequent EventsMerger and Subsequent Transactions with Bank of America Corporation

On January 11, 2008, Countrywide and Bank of America entered into an Agreement and Plan of Merger, pursuant to which Countrywide
would merge (the "Merger") with and into Red Oak Merger Corporation, a wholly-owned merger subsidiary of Bank of America ("Merger Sub"), with Merger Sub continuing as the surviving company. The
details of this agreement are contained in a Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2008, and the Amended Registration
Statement on Form S-4 of Bank of America filed on May 28, 2008.

The
Merger was concluded on July 1, 2008. On July 1, 2008, Merger Sub was renamed Countrywide Financial Corporation. As the result of the Merger, Countrywide common stock
was converted into 0.1822 of a share of Bank of America common stock plus an amount of cash in lieu of

5

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COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

any
fractional share and all shares of the Company's 7.25% Series B Non-Voting Convertible Preferred Stock were cancelled.

The
Company notified the New York Stock Exchange of the conversion of its shares and related preferred stock purchase rights, requested that its common stock and preferred stock purchase
rights be delisted and cease to trade at the close of business on June 30, 2008, and that the NYSE submit to the SEC Form 25s to report that the Company's shares of common stock and
preferred stock purchase rights are no longer listed on the NYSE. The NYSE filed the Form 25s with the SEC on July 1, 2008.

Following
completion of the Merger, the Company sold assets to other subsidiaries of Bank of America and used proceeds from these sales to repay its unsecured revolving lines of credit
and bank loans. The Company expects to record no material gain or loss on these transactions after giving effect to purchase price adjustments.



Details
of these subsequent events and other transactions, are contained in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on July 8, 2008.

Note 3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,

6

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

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 5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 associated 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 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 $216.0 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 June 30, 2008.

7

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 4(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 potentially dilutive 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 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.

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

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

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

$
(2,330,099
)
$
485,068

$
(3,223,152
)
$
919,049Dividends on convertible preferred stock


(36,250
)




(72,500
)

Net (loss) earnings attributable to common shareholders

$
(2,366,349
)
$
485,068

$
(3,295,652
)
$
919,049Weighted-average shares outstanding:Basic weighted-average number of common shares outstanding


581,958


583,669


580,649


585,901Effect of dilutive securities:Dilutive stock-based compensation instruments





11,871





12,963Diluted weighted-average number of common shares outstanding


581,958


595,540


580,649


598,864Net (loss) earnings per common share:Basic (loss) earnings per share

$
(4.07
)
$
0.83

$
(5.68
)
$
1.57Diluted (loss) earnings per share

$
(4.07
)
$
0.81

$
(5.68
)
$
1.53


Due
to the loss attributable to common shareholders for the three and six months ended June 30, 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 three and six months ended June 30, 2007, stock appreciation rights and options to purchase 172,011
shares and 26,390 shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

8

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 5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.

As
discussed in Note 3Adoption of New Accounting Pronouncements,effective January 1, 2008, the Company adopted
two pronouncements affecting the Company's fair value measurements and accounting: SFAS 157 and SFAS 159.

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 amortized 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. At the time of adoption, such borrowings represented 25% of mortgage-backed secured financings and the mortgage loans
securing such borrowings represented 23% of mortgage loans held for sale.

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:

Transition Adjustments toCarrying Value
Before Adoption

Retained
Earnings
Gain/(Loss)

Other
Comprehensive
Income

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

$
2,897,216

$
237




$
2,897,453Investment 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





53,977Effect on income taxes payable





(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 Company's mortgage banking operations 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 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 agency-eligible mortgage loans).
Such loans represented 85% and 86% of mortgage loans

10

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

originated
or purchased and held for sale during the three and six months ended June 30, 2008, respectively.

Fair Value Measurements

Gains (losses) from changes in estimated fair values included in earnings for financial statement items carried at estimated fair value
pursuant to the fair value option are summarized below:

Three Months
Ended

Six Months
EndedJune 30, 2008(in thousands)Assets:Mortgage loans at fair value (1)

$
(253,717
)
$
(623,275
)Investments in other financial instruments:Investment securities


(5,741
)

(2,493
)Interest rate lock commitments


1,692


208Liabilities:Notes Payable:Asset-backed secured financings


37,304


388,464


---

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 June 30, 2008:

Fair Value

Principal Amount
Due Upon
Maturity

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

$
8,549,967

$
9,079,690

$
(529,723
)90 or more days delinquent


134,331


260,822


(126,491
)Investments in financial instruments:Investment securities


358,390


340,485


17,905Liabilities:Notes Payable:Asset-backed secured financings


1,212,252


1,672,721


(460,469
)


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
June 30, 2008:

Level 1

Level 2

Level 3

Netting Adjustments (1)

Total(in thousands)Assets:Mortgage loans

$


$
7,259,090

$
1,425,208

$


$
8,684,298Trading securities


3


2,088,091


1,124,351


(2,019,444
)

1,193,001Investments in other financial instruments:Investment securities


234,334


2,343,562


13,424,032





16,001,928Retained interests








1,510,579





1,510,579Interest rate lock commitments(2)








150,817





150,817Other derivative instruments


15,300


4,184,110





(3,014,737
)

1,184,673Total investments in other financial instruments


249,634


6,527,672


15,085,428


(3,014,737
)

18,847,997Mortgage servicing rights








18,402,390





18,402,390Liabilities:Trading securities sold, not yet purchased


3


1,960,835





(1,929,423
)

31,415Notes Payable:Asset-backed secured financings








1,212,252





1,212,252Accounts payable and accrued liabilities:Interest rate lock commitments(2)








43,868





43,868Other derivative instruments





1,459,423





(1,306,119
)

153,304


---

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:

Three Months Ended June 30, 2008Investments in Other
Financial InstrumentsMortgage
Loans

Trading
Securities

Investment
Securities

Retained
Interests

Interest
Rate Lock
Commitments,
Net

Mortgage
Servicing
Rights

Total(in thousands)Assets:Balance, March 31, 2008

$
2,411,044

$
1,346,992

$
14,658,098

$
1,853,177

$
216,105

$
17,154,574

$
37,639,990Total (losses) gains:Included in earnings


(116,542
)

(85,440
)

(457,703
)

(138,714
)

434,179


1,228,356


864,136Included in other comprehensive income








(441,482
)

(32,288
)







(473,770
)Purchases, issuances and settlements


(814,467
)

(137,201
)

(334,881
)

(171,596
)




19,460


(1,438,685
)Transfers to mortgage loans:Level 2














(598,162
)




(598,162
)Level 3


(54,827
)










54,827





Balance, June 30, 2008

$
1,425,208

$
1,124,351

$
13,424,032

$
1,510,579

$
106,949

$
18,402,390

$
35,993,509Changes in unrealized (losses) gains relating to assets still held at June 30, 2008

$
(127,171
)
$
41,432

$
(457,791
)
$
(152,158
)
$
109,156

$
1,896,007

$
1,309,475




Notes Payable:
Asset-backed
Secured
Financings(in thousands)Liabilities:Balance, March 31, 2008

$
1,692,472Total gains:Included in earnings


(37,304
)Purchases, issuances and settlements


(442,916
)Balance, June 30, 2008

$
1,212,252Change in unrealized gains relating to liabilities still held at June 30, 2008

$
72,852


13

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Six Months Ended June 30, 2008Investments in Other
Financial InstrumentsMortgage
Loans

Trading
Securities

Investment
Securities

Retained
Interests

Interest
Rate Lock
Commitments,
Net

Mortgage
Servicing
Rights

Total(in thousands)Assets:Balance, December 31, 2007

$
3,480,673

$
1,924,558

$
16,330,950

$
3,358,756

$
107,718

$
18,958,180

$
44,160,835Impact of SFAS 157 and SFAS 159 adoption


237











483





720Balance, January 1, 2008


3,480,910


1,924,558


16,330,950


3,358,756


108,201


18,958,180


44,161,555Total (losses) gains:Included in earnings


(574,725
)

(290,385
)

(491,735
)

(675,047
)

1,356,915


(985,983
)

(1,660,960
)Included in other comprehensive income








(1,369,547
)

(32,633
)







(1,402,180
)Purchases, issuances and settlements


(1,342,016
)

(509,822
)

(1,045,636
)

(1,140,497
)




430,193


(3,607,778
)Transfers to mortgage loans:Level 2














(1,497,128
)




(1,497,128
)Level 3


(138,961
)










138,961





Balance, June 30, 2008

$
1,425,208

$
1,124,351

$
13,424,032

$
1,510,579

$
106,949

$
18,402,390

$
35,993,509Changes in unrealized (losses) gains relating to assets still held at June 30, 2008

$
(509,978
)
$
(2,992
)
$
(491,789
)
$
(707,853
)
$
1,252

$
435,295

$
(1,276,065
)




Notes Payable:
Asset-backed
Secured
Financings(in thousands)Liabilities:Balance, December 31, 2007

$
2,353,250Impact of SFAS 157 and SFAS 159 adoption


(51,060
)Balance, January 1, 2008


2,302,190Total gains:Included in earnings


(388,464
)Purchases, issuances and settlements


(701,474
)Balance, June 30, 2008

$
1,212,252Change in unrealized gains relating to liabilities still held at June 30, 2008

$
423,968


Gains and losses from changes in the estimated fair value of mortgage loans held for sale, interest rate lock commitments ("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 and in realized loss on available for sale securities. 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 estimated fair value of mortgage

14

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

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 Instrumentsto the consolidated financial statements 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 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 June 30, 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 subprime (formerly known as nonprime) loans, which represented approximately 18% of mortgage loans originated or purchased for resale excluding loans secured by commercial real
estate at June 30, 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.



15

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



16

---



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 factors and encompass the historical performance of our 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.

17

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Following
is a summary of items that are measured at estimated fair value on a nonrecurring basis:

Gain (Loss)Level 1

Level 2

Level 3

Total

Three Months
Ended
June 30, 2008

Six Months
Ended
June 30, 2008(in thousands)At June 30, 2008:Mortgage loans held for sale

$


$
2,502,233

$
675,951

$
3,178,184

$
(16,751
)
$
(136,379
)Three months ended June 30, 2008:Mortgage loans held for investment transferred from mortgage loans held for sale

$


$
213,438

$
338,429

$
551,867

$
(53,891
)
$
Six months ended June 30, 2008:Mortgage loans held for sale transferred from mortgage loans held for investment(1)

$


$
363,354

$
2,042,953

$
2,406,307

$


$
(19,477
)Mortgage loans held for investment transferred from mortgage loans held for sale

$


$
1,272,241

$
353,301

$
1,625,542

$


$
(58,859
)


---

Note 6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.

18

---



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

The Company actively manages the risk profiles of its IRLCs and Mortgage Loan Inventory on a daily basis. To manage the price risk
associated with the IRLCs, the Company generally uses a combination of net forward sales of 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 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 manages the price risk related to its commercial mortgage loans using interest rate swaps, total rate of return and credit default swaps.

19

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

During
the six months ended June 30, 2008, the interest rate risk management activities associated with 14% 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 estimated fair value. For the six months ended June 30, 2008 and 2007, the Company recognized pre-tax losses of $18.7 million and
$6.4 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,
June 30,
2008(in millions)Interest rate swaptions

$
102,410

$
93,200

$
(98,690
)
$
96,920Interest rate swaps


47,675


100,251


(71,090
)

76,836Treasury futures


45,000


21,678


(21,678
)

45,000Call options on interest rates futures


15,500


96,550


(112,050
)

Mortgage forward rate agreements


13,000


51,100


(15,000
)

49,100MBS forward contracts


9,500


90,830


(94,550
)

5,780


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 June 30, 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 June 30, 2008). These transactions are generally designated as fair value hedges. For the six months
ended June 30, 2008 and 2007, the Company recognized pre-tax gains of $58.2 million and $9.8 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 six months ended June 30, 2008 and 2007, the
Company recognized a pre-tax loss of $10.0 million and pre-tax gains of $0.3 million, respectively, representing the hedge ineffectiveness related to these
contracts.

20

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

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

The Company is exposed to price changes in its trading portfolio of fixed-income securities, primarily MBS, held in connection with its
broker-dealer activities. To manage the price risk that results from interest rate changes during the period it holds the securities, 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 7Mortgage Loans Held for Sale

Mortgage loans held for sale include the following:

June 30,
2008

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

$
7,225,291

$
Subprime


1,328,074


Commercial real estate


84,813


8,638,178


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


2,880,816


7,815,880Subprime


2,432


3,038,980Prime home equity


25,964


82,131Commercial real estate


270,938


1,055,343Deferred premiums, discounts, fees and costs, net


44,104


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


(46,070
)

(143,115
)3,178,184


11,681,274$
11,816,362

$
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 at June 30, 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 subprime loans, which represented approximately 18% of mortgage loans held for sale excluding loans secured by commercial real estate at
June 30, 2008.

21

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

At
June 30, 2008, the Company had pledged mortgage loans held for sale with unpaid principal balances totaling $1.3 billion and $0.3 billion to secure collateral for
asset-backed secured financings and 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 8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:

June 30,
2008

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

$


$
3,974,806Agency mortgage pass-through securities


2


13,767,268Obligations of U.S. Government-sponsored enterprises





781,470Collateralized mortgage obligations


255,859


1,988,054Asset-backed securities


55,072


121,582Interest-only securities


808,191


404,364Residual securities


5,310


857Mark-to-market on TBA securities


37,226


67,213Derivative financial instruments


31,339


231,587Other


2


5,406$
1,193,001

$
21,342,607


22

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Trading
securities by credit rating were as follows:

June 30, 2008Credit RatingTotal(1)

AAA

AA

A

<A

Not Rated(2)(in thousands)U.S. Treasury securities

$


$


$


$


$


$
Agency mortgage pass-through securities


2


2











Collateralized mortgage obligations


255,859


227,718


6,266


1,119


19,362


1,394Asset-backed securities


55,072


9,525


32,052


1,025


12,470


Interest-only securities


808,191


490,445











317,746Residual securities


5,310


23





612


1,129


3,546Other


2














2$
1,124,436

$
727,713

$
38,318

$
2,756

$
32,961

$
322,688


---

As
of June 30, 2008, $133.2 million of the Company's trading securities had been pledged as collateral for financing purposes. None of the financing agreements provided the
counterparties with the contractual right to sell or re-pledge the trading securities.

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.

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

June 30,
2008

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

$


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





401,298Mark-to-market on TBA securities


17,359


196,733Derivative financial instruments


14,053


343,782Other


3


959$
31,415

$
3,686,978


23

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 9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:

June 30,
2008

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

$
2,874,086

$
5,384,569Securities borrowed





928,857Federal funds sold


3,775,000


3,327,453$
6,649,086

$
9,640,879


As
of June 30, 2008, the Company had accepted collateral related to securities purchased under agreements to resell and securities borrowed with a fair value of
$5.8 billion that it had the contractual ability to sell or re-pledge, including $3.2 billion related to amounts offset by securities sold under agreements to repurchase
under master netting arrangements. As of June 30, 2008, the Company had re-pledged $4.9 billion of such collateral for financing purposes.

Through
June 30, 2008, the Company had 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 June 30, 2008, Countrywide had $0.5 billion 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.

24

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 10Loans Held for Investment, Net

Loans held for investment include the following:

June 30,
2008

December 31,
2007(in thousands)Mortgage loans:PrimePay option and payment advantage

$
26,409,335

$
28,509,138Other


30,071,783


25,517,95056,481,118


54,027,088Prime home equity


32,864,577


34,539,144Subprime


2,454,542


2,725,407Commercial real estate


181,390


265,845Total mortgage loans


91,981,627


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


3,411,386


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


904,647


887,13496,297,660


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


(469,411
)

(363,560
)Allowance for loan losses


(5,035,651
)

(2,399,491
)90,792,598


92,373,130Mortgage Loans Held in SPEs


3,438,392


5,627,583Loans held for investment, net

$
94,230,990

$
98,000,713


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. During the six months ended June 30, 2008, the Company
transferred prime, prime home equity and subprime mortgage loans with an unpaid principal balance of $1.5 billion, $0.1 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 six months of 2008 to hold those loans for the foreseeable future. In connection with these transfers,
impairment in the amount of $73.4 million was recorded as a component of gain on sale of loans and securities.

Mortgage
loans with unpaid principal balances totaling $58.8 billion and $62.6 billion were pledged to secure FHLB advances and to enable additional borrowings from the
FHLB at June 30, 2008 and December 31, 2007, respectively.

Mortgage
loans held for investment with unpaid principal balances totaling $7.4 billion and $6.0 billion were pledged to secure an unused borrowing facility with the
Federal Reserve Bank ("FRB") at June 30, 2008 and December 31, 2007, respectively.

Mortgage
loans held for investment with unpaid principal balances totaling $0.5 billion were pledged to secure securities sold under agreements to repurchase at June 30,
2008.

25

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Defaulted
FHA-insured and VA-guaranteed loans repurchased from securities totaling $1.3 billion were pledged to secure securities sold under agreements to
repurchase at December 31, 2007. No amounts were pledged at June 30, 2008.

Mortgage
loans with unpaid principal balances totaling $1.9 billion were pledged to secure a revolving line of credit at December 31, 2007. No amounts were pledged at
June 30, 2008.

Mortgage
loans held in special purpose entities ("SPEs") with carrying values totaling $3.4 billion and $5.6 billion were pledged to secure asset-backed secured financings
at June 30, 2008 and December 31, 2007, respectively. These amounts included $0.2 billion and $0.3 billion of real estate acquired in settlement of loans as of
June 30, 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 $862.1 million and $960.7 million at June 30, 2008 and December 31, 2007, respectively.

As
of both June 30, 2008 and December 31, 2007, the Company had accepted mortgage loan collateral securing warehouse lending advances of $1.0 billion, that it had
the contractual ability to re-pledge.

The
Company modified loans for borrowers who would not be able to obtain refinancing from other lenders under the modified terms. Other loans were modified to retain borrowers with good
payment history but the modifications were considered to represent credit 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 interest rates that are fixed for five years. Because these
modifications were made at terms 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.

Troubled
debt restructurings at June 30, 2008 and December 31, 2007 totaled $1.2 billion 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, $1.1 billion and $6.3 million were on accrual status as of
June 30, 2008 and December 31, 2007, respectively. An impairment allowance of $117.2 million and $11.0 million relating to these loans is included in the allowance for loan
losses as of June 30, 2008 and December 31, 2007, respectively. Management considered $28.8 million and $37.3 million of warehouse lending loans to be impaired as of
June 30, 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 six months ended June 30, 2008 was $784.9 million and none during the six months ended June 30, 2007.

26

---



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:

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(in thousands)Balance, beginning of period

$
3,351,304

$
464,131

$
2,399,491

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


2,614,321


368,811


4,172,399


544,774Charge-offs


(942,020
)

(157,447
)

(1,571,623
)

(198,516
)Recoveries


12,046


3,060


35,384


5,480Balance, end of period

$
5,035,651

$
678,555

$
5,035,651

$
678,555




Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

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

$
2,614,321

$
368,811

$
4,172,399

$
544,774Change in estimate of amounts recoverable from pool mortgage insurance


(283,396
)

(75,887
)

(340,122
)

(99,888
)Provision for loan losses

$
2,330,925

$
292,924

$
3,832,277

$
444,886




June 30,2008

2007(in thousands)Allowance for loan losses

$
5,035,651

$
678,555Estimated amount recoverable from pool mortgage insurance


(895,925
)

(165,651
)Allowance for loan losses, net of estimated pool mortgage insurance

$
4,139,726

$
512,904


The
Company has recorded a liability for losses on unfunded loan commitments in accounts payable and accrued liabilities totaling $63.7 million and $38.4 million at
June 30, 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:

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(in thousands)Balance, beginning of period

$
65,835

$
13,759

$
38,384

$
8,104Provision for losses on unfunded loan commitments


(2,181
)

4,463


25,270


10,118Balance, end of period

$
63,654

$
18,222

$
63,654

$
18,222


27

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 11Investments in Other Financial Instruments, at Estimated Fair Value

Investments in other financial instruments include the following:

June 30,
2008

December 31,
2007(in thousands)Securities accounted for as available-for-sale:Prime non-agency mortgage-backed securities

$
13,421,562

$
16,328,280Prime agency mortgage-backed securities


1,645,915


2,944,210Subprime mortgage-backed securities


786


35Obligations of U.S. Government-sponsored enterprises


145,901


255,205Municipal bonds


167,707


419,540U.S. Treasury securities


88,433


92,900Corporate bonds


97,596


74,643Investment securities


15,567,900


20,114,813Interests retained in securitizationnon credit-sensitive:Mortgage-backed pass-through securities


34,616


37,567Prime interest-only and principal-only securities


227,924


256,832Prepayment penalty bonds


6,615


9,516Total interests retained in securitizationnon credit-sensitive


269,155


303,915Interests retained in securitizationcredit-sensitive(1):Mortgage-backed pass-through securities


176


281Prime residual securities


9,254


8,026Prime home equity retained interests


77,175


94,112Subprime retained interests


27,382


29,770Total interests retained in securitizationcredit-sensitive(1)


113,987


132,189Total securities accounted for as available-for-sale


15,951,042


20,550,917Financial 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


175,879


559,880Prime interest-only and principal-only securities


730,759


745,160Prepayment penalty bonds


45,979


70,401Interest rate swaps





50Total interests retained in securitizationnon credit-sensitive


952,617


1,375,491Interests retained in securitizationcredit-sensitive(1):Mortgage-backed pass-through securities


22,907


34,424Prime residual securities


20,479


12,531Prime home equity retained interests


76,916


328,569Subprime retained interests


54,518


263,278Total interests retained in securitizationcredit-sensitive(1)


174,820


638,802Servicing Hedge principal-only securities





908,358Municipal bonds


358,390


Corporate bonds


75,638


72,685Total securities accounted for as trading


1,561,465


2,995,336Hedging and pipeline derivatives


1,335,490


2,271,406Total financial instruments with changes in unrealized gains and losses recognized in earnings in the period of change


2,896,955


5,266,742Total investments in other financial instruments

$
18,847,997

$
25,817,659


---

28

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

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

June 30, 2008Credit RatingTotal(1)

AAA

AA

A

<A

Not Rated(2)(in thousands)Securities accounted for as available-for-sale:Prime non-agency mortgage-backed securities

$
13,421,562

$
13,325,612

$
63,024

$
21,798

$
11,128

$
Prime agency mortgage-backed securities


1,645,915


1,645,915











Sub prime mortgage-backed securities


786


786











Obligations of U.S. Government-sponsored enterprises


145,901


145,901











Municipal bonds


167,707


55,775


95,059


16,873





U.S. Treasury securities


88,433


88,433











Corporate bonds


97,596


97,546





50





Investment securities


15,567,900


15,359,968


158,083


38,721


11,128


Interests retained in securitizationnon credit-sensitive:Mortgage-backed pass-through securities


34,616


22,511


12,105








Prime interest-only and principal-only securities


227,924


201,821











26,103Prepayment penalty bonds


6,615


535











6,080Total interests retained in securitizationnon credit-sensitive


269,155


224,867


12,105








32,183Interests retained in securitizationcredit-sensitive:Mortgage-backed pass-through securities


176











176


Prime residual securities


9,254














9,254Prime home equity retained interests


77,175














77,175Subprime retained interests


27,382


4,548











22,834Total interests retained in securitizationcredit-sensitive


113,987


4,548








176


109,263Total securities accounted for as available-for-sale

$
15,951,042

$
15,589,383

$
170,188

$
38,721

$
11,304

$
141,446Financial 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

$
175,879

$
116,153

$
29,463

$
23,373

$
6,890

$
Prime interest-only and principal-only securities


730,759


730,759











Prepayment penalty bonds


45,979














45,979Total interests retained in securitizationnon credit-sensitive


952,617


846,912


29,463


23,373


6,890


45,979Interests retained in securitizationcredit-sensitive:Mortgage-backed pass-through securities


22,907











21,387


1,520Prime residual securities


20,479














20,479Prime home equity retained interests


76,916














76,916Subprime retained interests


54,518














54,518Total interests retained in securitizationcredit-sensitive


174,820











21,387


153,433Municipal bonds


358,390


111,285


174,002


61,817


11,286


Corporate bonds


75,638


3,956


13,367


42,093


16,222


Total securities accounted for as trading


1,561,465


962,153


216,832


127,283


55,785


199,412Total investments in other financial instruments

$
17,512,507

$
16,551,536

$
387,020

$
166,004

$
67,089

$
340,858


---

29

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

At June 30, 2008, the Company had pledged $0.8 billion of investments in other financial instruments to secure securities sold under
agreements to repurchase, which the counterparty had the contractual right to re-pledge. At June 30, 2008, the Company had pledged $0.05 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
June 30, 2008 and December 31, 2007, the Company had pledged $12.4 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:

June 30, 2008Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

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

$
15,196,885

$
3,926

$
(1,779,249
)
$
13,421,562Prime agency mortgage-backed securities


1,650,082


10,290


(14,457
)

1,645,915Subprime mortgage-backed securities


802





(16
)

786Obligations of U.S. Government-sponsored enterprises


141,468


4,433





145,901Municipal bonds


167,214


851


(358
)

167,707U.S. Treasury securities


84,682


3,779


(28
)

88,433Interests retained in securitization


372,322


65,242


(54,422
)

383,142Corporate bonds


97,288


1,464


(1,156
)

97,596$
17,710,743

$
89,985

$
(1,849,686
)
$
15,951,042




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
)

2,944,210Subprime 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
)

436,104Corporate bonds


72,519


2,127


(3
)

74,643$
20,896,425

$
108,409

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


30

---



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:

June 30, 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

$
7,031,496

$
(917,859
)
$
5,195,697

$
(861,390
)
$
12,227,193

$
(1,779,249
)Prime agency mortgage-backed securities


447,927


(5,987
)

491,375


(8,470
)

939,302


(14,457
)Subprime mortgage-backed securities


633


(4
)

153


(12
)

786


(16
)Municipal bonds








53,366


(358
)

53,366


(358
)U.S. Treasury securities


3,483


(28
)







3,483


(28
)Interests retained in securitization


46,095


(15,876
)

111,306


(38,546
)

157,401


(54,422
)Corporate Bonds


34,426


(1,156
)

50





34,476


(1,156
)$
7,564,060

$
(940,910
)
$
5,851,947

$
(908,776
)
$
13,416,007

$
(1,849,686
)




December 31, 2007Less Than 12 Months

12 Months or More

TotalFair Value

Gross
Unrealized
Loss

Fair Value

Grosse
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
)Corporate Bonds


305


(3
)

50





355


(3
)$
10,223,590

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

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

$
(453,917
)


The Company's Asset/Liability Committee ("ALCO") 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 six months ended June 30, 2008, ALCO determined that it was no longer reasonably assured that the decline in value would be recovered during the holding period of
certain prime non-agency mortgage-backed securities. Such securities had a carrying value of $1.5 billion when this determination was made. As a result of this determination,
unrealized losses recorded in accumulated other comprehensive income totaling $0.5 billion were transferred to earnings during the six months ended June 30, 2008. No such losses were
recorded during the six months ended June 30, 2007.

31

---



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:

Six Months Ended
June 30,2008

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

$
11,493

$
11Gross realized losses


(2,115
)

Net


9,378


11Prime non-agency mortgage-backed securities:Gross realized gains


90


Gross realized losses


(3,394
)

Net


(3,304
)

Municipal bonds:Gross realized gains





75Gross realized losses





(857
)Net





(782
)Obligations of U.S. Government-sponsored enterprises:Gross realized gains


1,608


Gross realized losses





Net


1,608


Interests retained in securitization:Gross realized gains





1,615Gross realized losses


(1,599
)

(12
)Net


(1,599
)

1,603Total gains and losses on available-for-sale securities:Gross realized gains


13,191


1,701Gross realized losses


(7,108
)

(869
)Net

$
6,083

$
832


32

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 12Mortgage Servicing Rights, at Estimated Fair Value

The activity in MSRs was as follows:

Six Months Ended
June 30,2008

2007(in thousands)Balance at beginning of period

$
18,958,180

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


1,730,344


4,156,287Purchases


7,420


184,511Total additions


1,737,764


4,340,798Less sales


(1,307,571
)

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


435,295


1,231,513Other changes in fair value(2)


(1,421,278
)

(1,657,007
)Balance at end of period

$
18,402,390

$
20,087,368


---

As
detailed in Note 2Subsequent EventsMerger and Subsequent Transactions with Bank of America
Corporation, on July 2, 2008, the Company sold two entities that hold the partnership interests in the Company's primary loan servicing subsidiary, Servicing LP,
to NBHC. Servicing LP's assets included $15.3 billion of the Company's MSRs at June 30, 2008.

33

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 13Other Assets

Other assets include the following:

June 30,
2008

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

$
5,216,792

$
3,981,703Investments in FRB and FHLB stock


1,993,036


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


952,329


807,843Estimated amounts recoverable from pool mortgage insurance


895,925


555,803Interest receivable


633,097


932,477Receivables from custodial accounts


382,813


387,509Capitalized software, net


379,172


385,276Prepaid expenses


326,595


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


292,039


307,902Cash surrender value of Company-owned life insurance


221,500


229,835Margin accounts


219,369


669,391Mortgage guaranty insurance tax and loss bonds


188,667


165,066Securities broker-dealer receivables


87,489


203,206Restricted cash


75,565


86,078Receivables from sale of securities


12,720


98,021Other


870,043


1,192,735$
12,747,151

$
12,550,775


The
Company had pledged $0.01 billion of receivables from sale of securities to secure securities sold under agreements to repurchase at June 30, 2008 and
December 31, 2007.

34

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 14Deposit Liabilities

Deposit liabilities include the following:

June 30,
2008

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

$
729,152

$
457,487Retail savings and money market accounts:Retail


9,724,721


8,268,969Brokered


1,715,642


3,159,124Commercial money market accounts


219,015


892,085Time deposits:Retail


31,095,961


25,119,310Brokered


7,575,540


9,107,958CommercialPremier business banking


502,437


545,118Other


41,486


42,711543,923


587,82939,215,424


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


11,192,367


12,591,40162,796,321


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


15,601


16,436$
62,811,922

$
60,200,599


---

35

---



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 June 30, 2008, are shown in the following table:

Time Deposit Maturities

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

$
14,650,810


4.88
%December 31, 2008


9,523,683


4.71
%March 31, 2009


2,793,532


4.17
%June 30, 2009


7,400,499


3.98
%Total twelve months ending June 30, 2009


34,368,524


4.58
%Twelve months ending June 30,2010


1,833,014


4.32
%2011


872,346


4.53
%2012


193,727


4.79
%2013


190,460


4.93
%Thereafter


1,757,353


5.77
%39,215,424


4.62
%Basis adjustment through application of hedge accounting


15,601$
39,231,025


Note 15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
June 30, 2008, repurchase agreements were secured by $0.1 billion of trading securities, $4.9 billion of securities purchased under agreements to resell and
securities borrowed, $0.5 billion of loans held for investment, $0.8 billion in investments in other financial instruments and $0.01 billion of other assets. At June 30,
2008, $3.2 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.

36

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 16Notes Payable

The following table summarizes notes payable:

June 30,
2008

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

$


$
1,547,648Unsecured revolving lines of credit


8,120,000


10,820,000Unsecured bank loans


3,360,000


660,000Borrowings from the Federal Reserve Bank





750,000Federal Home Loan Bank advances


43,675,000


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


8,196,680


10,779,722Fixed-rate


7,022,293


8,221,44515,218,973


19,001,167Asset-backed secured financings


3,438,391


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


1,212,252


Convertible debentures


4,000,000


4,000,000Subordinated debt


1,082,726


1,067,010Junior subordinated debentures


2,193,703


2,219,511Other


34,546


33,599$
82,335,591

$
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. On May 2, 2008, the Company repaid the outstanding balance, and on May 9, 2008, the Company terminated the facility.

For
the six months ended June 30, 2008, the average borrowings under this facility totaled $0.5 billion and the weighted-average interest rate was 4.43%. For the six months
ended June 30, 2007, the average borrowings under this facility totaled $0.7 billion and the weighted-average interest rate was 5.34%. At June 30, 2007, the weighted-average
interest rate was 5.35%.

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 June 30, 2007, the Company had pledged
$1.1 billion in loans held for investment to secure this facility. For the six months ended June 30, 2007, the average borrowings under this facility totaled $1.1 billion and the
weighted-average interest rate was 5.38%. At June 30, 2007, the weighted-average interest rate was 5.39%. This facility was terminated during 2007.

Unsecured Revolving Lines of Credit and Unsecured Bank Loans

As of June 30, 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

37

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

amount
of $11.5 billion. In August 2007, the Company borrowed $11.5 billion from these revolving credit facilities, of which $3.4 billion was converted to unsecured term bank
loans with maturities through May 2009.

For
the six months ended June 30, 2008, the average outstanding borrowings under the remaining revolving credit facilities totaled $10.0 billion and the weighted-average
interest rate was 3.26%. At June 30, 2008, the weighted-average interest rate was 3.22%. No amount was outstanding under this facility at June 30, 2007. For the six months ended
June 30, 2008, the average outstanding borrowings under the unsecured bank loan totaled $1.5 billion and the average interest rate was 3.63%. At June 30, 2008, the weighted
average interest rate was 3.42%. On July 1, 2008, all amounts owing under these facilities were repaid and the facilities were terminated.

Backup Credit Facilities

As of June 30, 2008, the Company had pledged $7.4 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 six months ended June 30, 2008, the Company obtained $0.5 billion of fixed-rate advances from the
FHLB, and repaid $4.5 billion of advances of which, $2.4 billion was fixed-rate. At June 30, 2008, the Company had pledged $58.8 billion and
$12.4 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 six months ended June 30, 2008, the Company did not issue any medium-term notes and redeemed
$4.1 billion of maturing medium-term notes.

As
of June 30, 2008, $4.0 billion of foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Swiss Francs, Pounds
Sterling, Canadian Dollars, Australian Dollars and Euros. 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 sale recognition. The securitization transactions accounted for as secured borrowings totaled $1.2 billion and $3.8 billion at June 30, 2008 and
December 31, 2007, respectively. At June 30, 2008 and December 31, 2007, the Company had pledged mortgage loans held for sale with unpaid principal balances totaling
$2.1 billion and $4.4 billion, respectively, to secure these borrowings.

In
its market-making and trading activities, CSC would reacquire 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 reacquired beginning in 2007 were no longer readily
salable. When the Company

38

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

holds
beneficial interests in its securitizations that include embedded derivatives for other-than market making purposes, the applicable accounting standards require that the transactions
be re-characterized as financing transactions. As a result, liabilities of $3.4 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 June 30, 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 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:

June 30,
2008

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

$
205,377

$
205,356Other assets


692


692Total assets

$
206,069

$
206,048Notes payable

$
6,175

$
6,175Other liabilities


692


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


199,202


199,181Shareholder's equity





Total liabilities and shareholder's equity

$
206,069

$
206,048




Six Months Ended
June 30,2008

2007(in thousands)Statements of Operations:Revenues

$
8,321

$
8,321Expenses


(8,321
)

(8,321
)Provision for income taxes





Net earnings

$


$



39

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Maturities of Notes Payable

Maturities of notes payable were as follows:

Principal, Premiums and DiscountsUnsecured
Revolving
Lines of
Credit and
Bank Loan(1)

All Other
Notes Payable

Basis
Adjustment

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

$


$
1,198,970

$
62,889

$
1,261,859December 31, 2008


660,000


2,971,786


447,696


4,079,482March 31, 2009





1,807,234


43,002


1,850,236June 30, 2009


2,700,000


1,823,426


40,582


4,564,008Total twelve months ending June 30, 2009


3,360,000


7,801,416


594,169


11,755,585Twelve months ending June 30,2010





13,191,063


4,776


13,195,8392011


6,580,000


18,478,647


348,947


25,407,5942012


1,540,000


8,750,312


144,571


10,434,8832013





4,950,117


762


4,950,879Thereafter





16,527,421


63,390


16,590,811Total

$
11,480,000

$
69,698,976

$
1,156,615

$
82,335,591


---

Note 17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
June 30, 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 based both on its actual
balances and proforma balances giving effect to the $5.5 billion capital contribution made by the Company on July 2, 2008:

Actual

Proforma(2)Minimum
Required(1)Ratio

Amount

Ratio

Amount(dollar amounts in thousands)Tier 1 Capital


5.0
%

6.9
%
$
8,071,716


11.1
%
$
13,601,716Risk-Based Capital:Tier 1


6.0
%

11.1
%
$
8,071,716


18.7
%
$
13,601,716Total


10.0
%

12.4
%
$
9,016,959


20.0
%
$
14,545,788


---

40

---



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 6.9% and 8.0% at June 30, 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 18Supplemental Cash Flow Information

The following table presents supplemental cash flow information:

Six Months Ended
June 30,2008

2007(in thousands)Cash used to pay interest

$
3,939,669

$
5,356,090Cash (refunded) used to pay income taxes


(704,031
)

13,796Non-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


(1,625,542
)

(1,636,114
)Transfer 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


865,234


407,302Servicing resulting from transfers of financial assets


1,730,344


4,156,287Retention of other financial instruments classified as available-for-sale in securitization transactions


15,852


1,829Unrealized loss 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


(865,677
)

(118,672
)Remeasurement of financial assets and liabilities upon adoption of SFAS 159


34,249


Remeasurement of income taxes payable upon adoption of FIN 48





(12,719
)Decrease in Mortgage Loans Held in SPEs


2,189,191


Non-cash financing activities:Decrease in asset-backed secured financings


(4,728,777
)




41

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 19Net Interest Income

The following table summarizes net interest income:

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(in thousands)Interest income:Loans

$
1,766,287

$
2,150,060

$
3,728,520

$
4,270,105Trading securities


142,203


341,932


356,067


660,884Securities purchased under agreements to resell, securities borrowed and federal funds sold


172,497


613,410


394,117


1,274,689Investments in other financial instruments


268,451


233,261


538,945


360,752Other


113,108


160,981


251,456


285,196Total interest income


2,462,546


3,499,644


5,269,105


6,851,626Interest expense:Deposit liabilities


560,831


544,030


1,149,759


1,043,869Securities sold under agreements to repurchase


208,975


911,104


519,774


1,801,771Trading securities sold, not yet purchased


19,463


60,375


52,253


122,504Notes payable


933,575


1,116,212


1,977,786


2,173,445Other


83,751


139,927


182,262


251,104Total interest expense


1,806,595


2,771,648


3,881,834


5,392,693Total net interest income

$
655,951

$
727,996

$
1,387,271

$
1,458,933


Note 20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 expected to incur lease and other contract termination costs. Management recorded restructuring
charges totaling $144.6 million in 2007 and recorded an additional $16.1 million in the first six months 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 six months of 2008, the specific actions included reducing the workforce by approximately 1,500.

42

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

The
following table summarizes the restructuring liability balance, recorded in accounts payable and accrued liabilities at June 30, 2008, and related activity during the six
months ended June 30, 2008:

UtilizedBalance
December 31,
2007





Balance
June 30,
2008Additions

Reversals

Cash

Non-Cash(in thousands)Severance and benefits

$
2,959

$
3,264

$


$
(6,223
)
$


$
Lease termination costs


45,399


10,581





(24,634
)

(5,884
)

25,462Other costs





2,228








(2,228
)

$
48,358

$
16,073

$


$
(30,857
)
$
(8,112
)
$
25,462


Note 21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 three and six months ended June 30, 2008 and 2007, includes the following components:

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

2008

2007(in thousands)Service cost

$
17,404

$
19,400

$
34,808

$
41,479Interest cost


7,158


6,355


14,316


12,337Expected return on plan assets


(5,950
)

(5,483
)

(11,900
)

(10,974
)Amortization of prior service cost


87


87


174


174Recognized net actuarial loss





217





217Net periodic benefit cost

$
18,699

$
20,576

$
37,398

$
43,233


Note 22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 subprime 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 six months ended
June 30, 2008, over 97% 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

43

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

included
in the Mortgage Banking Segment regardless of whether the activity occurred in CHL or the Bank.

The
Loan Production Sector is comprised of three lending channels:



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 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 CSC, 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.

44

---





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

Financial
highlights by operating segments are as follows:

Three Months Ended June 30, 2008Mortgage BankingLoan
Production

Loan
Servicing

Closing
Services

Total

Banking

Capital
Markets

Insurance

Global
Operations

Other

Total
Consolidated(in thousands)Revenues:External

$
765,710

$
(1,115,865
)
$
98,888

$
(251,267
)
$
(1,827,393
)
$
(87,699
)
$
534,364

$
12,041

$
(2,884
)
$
(1,622,838
)Intersegment


(3,078
)

84,692


(480
)

81,134


(57,108
)

(295
)

(1,812
)

30,099


(52,018
)

Total Revenues

$
762,632

$
(1,031,173
)
$
98,408

$
(170,133
)
$
(1,884,501
)
$
(87,994
)
$
532,552

$
42,140

$
(54,902
)
$
(1,622,838
)Pre-tax Earnings (Loss)

$
(135,175
)
$
(1,406,754
)
$
33,115

$
(1,508,814
)
$
(2,145,667
)
$
(170,034
)
$
12,042

$
11,723

$
(15,086
)
$
(3,815,836
)Total Assets at Period End

$
14,203,239

$
39,731,833

$
412,477

$
54,347,549

$
107,451,467

$
5,878,284

$
4,298,360

$
259,240

$
(158,406
)
$
172,076,494




Three Months Ended June 30, 2007Mortgage BankingLoan
Production

Loan
Servicing

Closing
Services

Total

Banking

Capital
Markets

Insurance

Global
Operations

Other

Total
Consolidated(in thousands)Revenues:External

$
1,499,331

$
(220,185
)
$
89,397

$
1,368,543

$
490,740

$
223,744

$
390,742

$
7,165

$
67,463

$
2,548,397Intersegment


14,366


260,886


(138
)

275,114


(202,969
)

21,013


(1,925
)

21,733


(112,966
)

Total Revenues

$
1,513,697

$
40,701

$
89,259

$
1,643,657

$
287,771

$
244,757

$
388,817

$
28,898

$
(45,503
)
$
2,548,397Pre-tax Earnings (Loss)

$
492,139

$
(200,798
)
$
28,261

$
319,602

$
128,910

$
109,510

$
98,721

$
6,688

$
1,267

$
664,698Total Assets at Period End

$
32,873,872

$
33,492,428

$
333,244

$
66,699,544

$
93,464,293

$
57,457,168

$
3,342,309

$
247,572

$
(5,626,980
)
$
215,583,906


Included in the columns above labeled "Other" are the holding company activities including restructuring charges of $1.5 million during the
three months ended June 30, 2008 and certain reclassifications to conform management reporting to the consolidated financial statements.

45

---





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

Six Months Ended June 30, 2008Mortgage BankingLoan
Production

Loan
Servicing

Closing
Services

Total

Banking

Capital
Markets

Insurance

Global
Operations

Other

Total
Consolidated(in thousands)Revenues:External

$
1,879,048

$
(1,709,013
)
$
196,115

$
366,150

$
(2,393,666
)
$
(5,786
)
$
1,091,226

$
24,467

$
(26,355
)
$
(943,964
)Intersegment


(12,098
)

197,914


(1,014
)

184,802


(141,166
)

(763
)

(3,927
)

59,014


(97,960
)

Total Revenues

$
1,866,950

$
(1,511,099
)
$
195,101

$
550,952

$
(2,534,832
)
$
(6,549
)
$
1,087,299

$
83,481

$
(124,315
)
$
(943,964
)Pre-tax Earnings (Loss)

$
97,200

$
(2,224,300
)
$
66,290

$
(2,060,810
)
$
(3,106,038
)
$
(169,037
)
$
47,543

$
22,702

$
(42,423
)
$
(5,308,063
)Total Assets at Period End

$
14,203,239

$
39,731,833

$
412,477

$
54,347,549

$
107,451,467

$
5,878,284

$
4,298,360

$
259,240

$
(158,406
)
$
172,076,494




Six Months Ended June 30, 2007Mortgage BankingLoan
Production

Loan
Servicing

Closing
Services

Total

Banking

Capital
Markets

Insurance

Global
Operations

Other

Total
Consolidated(in thousands)Revenues:External

$
2,660,943

$
(348,728
)
$
174,873

$
2,487,088

$
1,110,188

$
451,535

$
761,908

$
11,043

$
132,411

$
4,954,173Intersegment


16,897


508,385


(138
)

525,144


(393,156
)

53,878


(3,375
)

38,305


(220,796
)

Total Revenues

$
2,677,840

$
159,657

$
174,735

$
3,012,232

$
717,032

$
505,413

$
758,533

$
49,348

$
(88,385
)
$
4,954,173Pre-tax Earnings (Loss)

$
662,793

$
(301,104
)
$
58,217

$
419,906

$
417,004

$
241,718

$
278,379

$
10,694

$
(2,208
)
$
1,365,493Total Assets at Period End

$
32,873,872

$
33,492,428

$
333,244

$
66,699,544

$
93,464,293

$
57,457,168

$
3,342,309

$
247,572

$
(5,626,980
)
$
215,583,906


Included in the columns above labeled "Other" are the holding company activities including restructuring charges of $16.1 million during
the six months ended June 30, 2008 and certain reclassifications to conform management reporting to the consolidated financial statements.

46

---





COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 23Summarized Financial Information

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

June 30, 2008Countrywide
Financial
Corporation
(Parent Only)

Countrywide
Home
Loans, Inc.
(Consolidated)

Other
Subsidiaries

Eliminations

Consolidated(in thousands)Balance Sheets:Mortgage loans held for sale

$


$
1,684,003

$
10,133,395

$
(1,036
)
$
11,816,362Trading securities, at estimated fair value


168,772


143,085


881,144





1,193,001Securities purchased under agreements to resell, securities borrowed and federal funds sold





250,000


9,278,885


(2,879,799
)

6,649,086Loans held for investment, net


620,476


16,167,473


77,463,414


(20,373
)

94,230,990Investments in other financial instruments, at estimated fair value


507,524


750,819


17,611,785


(22,131
)

18,847,997Mortgage servicing rights, at estimated fair value





16,371,301


2,031,089





18,402,390Investments in subsidiaries


12,358,342





6,579


(12,364,921
)

Other assets


22,907,320


20,966,276


12,294,253


(35,231,181
)

20,936,668Total assets

$
36,562,434

$
56,332,957

$
129,700,544

$
(50,519,441
)
$
172,076,494Deposit liabilities

$


$


$
63,362,940

$
(551,018
)
$
62,811,922Securities sold under agreements to repurchase


556,959


800,517


5,062,814


(2,875,710
)

3,544,580Notes payable


16,245,277


23,168,348


43,675,000


(753,034
)

82,335,591Other liabilities


9,340,130


29,916,958


7,661,108


(33,953,863
)

12,964,333Equity


10,420,068


2,447,134


9,938,682


(12,385,816
)

10,420,068Total liabilities and equity

$
36,562,434

$
56,332,957

$
129,700,544

$
(50,519,441
)
$
172,076,494




Six Months Ended June 30, 2008Countrywide
Financial
Corporation
(Parent Only)

Countrywide
Home
Loans, Inc.
(Consolidated)

Other
Subsidiaries

Eliminations

Consolidated(in thousands)Statements of Operations:Revenues

$
(33,457
)
$
(728,500
)
$
431,550

$
(613,557
)
$
(943,964
)Expenses


12,542


1,126,118


3,800,794


(575,355
)

4,364,099Benefit for income taxes


(17,663
)

(701,057
)

(1,350,791
)

(15,400
)

(2,084,911
)Equity in net loss of subsidiaries


(3,194,816
)







3,194,816


Net loss

$
(3,223,152
)
$
(1,153,561
)
$
(2,018,453
)
$
3,172,014

$
(3,223,152
)


47

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

December 31, 2007Countrywide
Financial
Corporation
(Parent Only)

Countrywide
Home
Loans, Inc.
(Consolidated)

Other
Subsidiaries

Eliminations

Consolidated(in thousands)Balance Sheets:Mortgage loans held for sale

$
67

$
5,439,813

$
6,208,511

$
32,883

$
11,681,274Trading securities, at estimated fair value





233,046


21,299,559


(189,998
)

21,342,607Securities purchased under agreements to resell, securities borrowed and federal funds sold





1,250,000


12,126,762


(3,735,883
)

9,640,879Loans held for investment, net


582,760


18,362,522


79,071,775


(16,344
)

98,000,713Investments in other financial instruments, at estimated fair value


549,221


2,949,971


22,318,467





25,817,659Mortgage servicing rights, at estimated fair value





18,573,055


385,125





18,958,180Investments in subsidiaries


16,953,677





6,265


(16,959,942
)

Other assets


27,019,705


22,861,754


14,145,494


(41,101,341
)

22,925,612Total assets

$
45,105,430

$
69,670,161

$
155,561,958

$
(61,970,625
)
$
208,366,924Deposit liabilities

$


$


$
61,184,312

$
(983,713
)
$
60,200,599Securities sold under agreements to repurchase


440,000


2,228,004


19,307,168


(3,757,010
)

18,218,162Notes payable


19,156,790


31,619,553


48,452,915


(2,001,845
)

97,227,413Other liabilities


10,852,769


32,243,730


13,238,393


(38,270,013
)

18,064,879Equity


14,655,871


3,578,874


13,379,170


(16,958,044
)

14,655,871Total liabilities and equity

$
45,105,430

$
69,670,161

$
155,561,958

$
(61,970,625
)
$
208,366,924




Six Months Ended June 30, 2007Countrywide
Financial
Corporation
(Parent Only)

Countrywide
Home
Loans, Inc.
(Consolidated)

Other
Subsidiaries

Eliminations

Consolidated(in thousands)Statements of Operations:Revenues

$
(51,127
)
$
3,068,101

$
2,530,976

$
(593,777
)
$
4,954,173Expenses


6,795


2,541,297


1,608,111


(567,523
)

3,588,680(Benefit) provision for income taxes


(19,264
)

160,514


313,397


(8,203
)

446,444Equity in net earnings of subsidiaries


957,707








(957,707
)

Net earnings

$
919,049

$
366,290

$
609,468

$
(975,758
)
$
919,049


48

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

Note 24Borrower and Investor Custodial Accounts

As of June 30, 2008 and December 31, 2007, the Company managed $16.5 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, $11.2 billion and
$12.6 billion, 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 25Loan Commitments

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

June 30,
2008

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

$
18,987,936

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





480,872Undisbursed home equity lines of credit


5,249,554


9,073,370Undisbursed construction loans


1,058,994


714,896Undisbursed warehouse lines of credit


936,713


938,089


Note 26Legal Proceedings

The Company has been named as a defendant in various legal proceedings involving matters generally incidental to its businesses and
also in the following matters.

Equity and Debt Securities Class Action Matters

The Company has been named as one of the defendants in four putative securities class action cases relating to its equity and debt
securities. Two cases have been filed in the U.S. District Court for the Central District of California. One of those cases (entitled In re Countrywide Financial Corp. Securities Litigation) was filed
by certain New York state and municipal pension funds ("NY Funds") ostensibly on behalf of purchasers of the Company's common stock and certain other equity and debt securities; the other case
(entitled Argent Classic Convertible Arbitrage Fund L.P. v. Countrywide Financial Corp. et al.) was filed ostensibly on behalf of purchasers of certain
Series A and B debentures issued in various private placements pursuant to a May 16, 2007 offering memorandum. Both actions assert claims under the antifraud provisions of the federal
securities laws. The NY Funds action also asserts claims under the Securities Act of 1933 relating to the public offering of certain securities. Both complaints allege, among other things, that the
Company made misstatements (including in certain SEC filings) concerning the nature and quality of its loan underwriting practices and its financial results during the relevant period. These actions
seek unspecified compensatory damages, among other remedies. Defendants have filed motions to dismiss these actions.

The
Company also has been named as one of the defendants in two class action cases concerning the Company's common stock pending in Los Angeles Superior Court. One case (entitled Layne
v. Countrywide Financial Corp., et al.) was filed ostensibly on behalf of a putative class of participants in the Company's 401(k) retirement plan whose retirement account contributions were
voluntarily

49

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

matched
by the Company in the form of shares of Countrywide common stock. This case alleges misstatements in a May 11, 2007 registration statement that the Company filed with the SEC in
connection with these shares. The other case (entitled Teratsonian v. Countrywide Financial Corp. et al.) was filed ostensibly on behalf of a putative class of Countrywide employees who received
Countrywide common stock under the Company's 2006 equity incentive plan and alleges misstatements in an August 8, 2006 registration statement filed in connection with these shares. The alleged
misstatements concern, among other things, the nature and quality of the Company's loan underwriting practices and its financial results during the relevant period. Both cases assert claims under the
Securities Act of 1933. The Company intends to ask the Court to dismiss these matters on various grounds.

Mortgage-Backed Securities Related Matters

The Company has been named as one of the defendants in two putative securities class actions filed in Los Angeles Superior Court
relating to the Company's public offering of various mortgage-backed securities. One lawsuit (entitled Luther v. Countrywide Home Loans Servicing LP, et al.) is ostensibly brought on behalf of
a class of purchasers of certain mortgage pass-through certificates for which CWALT, Inc. and various issuing trusts filed registration statements; the other case (entitled
Washington State Plumbing & Pipefitting Pension Trust v. Countrywide Financial Corporation, et al.) is ostensibly brought on behalf of purchasers of such CWALT, Inc. mortgage
pass-through certificates, as well as various other mortgage-backed securities registered by certain other Company subsidiaries. Both lawsuits allege, among other things, that the mortgage
loans underlying these securities were not originated in accordance with the underwriting guidelines and processes described in the prospectus supplements issued in connection with the sale of such
securities. The complaints seek unspecified compensatory damages, among other relief. In addition, the Company may have indemnification obligations arising from other mortgage-backed securities
transactions to the purchasers of those securities or to other parties.

Shareholder Derivative Matters

The Company has been named as a nominal defendant in two shareholder derivative actions in California. These actions are brought
ostensibly on the Company's behalf and do not seek to recover any amounts from the Company. One action (entitled In re Countrywide Financial Corp. Derivative Litigation) was filed by the Arkansas
Teachers Retirement System and certain other state and municipal pension funds in the U.S. District Court for the Central District of California (Arkansas); the other action (entitled In re
Countrywide Financial Corp. Shareholder Derivative Litigation) was filed by Robert Garber in Los Angeles Superior Court. Both complaints allege, among other things, breaches of fiduciary duty by
Company officers and directors, and misstatements in certain SEC filings concerning the Company's loan underwriting practices, financial condition and prospects. After the announcement of the Bank of
America/Countrywide merger, plaintiffs in both actions amended their complaints to include merger-related class action claims filed ostensibly on behalf of a putative class of all Countrywide
shareholders. The federal court has stayed those merger-related class claims in favor of substantially identical claims pending in the Delaware Court of Chancery, as discussed below in Merger-Related
Class Action Matters, and the Los Angeles Superior Court has stayed the entire action in favor of the substantially identical claims pending in California federal court and the Delaware Chancery
Court. The federal court has granted in part and denied in part the defendants' motions to dismiss the Arkansas case. Defendants have also moved for judgment on the pleadings seeking

50

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

dismissal
of the Arkansas matter on the grounds that plaintiffs may no longer pursue derivative claims on behalf of the Company because they are no longer Countrywide shareholders after the merger
with Bank of America. That motion is pending.

The
Company also has been named as a nominal defendant in a consolidated shareholder derivative action in the U.S. District Court for the District of Delaware (entitled In re Countrywide
Financial Corp. Derivative Litigation) that was filed by the International Brotherhood of Electrical Workers. The complaint alleges that certain Company officers and directors breached their fiduciary
duty by causing the Company to repurchase its stock at allegedly inflated prices in late 2006 and the spring of 2007. Defendants have moved to dismiss the case on various grounds, including on the
grounds that plaintiffs may no longer pursue derivative claims on behalf of the Company because they are no longer Countrywide shareholders.

A
shareholder derivative action (entitled Seymour v. Samuels, et al.) has been filed ostensibly on behalf of Countrywide Capital V ("CCV"), a Delaware trust, against the Company and
certain other defendants in the Delaware Court of Chancery by an alleged purchaser of CCV preferred trust securities. The complaint alleges that CCV was harmed when it purchased certain debentures
from the Company whose value the complaint claims the Company had artificially inflated. The Company intends to ask the Court to dismiss this matter on various grounds.

The
Company also has been named as one of the defendants in shareholder derivative lawsuits ostensibly brought on behalf of the Federal Home Loan Mortgage Corp. ("Freddie Mac") (entitled
Bassman v. Syron, et. al.) in the U.S. District Court for the Southern District of New York, and on behalf of the Federal National Mortgage Association ("Fannie Mae") (entitled Agnes v. Raines, et
al.) in the U.S. District Court for the District of Columbia. These complaints allege, among other things, that the Company sold loans to these government-sponsored entities that had not been properly
appraised and that the Company misrepresented the appraised value of the loans it sold in the secondary mortgage market. The Company intends to ask the courts in these matters to dismiss them on
various grounds.

ERISA Class Action Matters

Eighteen class action complaints have been filed against the Company and certain other defendants alleging violations of the Employee
Retirement Income Security Act of 1974 ("ERISA") in the U.S. District Court for the Central District of California. The complaints principally contend that it was not prudent for the Company to permit
employees participating in the Countrywide 401(k) retirement plan to continue to invest in the Company's common stock during a roughly two year period ending in September 2007. The Court has stayed
all but the first-filed ERISA class action case (entitled Alvidres v. Countrywide Financial Corp., et al.). The Court has declined to grant defendants' motions to dismiss the complaint in the Alvidres
matter, and has granted plaintiff's motion to certify the case as a class action on behalf of current participants in the Company 401(k) plan.

Indenture Trustee Suit

The Company has been named as a defendant in a case filed in the Delaware Court of Chancery by the Bank of New York Mellon in its
capacity as indenture trustee with respect to certain Series B floating rate convertible senior debentures due 2037 having a principal amount of $2 billion and issued by the Company
under an indenture dated as of May 22, 2007 (the "Indenture"). The complaint alleges, among other things, that the Company's merger with Bank of America constituted a

51

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

"Fundamental
Change" as defined in the Indenture which allegedly requires the Company to repurchase such of the debentures as are surrendered for payment in accordance with the terms of the Indenture
and seeks, among other relief, an order requiring the Company to repurchase such debentures.

Merger-Related Class Action Matters

Various class action lawsuits and claims relating to the Company's merger with Bank of America have been filed against the Company and
other defendants in Los Angeles Superior Court, the U.S. District Court for the Central District of California, and the Delaware Court of Chancery on behalf of a putative class of all Countrywide
shareholders. These lawsuits allege, among other things, that the Company's directors breached their fiduciary duties by entering into the merger agreement with Bank of America. The merger-related
claims in the California courts have been stayed in favor of the Delaware litigation (entitled In re Countrywide Financial Corp. Shareholder Litigation), which has been settled in principle. The
proposed settlement is subject to court approval.

Regulatory Matters

From time to time the Company is 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 such regulatory investigations and reviews, and, where appropriate, to take remedial action.

Certain
state and local government officials have filed proceedings against the Company, including lawsuits brought by the state attorneys general of California, Connecticut, Florida and
Illinois in their respective state courts. These lawsuits allege, among other things, that the Company violated state consumer protection laws by allegedly engaging in deceptive marketing practices
designed to increase the volume of loans it originated and then sold into the secondary market. These lawsuits seek, among other remedies, monetary penalties and, in the Connecticut and Illinois
actions, rescission or repurchase of mortgage loans made to Connecticut and Illinois consumers and in the Illinois action an injunction against foreclosure proceedings in certain circumstances. The
Director of the Washington State Department of Financial Institutions also has commenced an administrative proceeding against the Company alleging, among other things, that the Company did not provide
borrowers with certain required disclosures and that the loan products made available to Washington borrowers of protected races or ethnicities were less favorable than those the Company made
available to other, similarly situated borrowers. This proceeding seeks, among other things, a monetary fine and an order barring the Company from making consumer loans in the State for five years.

The
Company also has responded to subpoenas from the SEC, which has advised the Company that it is conducting a formal investigation. Beginning in March 2008, certain news media reported
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 ("DOJ") has stated to the Company that the DOJ cannot confirm or deny whether the FBI is conducting an investigation of the Company.

The
Federal Trade Commission has issued Civil Investigative Demands for Documentary Material and for Written Interrogatories and Report ("CIDs"). The CIDs direct the Company to provide
various documents and items of information in connection with an investigation by the agency regarding

52

---



COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

whether
any laws administered by the Commission have been violated in connection with certain aspects of the Company's loan servicing activities. The Company is cooperating with the investigation.

Although
management believes it has meritorious defenses to each of these proceedings and intends to defend them vigorously, it is difficult to predict the resulting outcome of such
proceedings, particularly where investigations and other proceedings are in their 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 above. 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.

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 that date, 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 is not expected to be significant.

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an 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 is not expected to be significant.

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 Extinguishments 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

53

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COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)

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.

In
May 2008, the FASB issued FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement), ("FSP APB 14-1"). FSP APB 14-1 applies to convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in
cash. Under this FSP, the issuer must segregate the convertible debt instrument into two components: (1) a debt component, representing the issuer's contractual obligation to pay principal and
interest and (2) an equity component, representing the holder's option to convert the debt security into equity of the issuer. The proceeds are allocated between the liability and the equity
components. First, the liability component is
measured based on the fair value of a similar debt instrument with no equity conversion feature. Any remaining proceeds are allocated to the equity component and recorded as a discount on the debt.
The debt discount is amortized as additional interest expense using the interest method over the expected life of the debt. This FSP is effective for financial statements issued beginning after
December 15, 2008 and interim periods within that fiscal year. The FSP is to be applied retrospectively to all prior periods presented. The Company has preliminary determined that approximately
$200 million of the proceeds from its convertible debt issuance in 2007 will be allocated to the equity conversion feature and represent a discount on that debt.

54

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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 section Factors 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.



On July 1, 2008, Countrywide Financial Corporation completed its merger with Red Oak Merger Corporation, a wholly-owned
subsidiary of Bank of America Corporation, pursuant to the terms of the previously announced Agreement and Plan of Merger, dated as of January 11, 2008. Red Oak Merger Corporation has
subsequently been renamed Countrywide Financial Corporation. Under the terms of the Merger agreement, Countrywide shareholders received 0.1822 of a share of Bank of America Corporation common stock in
exchange for one share of Countrywide common stock, plus an amount of cash in lieu of any fractional share. All shares of the Company's 7.25% Series B Non-Voting Convertible
Preferred Stock were cancelled. Trading of the Company's common stock was ceased and the Company's common stock has been delisted from the New York Stock Exchange. As a result of the Merger, the
Company's principal executive officer, principal financial officer, other executive officers and the members of the Company's Board of Directors resigned and were replaced by individuals appointed by
Bank of America.

As
a result of Bank of America's acquisition of Countrywide, we are omitting certain information as allowed by general instruction H of Form 10-Q. Specifically,
we are omitting Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk; Part II, Item 2, Changes in Securities (Unregistered Sales of Equity Securities
and Use of Proceeds) and Part II, Item 4, Submission of Matters to a Vote of Security Holders. We have also abbreviated Management's Discussion and Analysis of Financial Condition and
Results of Operations as allowed by general instruction H.



Following is a summary of our results of operations for the quarters ended June 30, 2008 and 2007:

Quarters Ended June 30,2008

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

$
(1,622,838
)
$
2,548,397Net (loss) earnings

$
(2,330,099
)
$
485,068Diluted (loss) earnings per share

$
(4.07
)
$
0.81Total assets at period end

$
172,076,494

$
215,583,906


The
results for the quarter ended June 30, 2008 were primarily due to high credit-related charges arising from continuing economic weakness and declining values of the real estate
securing our mortgage loans. Such factors continue to be reflected in our current experience and expectations for increased levels of mortgage delinquencies, defaults and loss severities.

55

---



Following
is a summary of key credit quality and performance indicators at and for the periods indicated:

Quarters Ended June 30,2008

2007

% Change(dollar amounts in thousands)Key Credit Quality & Performance IndicatorsProvision for:Representations and warranties

$
755,058

$
73,353


929
%Corporate guarantees


1,921


2,277


(16
%)Credit losses (1)


2,328,744


297,387


683
%Impairment of credit-sensitive retained interests


64,351


416,673


(85
%)Realized losses on available-for-sale investment securities


467,808


4,889


N/MProvision for reinsurance claims


201,088


15,963


N/M$
3,818,970

$
810,542


371
%Losses Charged to Reserves and Credit-Sensitive Retained Interests During the Period:Representations and warranties

$
154,071

$
6,784


N/MLosses charged to corporate guarantees


1,176


1,296


(9
%)Net loan charge-offs


929,974


154,387


502
%Losses absorbed by credit-sensitive retained interests


1,196,349


244,513


389
%$
2,281,570

$
406,980


461
%Loans Held for Investment at period end (2)

$
95,828,249

$
74,569,443


29
%Nonperforming assets at period end:Nonaccrual loans (3)

$
6,163,312

$
1,266,733


387
%Foreclosed real estate


952,329


546,585


74
%Total nonperforming assets

$
7,115,641

$
1,813,318


292
%Troubled debt restructurings on accrual status

$
1,120,136

$



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

$
288,807

$
1,523,016


(81
%)Loss Reserves and Liabilities:Allowances for credit losses

$
5,099,305

$
696,777


632
%Liability for representations and warranties


1,536,347


431,823


256
%Liability for impairment losses related to future draw obligations


637,493





N/MLiability for corporate guarantees


73,988


56,016


32
%Liability for reinsurance claims


585,811


112,350


421
%$
7,932,944

$
1,296,966


512
%


---

Quarters Ended
June 30,2008

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

$
2,614,321

$
368,811Provision for losses on unfunded commitments


(2,181
)

4,463Increase in estimate of amounts recoverable from pool mortgage insurance


(283,396
)

(75,887
)$
2,328,744

$
297,387


56

---



June 30,2008

2007(in thousands)Loans held for sale

$
288,532

$
279,824Government guaranteed loans, held for investment


376,438


350,452$
664,970

$
630,276


The carrying value of the Company's portfolio of loans held for investment was $94.2 billion at June 30, 2008. As previously
disclosed by Bank of America, the preliminary purchase price adjustments to such carrying value were estimated to be approximately $8.1 billion.



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 note and repurchase agreement 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:



After
being acquired, we sold certain assets to Bank of America for approximately $30.7 billion in demand notes and cash. We used proceeds from the asset sales to repay our
unsecured revolving lines of credit and bank loans for approximately $11.5 billion and to increase the capital of our Bank subsidiary by $5.5 billion.

On
July 1, 2008, Standard and Poor's Ratings Service (S&P) upgraded its credit rating of CFC and CHL from BB+ to AA, an investment grade rating. S&P also upgraded its credit
rating of the Bank from BBB to AA+. The Rating Outlook for all three entities was changed from Credit Watch Developing to Negative.



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

57

---



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 $216.0 million for the six months ended June 30, 2008.
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
June 30, 2008.

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.

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

58

---



where
applicable to the specific instrument typeson our estimates of value of these items as of June 30, 2008:

Investments in Other Financial InstrumentsMortgage
Loans Held
for Sale

Trading
Securities

Investment
Securities

Retained
Interests

IRLCs Net

Mortgage
Servicing
Rights(in thousands)Assets:Level 3 balances at June 30, 2008

$
1,425,208

$
1,124,351

$
13,424,032

$
1,510,579

$
106,949

$
18,402,390Weighted-average rate (1) or OAS:Effect of 20% adverse change

$
(87,192
)
$
(57,677
)
$
(363,770
)
$
(94,008
)



$
(674,666
)Effect of 20% favorable change

$
103,168

$
67,581

$
416,095

$
118,548




$
742,010Weighted-average prepayment speed:Effect of 20% adverse change




$
(84,870
)
$
(229,066
)
$
(60,373
)



$
(1,292,012
)Effect of 20% favorable change




$
96,233

$
183,265

$
88,556




$
1,597,226Weighted-average net lifetime credit losses:Effect of 20% adverse change










$
(58,604
)



$
(180,941
)Effect of 20% favorable change










$
137,900




$
148,043Weighted-average funding ratio:Effect of 20% adverse change













$
(21,390
)

Effect of 20% favorable change













$
21,390







Asset-backed Secured FinancingsLiabilities:Level 3 balances at June 30, 2008:

$
1,212,252Weighted-average discount rate:Effect of 20% adverse change

$
(68,518
)Effect of 20% favorable change

$
79,446


---

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.

59

---



Results of Operations ComparisonQuarters Ended June 30, 2008 and 2007

Detailed Line Item Discussion of Consolidated Revenue and Expense Items



(Loss) gain on sale of loans and securities is summarized below:

Quarters Ended June 30,2008

2007(Loss) Gain on Sale



(Loss) Gain on SaleLoans Sold

Amount

Margin

Loans Sold

Amount

Margin(dollar amounts in thousands)Prime Mortgage Loans

$
56,759,841

$
773,954


1.36
%
$
109,425,578

$
1,085,656


0.99
%Subprime Mortgage Loans





(64,655
)

N/M


5,164,101


187,201


3.63
%Prime Home Equity Loans:Initial Sales


4,599


6,131


N/M


1,998,399


50,262


2.52
%Subsequent draws


246,821


6,315


2.56
%

1,042,353


22,976


2.20
%251,420


12,446


4.95
%

3,040,752


73,238


2.41
%Commercial real estate


539,922


(24,149
)

(4.47
%)

2,737,967


28,650


1.05
%Conduit


650,902


2,409


0.37
%

7,848,462


82,712


1.05
%$
58,202,085


700,005


1.20
%
$
128,216,860


1,457,457


1.14
%Underwriting





3,607








32,862Securities trading and other





(162,582
)







36,418Adjustments to estimated liability for losses on representations





(677,276
)







(51,883
)Other





9,304








18,604$
(126,942
)






$
1,493,458




Gain on sale of Prime Mortgage Loans decreased in the quarter ended June 30, 2008 compared to the quarter ended June 30,
2007, due primarily to a 48% decrease in the volume of loans sold. This reduction was partially offset by improvement in our gain on sale margins compared to the previous period.



Loss on sale of Subprime Mortgage Loans increased in the quarter ended June 30, 2008 as compared to the year-ago
period primarily due to a discontinuation of subprime lending and sales in late 2007. The loss in the quarter ended June 30, 2008 consisted primarily of valuation adjustments on subprime loans
held for sale due to continuing declines in the value of such mortgage loans. These loans consisted primarily of $1.3 billion of loans that have previously been transferred in securitization
transactions 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 June 30, 2008 as compared to the year-ago
period due primarily to a discontinuation of lending and sales of home equity loans, except for additional draws under existing loan agreements and securitizations.

60

---





During the quarter ended June 30, 2008, commercial real estate loss on sale increased due to continuing illiquidity in the
commercial mortgage securitization market along with our discontinuation of commercial real estate lending, and included a net loss on related credit default swaps of $9.2 million.



During the quarter ended June 30, 2008, both conduit and underwriting gain on sale decreased compared to the
year-ago period as a result of our exit from these activities due in large part to lack of demand in the mortgage marketplace for non-agency securities.



The negative result for gain on sale arising from securities trading and other activities compared to the quarter ended June 30,
2007, was primarily due to additional write-downs of trading securities at depressed prices.



Our losses on representations and warranties arise when such representations and warranties are breached and generally only when a loss
results from the breach. 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 is a component of the
product's gain on sale. Subsequent to sale, adjustments to our liability for representations and warranties are included in provision for losses on representations and warranties, which is included in
the income statement as a component of (loss) gain on sale of loans and securities. The expense applicable to our estimate of future representations and warranty claims increased to
$755.1 million in the quarter ended June 30, 2008 from $73.4 million in the year-ago period. Of these amounts, $677.3 million and $51.9 million for the
current quarter and the year-ago quarter, respectively, were
adjustments made subsequent to sale and are included in the provision for losses related to representations and warranties. The increase was primarily driven by increased levels of claims that we are
currently experiencing along with our expectations for elevated levels of claims in the near future. The levels of claims is due largely to 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 relate.

61

---





Net interest (expense) income is summarized below:

Quarters Ended
June 30,2008

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

$
585,883

$
476,257Loans and securities relating to mortgage banking activities


44,512


147,647Net interest income on custodial balances


36,159


224,197Net interest expense relating to loan servicing activities


(135,133
)

(249,470
)Securities inventory


74,656


19,915Other


49,874


109,450Net interest income


655,951


727,996Provision for loan losses


(2,330,925
)

(292,924
)Net interest (expense) income after provision for loan losses

$
(1,674,974
)
$
435,072


The
increase in net interest income from the investment loans and securities 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 investment loans and securities increased to $110.5 billion during the quarter ended June 30, 2008, an increase of
$23.8 billion, or 27%, over the year-ago period. Net interest margin relating to investment loans and securities decreased to 2.11% during the quarter ended June 30, 2008,
from 2.17% during the year-ago period primarily as a result of increasing levels of non accrual loans.

The
decrease in net interest income from mortgage banking-related loans and securities reflects a sharp decrease in average interest-earning assets resulting from lower mortgage loan
production.

Interest
income on custodial balances decreased from the year-ago period 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 paid-off loans, which was $62.1 million and $113.6 million during the quarters ended June 30, 2008 and 2007, respectively.

Net
interest expense related to loan servicing assets decreased due to increased interest income on a larger portfolio of mortgage loans held for investment allocated to servicing
activities combined with a reduction in the cost of debt used to finance servicing-related assets partially offset by an increase in our investment in MSRs and other loan servicing-related assets.

The
increase in net interest income from the trading securities and securities purchased under agreements to resell inventories is attributable to an increase in the net interest margin
from 0.11% during the quarter ended June 30, 2007 to 0.77% during the quarter ended June 30, 2008, partially offset by a 46% decrease in the average inventory of securities held.

The
increase in the provision for loan losses was primarily due to increased losses inherent in the loan portfolio arising from continuing economic weakness and declining values of the
real estate securing our mortgage loans. Such factors continue to be reflected in our current experience and expectations for levels of mortgage delinquencies, defaults and loss severities.

62

---





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

Quarters Ended
June 30,2008

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

$
1,112,473

$
1,102,707Income from retained interests


92,336


123,941Late charges


97,198


90,137Prepayment penalties


8,696


70,018Ancillary fees


27,146


34,452Total loan servicing fees and income from MSRs and retained interests

$
1,337,849

$
1,421,255


---

The
increase in servicing fees, net of guarantee fees, was principally due to a 9% increase in the average servicing portfolio, partially offset by a decrease in the overall annualized
net service fee
earned from 0.340% of the average portfolio balance during the quarter ended June 30, 2007 to 0.316% during the quarter ended June 30, 2008.

The
decrease in income from retained interests was due primarily to a 18% decrease in the average investment in these assets from the quarter ended June 30, 2007 to the current
quarter, combined with a reduction in the average yield on such instruments from 16% 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 statements of operations. These investments include interest-only and
principal-only securities, and certain mortgage pass-through and residual securities that arise from the securitization of mortgage loans, primarily Subprime Mortgage and Prime
Home Equity Loans.



The change in fair value of MSRs that is included in the statements of operations during the quarters ended June 30, 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 market
factors, such as interest rates.

The
realization of expected cash flows from MSRs resulted in a value reduction of $667.7 million and $857.1 million during the quarters ended June 30, 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
which, in turn, extends the expected life of the existing asset.



We recorded an increase in the fair value of the MSRs due to changes in market factors in the quarters ended June 30, 2008 and
2007 of $1,896.0 million and $1,177.3 million, respectively, primarily as a result of increasing mortgage rates which decreased expected future prepayments, which in turn increases
expected cash flows from our current servicing portfolio.

63

---





Recovery (impairment) of retained interests is summarized below:

Quarters Ended June 30,2008

2007Recovery
(Impairment)

Asset
Balance at
Period End

Recovery
(Impairment)

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

$
(64,351
)
$
288,807

$
(416,673
)
$
1,523,016Non credit-sensitive retained interests


99,631


1,221,772


148,556


1,212,497Recovery (impairment) of retained interests

$
35,280

$
1,510,579

$
(268,117
)
$
2,735,513


In
the quarter ended June 30, 2008, we recognized impairment of credit-sensitive retained interests of $64.4 million, including impairment of $74.5 million related
to Subprime and related residual interests partially offset by a recovery of $17.1 million related to subordinated interests on Prime Home Equity
securitizations. The recovery on Prime Home Equity securitizations consists of impairment of retained interests of $81.3 million and recovery of previously recorded impairment losses of
$98.4 million related to estimated future draw obligations on the securitizations that have entered or are probable to enter rapid amortization status. The impairment charges were primarily the
result of the effect of increased estimates for future losses on the loans underlying these securities driven by continued expectations of future declines in the value of the real estate collateral
securing our loans and the effect on delinquencies of significant tightening of available credit compared to prior periods. 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 11.0% to 15.6% during the quarter ended June 30, 2008.

The
recovery of previously recorded impairment losses related to estimated future draw obligations on the securitizations that have entered or are probable to enter rapid amortization
status is due to a reduction in projections of future expected funding obligations under rapid amortization. The reduction in estimated future fundings is due primarily to not renewing lines of credit
and suspending borrowers' access to existing lines of credit, in accordance with the borrowers' line of credit agreements, when their loans enter a specified delinquency status or when their property
values decline below a specified threshold.

In
the quarter ended June 30, 2007, we recognized impairment of credit-sensitive retained interests of $416.7 million, including $388.1 million related to
subordinated interests on prime home equity securitizations. The impairment charges on these subordinated interests were driven by weakening housing market conditions, which resulted in increased
estimates for future losses on the loans underlying these securities. The loss estimate, as measured by 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 3.1% to 5.2% during the quarter ended June 30, 2007.

In
the quarter ended June 30, 2008, recovery in the estimated fair value of the non credit-sensitive retained interests was due to the effect of increasing interest rates on the
estimated cash flows relating to interest-only securities, partly offset by the offsetting effects of the change in interest rates on the values of principal-only and
prepayment securities. In addition, the value of senior and mezzanine securities that we began retaining as a result of the market disruption during 2007 continued to decline.

64

---



During the quarter ended June 30, 2007, recovery of non credit-sensitive retained interests was due primarily to an increase in the value of interest-only securities
resulting from an increase in interest rates.



The Servicing Hedge is designed to supplement the macro hedge and to offset a portion of the interest rate driven change in the value
of MSRs and retained interests recorded in the current period. 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 increased during the current period. The Servicing Hedge produced a loss of $2,624.3 million, including $519.7 million of time
value decay of the options included in the Servicing Hedge (our "hedge cost"). The composition of the Servicing Hedge is a primary driver of hedge cost. In selecting among alternative hedge
instruments to meet the desired risk profile, we consider such factors as cost, cash flow requirements and counterparty risk in addition to a particular instrument's effect on our interest rate risk
profile.

During
the quarter ended June 30, 2007, interest rates increased and as a result, the Servicing Hedge incurred a loss of $1,373.1 million, including $125 million of
hedge cost.



The $132.4 million increase in net insurance premiums earned was primarily attributable to growth in lender-placed property
business.



Other revenue consists of the following:

Quarters Ended
June 30,2008

2007(in thousands)Appraisal fees, net

$
52,608

$
41,674Title services


30,480


15,773Change in cash surrender value of life insurance


9,171


14,898Credit report fees, net


7,336


18,164Loss on sale of fixed assets and intangible assets


(19,440
)

(2,037
)Other


104,801


83,646Total other revenue

$
184,956

$
172,118




During the quarter ended June 30, 2008, we recognized other-than temporary impairment totaling $467.8 million
in our portfolio of investment securities classified as available-for-sale. This loss was recognized primarily because, based on the loss estimates embedded in the value of
certain non-agency securities held in our investment portfolio, we no longer believed that it was
reasonably assured that the decline in value would be recovered. This amount compares to a loss totaling $4.9 million in the quarter ended June 30, 2007.

65

---





Compensation expenses decreased $112.2 million, or 10%, during the quarter ended June 30, 2008 as compared to the
year-ago period as summarized below:

Quarters Ended
June 30,2008

2007(in thousands)Base salaries

$
560,143

$
624,734Incentive bonus and commissions


273,266


475,941Payroll taxes and other benefits


180,896


195,214Deferral of loan origination costs


(17,457
)

(186,873
)Total compensation expenses

$
996,848

$
1,109,016


Our
average workforce declined from 58,261 during the quarter ended June 30, 2007 to 50,455 during the quarter ended June 30, 2008. This decline was centered in our
mortgage origination operations and reflects the dramatic decline in mortgage loan production which began in the third quarter of 2007. This reduction in headcount, along with reductions in the
profitability of the Company's activities upon which incentive compensation expense is based caused a 22% reduction in compensation expenses before deferral of loan origination costs.

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 91% from the prior period.



Occupancy and other office expenses are summarized below:

Quarters Ended
June 30,2008

2007(in thousands)Office and equipment rentals

$
74,885

$
65,221Depreciation


53,526


59,177Utilities


38,348


41,234Postage and courier service


27,941


27,568Office supplies


17,047


21,963Dues and subscriptions


12,552


15,088Repairs and maintenance


9,572


14,546Other


15,298


24,220Total occupancy and other office expenses

$
249,169

$
269,017


During
the quarter ended June 30, 2008, occupancy and other office expenses decreased by 7%, or $19.8 million, reflecting the reductions in our workforce discussed
previously inCompensation Expenses.



Insurance claim expenses were $366.5 million during the quarter ended June 30, 2008 as compared to $154.8 million
during the year-ago period. The increase in insurance claim expenses was primarily the result of a $185.1 million increase in the provision for mortgage reinsurance claims arising
from

66

---



increased
loss expectations caused by the current elevated delinquencies and defaults inherent in our loan servicing portfolio.



Other operating expenses are summarized below:

Quarters Ended
June 30,2008

2007(in thousands)Legal, consulting, accounting and auditing expenses

$
101,706

$
47,261Operations of foreclosed real estate


79,647


21,769Losses on servicing-related advances


77,640


22,635Insurance commission expense


39,216


43,705Insurance


26,140


17,686Mortgage insurance


22,567


23,938Taxes and licenses


22,269


18,146Software amortization and impairment


19,850


19,561Travel and entertainment


18,678


27,771Other


108,012


58,021Deferral of loan origination costs


(851
)

(29,136
)Total other operating expenses

$
514,874

$
271,357


Losses
on servicing-related advances increased $55.0 million due to increases in the level of defaulted loans in the servicing portfolio.

67

---



Results of Operations ComparisonSix Months Ended June 30, 2008 and 2007



Gain on sale of loans and securities is summarized below:

Six Months Ended June 30,2008

2007Gain on Sale



Gain on SaleLoans Sold

Amount

Margin

Loans Sold

Amount

Margin(dollar amounts in thousands)Prime Mortgage Loans

$
117,511,650

$
1,941,944


1.65
%
$
202,304,717

$
2,017,227


1.00
%Subprime Mortgage Loans


3,281


(173,161
)

N/M


13,054,123


149,386


1.14
%Prime Home Equity Loans:Initial Sales


9,184


(22,229
)

N/M


8,785,234


193,466


2.20
%Subsequent draws


904,049


20,735


2.29
%

2,085,493


50,438


2.42
%913,233


(1,494
)

N/M


10,870,727


243,904


2.24
%Commercial real estate


701,451


7,559


1.08
%

4,228,239


66,215


1.57
%Conduit


2,501,383


39,132


1.56
%

15,282,847


139,995


0.92
%$
121,630,998


1,813,980


1.49
%
$
245,740,653


2,616,727


1.06
%Underwriting





12,886








97,028Securities trading and other





(234,518
)







67,200Hedge allocation





(340,500
)







Adjustment to estimated liability for losses on representations and warranties





(1,053,550
)







(79,064
)Other





(35,929
)







25,671$
162,369







$
2,727,562




Gain on sale of Prime Mortgage Loans decreased by 4% in the six months ended June 30, 2008 as compared to the six months ended
June 30, 2007. The Company's adoption of SAB 109 contributed to the increase in the prime gain on sale in the six months ended June 30, 2008 by $216.0 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 $176 million. This amount is
offset by higher production expenses. Increased gain on sale margins on Prime Mortgage Loans also contributed to higher gain on sale of Prime Mortgage Loans. These positive factors were partially
offset by a 42% decline in the volume of loans sold.



Loss on sale of Subprime Mortgage Loans increased in the six months ended June 30, 2008 as compared to the year-ago
period due primarily to discontinuation of lending and sales of subprime mortgage loans in late 2007. The loss in the six months ended June 30, 2008 consisted primarily of valuation adjustments
on subprime loans held for sale due to continuing declines in the value of these

68

---



loans.
These loans included $1.3 billion of loans that have previously been securitized but which did not qualify as sales in accordance with SFAS 140 as of June 30, 2008.



We recorded a small net loss on sale of Prime Home Equity Loans in the six months ended June 30, 2008 as compared to a gain on
sale for the year-ago period due primarily to discontinuation of lending and sales of Prime Home Equity loans in late 2007.



During the six months ended June 30, 2008, commercial real estate gain on sale decreased due to continuing illiquidity in the
commercial mortgage securitization market along with our discontinuation of commercial real estate lending and included $24.7 million in gains on credit default swaps.



During the six months ended June 30, 2008, both conduit and underwriting gain on sale decreased compared to the
year-ago period as a result of our exit from these activities due, in part, to lack of demand in the mortgage marketplace for non-agency securities.



The negative results for gain on sale arising from securities trading and other activities compared to the six months ended
June 30, 2007, was primarily due to additional write-downs of trading securities at depressed prices.



As discussed in Note 6Derivative Financial Instruments, during the
six months ended June 30, 2008 we managed in aggregate the risk of Market Spread changes in value of our mortgage banking assets, 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 mortgage banking assets and the related hedge instruments (collectively the
"Position") arising from changes in Market Spreads were allocated between those arising from loan production activities and those arising from loan servicing activities. In the six months ended
June 30, 2008, Market Spread declines in the value of the Loan Production Sector Position of $340.5 million were allocated to the Loan Servicing Sector.



The expense applicable to our estimate of future representations and warranty claims increased to $1,183.3 million in the six
months ended June 30, 2008 from $90.4 million in the year-ago period. Adjustments to the estimate made subsequent to sale during the current period were
$1,053.6 million, and are included in the adjustment to estimated liability for losses on representations and warranties line in the table above. The increase was primarily driven by increased
levels of claims that we are currently experiencing along with our expectations for elevated
levels of claims in the near future. The level of claims is due largely to 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.

69

---





Net interest (expense) income is summarized below:

Six Months Ended
June 30,2008

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

$
1,220,459

$
987,010Loans and securities relating to mortgage banking activities


81,572


258,030Net interest income on custodial balances


104,757


428,017Net interest expense relating to loan servicing activities


(263,369
)

(477,994
)Trading securities inventory


136,648


44,395Other


107,204


219,475Net interest income


1,387,271


1,458,933Provision for loan losses


(3,832,277
)

(444,886
)Net interest (expense) income after provision for loan losses

$
(2,445,006
)
$
1,014,047


The
increase in net interest income from investment loans and securities was attributable to growth in average interest-earning assets partially offset by a decrease in the net interest
margin. Average investment loans and securities assets increased to $111.5 billion during the six months ended June 30, 2008, an increase of $26.6 billion, or 31%, over the
year-ago period. Net interest margin attributable to investment loans and securities declined to 2.17% during the six months ended June 30, 2008, from 2.29% during the
year-ago period primarily as a result of increasing levels of non accrual loans.

The
decrease in net interest income from mortgage banking-related 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-related loan and securities inventory is financed in part with
borrowings tied to short-term indices. During the current period, 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.

Interest
income on custodial balances decreased from the year-ago period 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 paid-off loans, which was $139.4 million and $202.9 million during the six months ended June 30, 2008 and 2007, respectively.

Net
interest expense related to loan servicing activities decreased primarily due to increased interest income on a larger mortgage loan investment portfolio resulting from transfers of
mortgage loans held for sale to held for investment and increased holdings of repurchased loans.

The
increase in net interest income from the trading securities and securities purchased under agreements to resell inventory is attributable to an increase in the net interest margin
from 0.12% during the six months ended June 30, 2007 to 0.69% during the six months ended June 30, 2008, partially offset by a 44% decrease in the average inventory of securities held.
During the current period 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 changes in home prices.

70

---





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

Six Months Ended
June 30,2008

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

$
2,263,333

$
2,141,350Income from retained interests


191,279


272,263Late charges


204,373


180,410Prepayment penalties


23,740


148,814Ancillary fees


61,533


65,707Total loan servicing fees and income from MSRs and retained interests

$
2,744,258

$
2,808,544


---

The
increase in servicing fees, net of guarantee fees, was principally due to a 11% increase in the average servicing portfolio, partially offset by a decrease in the overall annualized
net service fee
earned from 0.338% of the average portfolio balance during the six months ended June 30, 2007 to 0.322% during the six months ended June 30, 2008.

The
decrease in income from retained interests was due primarily to a 18% decrease in the average investment in these assets from the six months ended June 30, 2007 to the current
period, combined with a reduction in the average yield on such instruments from 17% during the year-ago period to 15% during the current period. Income from retained interests excludes any
impairment charges or recoveries, which are included in impairment of retained interests in the consolidated statements of operations.



The realization of expected cash flows from MSRs resulted in a value reduction of $1,421.3 million and $1,657.0 million
during the six months ended June 30, 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, which in turn, extends the expected life of the existing asset.



We recorded an increase in the fair value of the MSRs from changes in market factors in the six months ended June 30, 2008 and
2007, of $435.3 million, and $1,231.5 million, respectively, primarily as a result of increasing mortgage rates, which increased expected future cash flows from our current servicing
portfolio.

71

---





(Impairment) recovery of retained interests is summarized below:

Six Months Ended June 30,2008

2007Impairment

Asset
Balance at
Period End

Impairment

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

$
(505,638
)
$
288,807

$
(782,226
)
$
1,523,016Non credit-sensitive retained interests


(200,102
)

1,221,772


84,508


1,212,497Impairment of retained interests

$
(705,740
)
$
1,510,579

$
(697,718
)
$
2,735,513


In
the six months ended June 30, 2008, we recognized impairment of credit-sensitive retained interests of $505.6 million, including $330.0 million related to
subordinated interests on Prime Home Equity securitizations and $141.0 million related to Subprime and related residual interests. The impairment on Prime Home Equity securitizations consists
of impairment of retained interests of $274.0 million and impairment losses of $56.0 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 the credit sensitive
retained interests 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 11.0% to 15.6% during the six months ended June 30, 2008.

In
the six months ended June 30, 2007, impairment of credit-sensitive subordinated and residual interests retained in prime home equity and subprime securitizations was due to
increased estimates for future losses on the loans underlying these securities as well as to the effect of increased market yield requirements for the subprime securities.

In
the six months ended June 30, 2008, impairment of the non credit-sensitive retained interests was related primarily to senior and mezzanine securities that we began retaining
as a result of the market disruption during 2007 resulting from higher investor yield requirements for such securities partially offset by an increase in the value of interest-only
securities caused by decreased prepayment speeds as a result of increasing mortgage interest rates.

During
the six months ended June 30, 2007, recovery of non credit-sensitive retained interests was due primarily to an increase in the value of interest-only
securities.



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 for much of the period and volatility of these rates increased during the six months ended June 30, 2008 and as a result, the
Servicing Hedge produced a loss of $619.9 million, including $943.1 million of hedge cost.

During
the six months ended June 30, 2007, rates increased. In addition, we supplemented the Servicing Hedge with credit default swaps to moderate the 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.

72

---



During
the six months ended June 30, 2007, the Servicing Hedge incurred a loss of $1,486.8 million, including $238.9 million of hedge cost and a $57.2 million gain related
to credit default swaps.



The $287.0 million increase in net insurance premiums earned was primarily attributable to growth in lender-placed business.



Other revenue consists of the following:

Six Months Ended
June 30,2008

2007(in thousands)Appraisal fees, net

$
105,746

$
81,809Title services


51,959


30,126Credit report fees, net


19,590


36,302Gain (loss) on sale of fixed assets and intangible assets


10,744


(4,777
)Change in cash surrender value of life insurance


1,017


19,688Other


235,281


168,236Total other revenue

$
424,337

$
331,384




During the six months ended June 30, 2008, we recognized other-than temporary impairment totaling
$491.9 million in our portfolio of investment securities classified as available-for-sale. This loss was recognized primarily because, based on the loss estimates
embedded in the value of certain non-agency securities held in our investment portfolio, we no longer believed that it was
reasonably assured that the decline in value would be recovered. This amount compares to a loss totaling $3.9 million during the six months ended June 30, 2007.



Compensation expenses decreased $133.6 million, or 6%, during the six months ended June 30, 2008 as compared to the
year-ago period as summarized below:

Six Months Ended
June 30,2008

2007(in thousands)Base salaries

$
1,119,157

$
1,198,486Incentive bonus and commissions


607,498


922,884Payroll taxes and other benefits(1)


365,995


419,189Deferral of loan origination costs


(41,817
)

(356,135
)Total compensation expenses

$
2,050,833

$
2,184,424


---

Our
average workforce declined from 56,856 during the six months ended June 30, 2007 to 50,386 for the six months ended June 30, 2008. The reduction was centered in our
mortgage origination operations and reflects the dramatic decline of the mortgage markets which began in the third quarter

73

---



of
2007. This reduction in headcount, along with reductions in the profitability of the Company's activities, upon which incentive compensation is based caused an 18% reduction in compensation
expenses before deferral of loan origination costs.

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 88% from the prior period.



Occupancy and other office expenses are summarized below:

Six Months Ended
June 30,2008

2007(in thousands)Office and equipment rentals

$
131,929

$
131,619Depreciation


109,509


116,488Utilities


76,575


81,847Postage and courier service


54,746


52,719Office supplies


35,735


41,912Dues and subscriptions


25,488


30,188Repairs and maintenance


21,304


30,850Other(1)


36,662


47,607Total occupancy and other office expenses

$
491,948

$
533,230


---

During
the six months ended June 30, 2008, occupancy and other office expenses decreased by 8%, or $41.3 million, reflecting the reductions in our workforce discussed in Compensation Expenses,
preceding.



Insurance claim expenses were $722.1 million during the six months ended June 30, 2008 as compared to
$212.1 million during the year-ago period. The increase in insurance claim expenses was primarily the result of a $480.9 million increase in comparison to the year-ago period
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 the liability for claims losses related to the 2003 books of business, on which negligible remaining loss
exposure was deemed to exist in the six months ended June 30, 2007.

74

---





Other operating expenses are summarized below:

Six Months Ended
June 30,2008

2007(in thousands)Legal, consulting, accounting and auditing expenses

$
154,940

$
85,786Operations of foreclosed real estate


146,272


35,656Losses on servicing-related advances


136,641


32,388Insurance commission expense


90,919


93,577Insurance


52,437


34,602Mortgage insurance


49,794


43,332Taxes and licenses


42,018


35,508Software amortization and impairment


39,228


36,800Travel and entertainment


34,850


48,857Other


216,896


118,350Deferral of loan origination costs


(3,695
)

(55,461
)Total other operating expenses

$
960,300

$
509,395


Losses
on servicing-related advances increased $104.3 million due to increases in the level of defaulted loans in the servicing portfolio.

Liquidity and Capital Resources

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 and those
of our parent, 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 and loans, repurchase agreements and the secondary
mortgage market. Our primary source of equity capital is retained earnings. From time to time, we have issued 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 ranked senior to our common stock with respect to
payment of dividends and distribution upon liquidation. The Series B non-voting convertible preferred stock was cancelled on July 2, 2008, upon completion of the acquisition
of Countrywide by Bank of America. We also have $2.2 billion outstanding in junior subordinated debentures that receive varying degrees of "equity treatment" from rating agencies, bank lenders
and regulators.

In
response to the disruptions in the secondary mortgage markets, we have evolved our funding structure such that it more closely resembles that of a thrift holding company rather than
that of a finance company with a banking subsidiary.

During
the six months ended June 30, 2008, Standard & Poor's, Moody's Investor Services and Fitch took negative ratings actions on Countrywide. As a result, certain of our debt
ratings dropped

75

---



below
investment grade. On July 1, 2008, following the announcement that Bank of America had completed their acquisition of Countrywide, Standard and Poor's Ratings Service (S&P) upgraded its
rating of CFC and CHL from BB+ to AA, an investment grade rating. S&P also upgraded its rating of the Bank from BBB to AA+. The Rating Outlook for all three entities was changed from Credit Watch
Developing to Negative. On July 1, 2008, Moody's upgraded its rating of CFC and CHL from Baa3 to Aa2. Moody's also upgraded its rating of the Bank from Baa1 to Aaa. Our Fitch rating remains
unchanged.

Following
are our credit ratings as determined by the nationally recognized statistical rating organizations ("credit rating agencies") as of July 1, 2008:

Countrywide Financial
Corporation

Countrywide Home Loans

Countrywide BankCredit Rating Agency

Short-
Term

Long-
Term

Rating
Outlook

Short-
Term

Long-
Term

Rating
Outlook

Short-
Term

Long-
Term

Rating
OutlookStandard & Poor's

A-1+

AA

Negative

A-1+

AA

Negative

A-1+

AA+

NegativeMoody's Investors Service

P1

Aa2

Negative

P1

Aa2

Negative

P1

Aaa

NegativeFitch

F3

BBB-

Rating Watch Evolving

F3

BBB-

Rating Watch Evolving

F3

BBB-

Rating Watch Evolving


As noted in the preceding paragraphs, during the period of 2008 leading up to the acquisition of Countrywide by Bank of America, the rating
agencies took negative actions on our debt ratings. These actions, along with the effect of developing perceptions in the media and financial marketplace regarding our prospects, affected our ability
to retain and obtain financing and make securities and derivatives transactions with other institutions.

During
the second quarter:



76

---







Because of these developments, CFC's available committed liquidity declined by $18.1 billion during the second quarter of 2008.

Following
the acquisition by Bank of America of Countrywide, we sold or assigned certain assets to various other Bank of America subsidiaries in exchange for demand notes and cash. These
transactions included:



Proceeds
from these transactions were used to terminate and repay our unsecured revolving lines of credit and bank loans with maturities through 2011 for approximately
$11.5 billion and to increase the capital of our Bank subsidiary by $5.5 billion. Repayment of the lines and bank loans upon completion of Bank of America's acquisition of Countrywide
was required because the borrowing agreements did not allow for continued borrowings in the event of a change in control of Countrywide.

Countrywide
Bank is regulated by the Office of Thrift Supervision ("OTS") and is therefore subject to OTS capital requirements. At June 30, 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 based both on its actual balances and proforma balances giving effect to the
$5.5 billion capital contribution made by Bank of America on July 2, 2008:

Actual

Proforma(2)Minimum
Required(1)Ratio

Amount

Ratio

Amount(dollar amounts in thousands)Tier 1 Capital


5.0
%

6.9
%
$
8,071,716


11.1
%
$
13,601,716Risk-Based Capital:Tier 1


6.0
%

11.1
%
$
8,071,716


18.7
%
$
13,601,716Total


10.0
%

12.4
%
$
9,016,959


20.0
%
$
14,545,788


---

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 6.9% and 8.0% at June 30, 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.

77

---



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.



Cash provided by operating activities was $15.3 billion for the six months ended June 30, 2008, compared to cash used by
operating activities of $4.4 billion for the year-ago period. Cash provided by operating activities includes the proceeds from the sales and principal repayments of mortgage loans
held for sale 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 18Supplemental Cash Flow Informationin
the financial statement section of this Report. In the six months ended June 30, 2008, funds used to originate and purchase mortgage loans exceeded proceeds from the sales of mortgage loans by
$2.4 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
$5.9 billion. Cash provided by operations was primarily due to a decrease in trading securities of $20.2 billion, partially offset by an increase in trading securities sold, not yet
purchased.

Net
cash provided by investing activities was $5.3 billion for the six months ended June 30, 2008, compared to cash used by investing activities of $10.0 billion for
the year-ago period. The increase in net cash provided by investing activities was attributable to a $20.6 billion increase in net proceeds from investments in other financial
instruments combined with a $2.1 billion decrease in securities purchased under agreements to resell, securities borrowed, and federal funds sold, partially offset by an increase of
$3.8 billion in loans held for investment compared to a decrease of $5.2 billion in the year-ago period.

Net
cash used by financing activities for the six months ended June 30, 2008 totaled $22.7 billion, compared to net cash provided by financing activities of
$14.2 billion for the year-ago
period. In the six months ended June 30, 2008, there was a $25.1 billion decrease in cash provided by short-term borrowings, including securities sold under agreements to
repurchase. During the six months ended June 30, 2008, long-term debt decreased $7.6 billion compared to an increase in long-term debt of $2.7 billion in
the six months ended June 30, 2007.



A significant risk for the Company is credit risk, which is the risk that a counterparty will not perform in accordance with the
contractual terms of our agreement with them. Our primary credit counterparties are our loan borrowers and counterparties in securities transactions. We balance the level of credit risk against our
expected returns in determining the level of credit risk we accept in our operations.



Our lending activities include the origination and purchase of loans for investment purposes (investment portfolio loans) and the
origination and purchase of loans for sale to investors (mortgage banking).

78

---



The
following table summarizes our portfolio of loans held for investment:

June 30, 2008Investment
Activities

Mortgage
Banking
Activities

Total Unpaid
Principal
Balance(in thousands)Mortgage loans:PrimePay option and payment advantage

$
25,419,072

$
990,263

$
26,409,335Other


27,439,262


2,632,521


30,071,78352,858,334


3,622,784


56,481,118Prime home equity


32,354,051


510,526


32,864,577Subprime


719,602


1,734,940


2,454,54285,931,987


5,868,250


91,800,237Commercial real estate


181,390





181,390Total mortgage loans

$
86,113,377

$
5,868,250

$
91,981,627




Our investment in loans held for investment generally includes mortgage loans originated or purchased for investment purposes,
previously salable 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. Loans transferred from our held for sale portfolio are transferred at the lower of cost or estimated fair value at the date of transfer.

Our
loans held for investment relating to our mortgage banking activities 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 with identified defects that
make them non-salable.

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
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 for investment in our investment activities consists primarily of Prime Mortgage and Prime Home
Equity Loans, with unpaid principal balances that amounted to $85.9 billion at June 30, 2008.

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 June 30, 2008,
$20.8 billion of our investment portfolio's residential loan portfolio was covered by supplemental mortgage insurance purchased on specified pools of loans, of which $14.2 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

79

---



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 six months ended June 30, 2008 by $340.1 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 and considers the insurer's ability to pay as discussed below.

In
the past, we purchased credit enhancement from those mortgage insurance providers that had an AA- rating or equivalent from the credit rating agencies. Currently, these
mortgage insurance providers have no less than an A rating. 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 claims paying ability of our mortgage insurance providers is not
impaired. If we conclude that this capacity is impaired in the future, we will adjust our provisions for loan losses and the mortgage insurance recoverable asset.

Following
is a summary of our investment loan portfolio's residential mortgage loans, together with applicable mortgage insurance, by original combined
loan-to-value ratio at June 30, 2008:

June 30, 2008Original Combined Loan-to-Value:

Unpaid
Principal
Balance
"UPB"(1)

UPB with
Lender
Purchased
Mortgage
Insurance(2)

UPB with
Borrower
Purchased
Mortgage
Insurance(in thousands)<50%

$
3,952,852

$
368,940

$
50.01 - 60.00%


3,768,125


544,747


60.01 - 70.00%


9,708,039


2,045,408


70.01 - 80.00%


25,788,908


7,816,350


1,65480.01 - 90.00%


25,026,073


6,908,610


2,597,63490.01 - 100.00%


17,517,047


3,043,462


1,493,963>100.00%


170,943


42,434


32,119$
85,931,987

$
20,769,951

$
4,125,370


---

While
new originations of these products have virtually ceased by June 30, 2008, Banking Operations holds a substantial investment in pay option ARM and payment advantage ARM
loans (collectively "pay option loans").



80

---





The
difference between the frequency of changes in the loans' interest rates and payments along with a limitation on changes in the minimum monthly payments to 71/2% per
year can result in payments that are not sufficient to pay all of the monthly interest charges. Unpaid interest charges are added to the loan balance until the loan's balance increases to a specified
limit, which is no more than 115% of the original loan amount, at which time a new monthly payment amount adequate to repay the loan over its remaining contractual life is established.

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

June 30,
2008

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

$
25,419,072

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

$
23,358,463

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

$
1,382,636

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

$
17,423,786

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


76
%

76
%Average refreshed loan-to-value ratio(2)


95
%

Average original FICO score


715


717Average refreshed FICO score


680


Loans underwritten with low or no stated income documentation


83
%

81
%Borrowers electing to make less than full interest payments(4)


72
%

81
%Loans delinquent 90 days or more(3)


12.40
%

5.36
%


---

The
Company routinely forecasts its exposure to payment recast on negatively amortizing loans. The following assumptions were used to forecast this exposure as of June 30,
2008:



81

---





Using
these assumptions as of June 30, 2008, pay option loans that are expected to reset are shown in the following table:

Twelve Months Ended June 30,

Projected
Balance at
Recast or Payoff(in thousands)2009

$
174,3392010


3,808,5332011


6,955,560Thereafter


2,463,522Loans assumed to repay before recast


9,572,82422,974,778Loans serviced by others(1)


3,117,303$
26,092,081


---

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.

Our
primary credit risk management tool for our portfolio of loans held for investment is the origination and purchase of loans underwritten to balance our assessment of the borrower's
credit risk against the expected return on the loan. We assess a loan 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.

To
minimize credit losses we actively monitor our portfolio of loans held for investment and work with borrowers who contact us or who become delinquent on their loans. Our portfolio
monitoring activities may provide us with information that allows us to take actions to limit our loss exposure such as suspending borrowers' access to their home equity lines of credit when their
loans or related senior liens reach a specified delinquency status or when their property values decline below a specified threshold.

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.

82

---



Our
investment portfolio's nonperforming assets (comprised of non-accrual loans and foreclosed assets) and troubled debt restructurings, the allowances for credit losses and
charge-offs are summarized as follows:

June 30, 2008

December 31, 2007Amount

% of
Investment
Portfolio
Loans

Amount

% of
Investment
Portfolio
Loans(dollar amounts in thousands)Nonperforming assets:Nonaccrual loans:With third party credit enhancements(1)

$
2,086,725


1.96
%
$
1,272,116


1.12
%Without third party credit enhancements


3,263,833


3.06
%

1,611,951


1.43
%5,350,558


5.02
%

2,884,067


2.55
%Foreclosed residential real estate


661,566


0.62
%

394,859


0.35
%Total nonperforming assets

$
6,012,124


5.64
%
$
3,278,926


2.90
%Troubled debt restructuring on accrual status (2)

$
1,068,179


1.00
%
$
6,320


0.01
%




Amount

% of
Nonaccrual
Loans

Amount

% of
Nonaccrual
LoansAllowances for credit losses:Allowance for loan losses

$
4,524,466




$
2,141,247Liability for losses on unfunded loan commitments


57,606





37,516Estimated amounts recoverable from pool mortgage insurance


(895,925
)




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

$
3,686,147


68.89
%
$
1,622,960


56.27
%


---

Six Months Ended June 30,2008

2007Amount

Annualized
Net Charge-offs
as % of Average
Investment
Loans

Amount

Annualized
Net Charge-offs
as % of Average
Investment
Loans(dollar amounts in thousands)Net charge-offs

$
1,289,210


2.94
%
$
142,124


0.42
%


83

---



The following table shows investment loan charge-offs, net of recoveries, by product:

Six Months Ended
June 30,2008

2007(in thousands)Prime Home Equity

$
779,715

$
103,059Prime Mortgage:Pay option and payment advantage


371,850


26,381Other


129,031


12,684Subprime


8,614


Total net charge-offs

$
1,289,210

$
142,124


The
increase in our nonperforming assets and charge-offs from the year-ago period was driven by the effects that declining real estate collateral values and
significant tightening of available credit resulting from the market disruption that began in the third quarter of 2007 had 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.



The following table shows the unpaid balance of loans held for investment arising from our mortgage banking activities:

June 30,
2008

December 31,
2007(in thousands)Prime

$
3,622,784

$
1,768,448Subprime


1,734,940


2,045,875Prime Home Equity


510,526


435,6955,868,250


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


3,411,386


2,691,563Total unpaid principal balance

$
9,279,636

$
6,941,581


Our
portfolio of loans held for investment arising from our mortgage banking activities includes loans that are nonsalable due to an identified defect or that 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 following 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 or deterioration of the
credit status of the loan during the period it is held for sale. Such loans are transferred to our portfolio of loans

84

---



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.



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 $0.9 billion and the average loan balance was $8.3 million at June 30, 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.

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
$2.2 million of charge-offs related to this activity during the six months ended June 30, 2008 and no charge-offs in 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.

Our
portfolio of mortgage banking-related nonperforming assets and troubled debt restructurings includes mortgage warehouse lending advances because we engage in warehouse lending
activities primarily to support our mortgage banking activities. Loans held for investment and foreclosed assets from our mortgage banking activities and the related allowance for credit losses are
summarized as follows:

June 30, 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)

$
783,979




$
567,356Commercial(4)


28,775





37,274Total nonaccrual loans


812,754





604,630Foreclosed assets:Residential real estate


290,658





412,984Commercial(4)


105





Total foreclosed assets


290,763





412,984Total nonperforming assets

$
1,103,517




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

$
51,957




$



85

---





Amount

% of
Nonaccrual
Loans

Amount

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

$
502,524


64.10
%
$
247,106


43.55
%Commercial(4)


8,661


30.10
%

11,138


29.88
%511,185


62.90
%

258,244


42.71
%Liability for losses on unfunded loan commitments


6,048





868Total allowances for credit losses

$
517,233


63.64
%
$
259,112


42.85
%




Six Months Ended June 30,2008

2007Amount

Annualized
Net Charge-offs
as % of Average
Investment Loans

Amount

Annualized
Net Charge-offs
as % of Average
Investment Loans(dollar amounts in thousands)Net charge-offs

$
247,029


4.22
%
$
50,912


1.82
%


---

The
increase in our nonperforming assets and charge-offs from June 30, 2007 was driven by the impact that the weakening housing market and significant tightening of
available credit had on delinquencies and default trends as well as portfolio seasoning.

86

---





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

Six months ended June 30, 2008Investment PortfolioMortgage
Lending

Commercial
Real Estate

Warehouse
Lending

Mortgage
Banking

Total(dollar amounts in thousands)Balance, beginning of period

$
2,140,536

$
711

$
11,138

$
247,106

$
2,399,491Provision for loan losses


3,326,787


5,215





500,275


3,832,277Change in estimate of amounts recoverable from pool mortgage insurance


340,122











340,122Charge-offs


(1,310,759
)




(2,172
)

(258,692
)

(1,571,623
)Recoveries


21,549








13,835


35,384Reclassifications and other


305





(305
)




Balance, end of period

$
4,518,540

$
5,926

$
8,661

$
502,524

$
5,035,651Ending allowance as a percentage of loans receivable


5.3
%

3.3
%

1.0
%

8.6
%

5.4
%




Six months ended June 30, 2007Investment PortfolioMortgage Lending

Commercial Real Estate

Warehouse Lending

Mortgage Banking

Total(dollar amounts in thousands)Balance, beginning of period

$
294,376

$
79

$
12,838

$
19,524

$
326,817Provision for loan losses


365,269


120


145


79,352


444,886Change in estimate of amounts recoverable from pool mortgage insurance


99,888











99,888Charge-offs


(147,343
)







(51,173
)

(198,516
)Recoveries


5,219








261


5,480Reclassifications and other


(1,113
)




1,113





Balance, end of period

$
616,296

$
199

$
14,096

$
47,964

$
678,555Ending allowance as a percentage of loans receivable


0.9
%

0.1
%

0.6
%

2.2
%

0.9
%


The
increase in the allowance and provision for loan losses is 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 changes in home prices.



A significant portion of the mortgage loans that we originate or purchase 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 representations and warranties or corporate guarantees
issued or the continuing investments and/or obligations we

87

---



retain,
either in the form of credit-enhancing subordinated interests or 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 Subprime Mortgage Loans generally were sold with limited recourse for credit
losses. Regardless of whether our loans are sold with recourse, 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.



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.

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.

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

88

---



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:

Six Months Ended
June 30,2008

2007(in thousands)Balance, beginning of period

$
639,637

$
390,111Provisions for losses


1,183,527


90,435Charge-offs


(286,817
)

(48,723
)Balance, end of period

$
1,536,347

$
431,823




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:

Six Months Ended
June 30,2008

2007(in thousands)Balance, beginning of period

$
46,202

$
45,425Provisions for losses


30,339


13,318Charge-offs


(2,553
)

(2,727
)Balance, end of period

$
73,988

$
56,016Corporate guarantees in excess of recorded liability, end of period

$
463,416

$
506,286




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

June 30,
2008

December 31,
2007(in thousands)Prime home equity retained interests

$
154,091

$
422,681Subprime retained interests


81,900


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


94,914


270,744Prime residual securities


29,733


20,557$
360,638

$
1,007,030


---

89

---



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

Six Months Ended
June 30,2008

2007(in thousands)Prime home equity retained interests

$
1,468,730

$
194,177Subprime retained interests


644,180


127,000Prime residual securities


6,750


4,350$
2,119,660

$
325,527


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
$637.5 million as of June 30, 2008.

Following
is a summary of changes in the liability:

Six Months Ended
June 30,2008

2007(in thousands)Beginning balance

$
704,097

$
Provision


55,967


Charge-offs


(122,571
)

Ending balance

$
637,493

$





At June 30, 2008, mortgage loans held for sale amounted to $11.8 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 loans whose credit quality has deteriorated during the time that they have been held for sale. Nonaccrual loans
held for sale totaled $288.5 million and $206.7 million at June 30, 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
June 30, 2008, approximately $137.8 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 June 30, 2008, the maximum aggregate losses under the reinsurance contracts were limited to $1,264.9 million. We are required to pledge securities

90

---



to
cover this potential liability. The accumulated liability recorded for estimated reinsurance claims totaled $585.8 million and $148.8 million at June 30, 2008 and
December 31, 2007, respectively. As of June 30, 2008, the liability for reinsurance claims includes case reserves totaling $332.6 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.

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

June 30,
2008

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

$
4,107

$
6,135Less: collateral held


(1,760
)

(3,873
)Net aggregate unsecured credit exposure

$
2,347

$
2,262


For
the six months ended June 30, 2008 and 2007 we incurred no credit losses due to non-performance of any of our counterparties.

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:

Six Months Ended
June 30,2008

2007(in millions)Beginning owned servicing portfolio

$
1,451,990

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


132,025


243,094Purchased MSRs (bulk acquisitions)


152


20,450Less: Principal repayments


(121,906
)

(144,454
)Ending owned servicing portfolio


1,462,261


1,399,209Subservicing portfolio


23,024


16,263Total servicing portfolio

$
1,485,285

$
1,415,472MSR portfolio

$
1,365,869

$
1,304,250Mortgage loans owned


96,392


94,959Subservicing portfolio


23,024


16,263Total servicing portfolio

$
1,485,285

$
1,415,472


---

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June 30,2008

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

$
1,236,048

$
1,173,002Subprime Mortgage


98,862


123,438Prime Home Equity


37,687


44,707Government:FHA-insured mortgage


71,066


42,781VA-guaranteed mortgage


18,598


15,281Total owned portfolio

$
1,462,261

$
1,399,209Delinquent mortgage loans(1):30 days


3.23
%

2.73
%60 days


1.39
%

1.01
%90 days or more


2.92
%

1.24
%Total delinquent mortgage loans


7.54
%

4.98
%Loans pending foreclosure(1)


1.72
%

0.74
%Delinquent mortgage loans(1):Conventional


4.89
%

2.64
%Subprime Mortgage


28.92
%

20.15
%Prime Home Equity


7.18
%

3.70
%Government


12.25
%

12.37
%Total delinquent mortgage loans


7.54
%

4.98
%Loans pending foreclosure(1):Conventional


1.27
%

0.39
%Subprime Mortgage


8.55
%

3.96
%Prime Home Equity


0.08
%

0.12
%Government


1.26
%

1.14
%Total loans pending foreclosure


1.72
%

0.74
%


---

We
attribute the overall increase in delinquencies in our servicing portfolio from June 30, 2007 to June 30, 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. 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

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entity
transferring the assets is able to sell those assets for cash. Special-purpose entities used in such 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 Subprime Mortgage Loans generally were securitized with limited
recourse for credit losses. During the six months ended June 30, 2008, we did not securitize any Subprime 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 make 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. 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.

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 six
months ended June 30, 2008, we recorded impairment losses of $56.0 million.

As
of June 30, 2008, 18 of 57 outstanding HELOC securitizations, representing 62.2% of the unpaid principal balance of our HELOC securitizations, were subject to rapid
amortization events. We have identified seven additional HELOC securitizations, representing 14.2% of the unpaid principal balance of our HELOC securitizations, were probable to become subject to
rapid amortization events.

The
available credit lines for the securitizations subject to or probable to be subject to a rapid amortization event are approximately $1.7 billion at June 30, 2008.
Substantially all of the remaining borrower draw periods for such securitizations ranged from 18 months to 47 months with a weighted average remaining borrower draw period of
35 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

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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 are 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 or related
senior liens reach a specified delinquency status or when their property values decline below a specified threshold; and not extending the draw period under existing lines of credit. Where
appropriate, we are also modifying and repurchasing certain 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 six months ended June 30, 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:



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

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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 results of operations.



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 second 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 broad-based worsening of
lenders' portfolio performances, 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 to be reflected in future results of operations.

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.

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.

With
rising delinquency and foreclosure rates in the mortgage market, policymakers at the state and federal level are increasingly looking to enact measures to delay or halt the
foreclosure process and require servicers to mitigate the impact of foreclosures on local communities. Congress is considering several pieces of legislation to stem rising foreclosures. One of the
major items under consideration is a

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change
to the bankruptcy law to allow borrowers to declare bankruptcy in order to have their loan balances reduced and other terms renegotiated (a so-called "cramdown"). In addition,
federal legislation targeting mortgage servicing practices and the foreclosure process has been introduced and could be approved in 2009. At the state level, dozens of legislatures have already
enacted or are preparing to enact legislation to slow the foreclosure process, up to and including consideration of foreclosure moratoria. Local governments are enacting ordinances that require
servicers to better maintain real estate owned properties and that impose "impact fees" on servicers' real estate owned inventory. While providing some relief to mortgage borrowers, these measures
could increase servicing costs and also could be construed as undermining legal certainty for investors, and could therefore have long term consequences for investments in mortgage-related securities,
and, consequently, our operations.

On
July 30, 2008, the Housing and Economic Recovery Act of 2008 was signed into law. In part, the act provides for permanent 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 to no more than $625,000. The act also creates a new, temporary, voluntary program
within FHA to provide FHA-insured mortgages to distressed borrowers. FHA-approved lenders for these refinancings will have to accept a discount on the original loan's
principal, and borrowers will have to share the new equity and any future appreciation with the FHA should they sell or refinance the property. The FHA is authorized to insure up to
$300 billion in mortgages under this program, which is to begin on October 1, 2008 and end on September 30, 2011. The act contains a number of provisions reforming regulatory
oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (collectively "GSEs") and modernizing elements of the FHA. The act also contains provisions to stimulate housing demand through
tax credits and enhancements to revenue bond programs. Because new regulations will have to be promulgated to implement the new refinancing program, the potential impacts of new regulatory oversight
of the GSEs are unknown and the reactions of the market to all of these changes are uncertain, we are unable to determine to what extent these changes may affect our operations.

The
Federal Reserve has finalized new rules under the Truth-in-Lending Act and Home Ownership Equity Protection Act to strengthen disclosures and prohibit certain
origination and servicing practices deemed unfair or deceptive. The new rules will take effect in 2008 and 2009. HUD unveiled in March 2008 a proposed revision to the RESPA rules to improve up front
disclosures of mortgage costs, however it is not clear whether a final rule will be issued in 2008. After addressing foreclosure-related concerns, Congress and the states are expected to return their
focus to matters intended to address the lending and underwriting practices that are perceived as causing the current market conditions, including:



The
legislative and regulatory risks facing the mortgage industry should remain intense throughout 2008 and into 2009.

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

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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:



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.

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.

The
Company began fast-track evaluation for loan modifications under Segment 2 of the ASF framework in June 2008 and the off-balance sheet accounting
treatment of QSPEs that hold those loans was not affected. Other workout activities relating to subprime ARM loans include repayment plans and modifications of loans evaluated on an individual basis.

As
of June 30, 2008, the principal balance of beneficial interests issued by the QSPEs that hold subprime ARM loans totaled $57.8 billion. The fair value of beneficial
interests related to those QSPEs held by CFC totaled $54.0 million as of June 30, 2008. Following is a summary of loans in QSPEs that

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hold
subprime ARM loans as of June 30, 2008 as well as workout and payoff activity for the subprime loans by ASF categorization for the six months then-ended:

Activity during the six months ended June 30, 2008(1)Balance at
June 30,
2008

Payoffs

Fast-track

Other
Workout
Activities

Foreclosures(in millions)Subprime ARM loans:Segment 1

$
5,865.1

$
940.2

$


$
219.4

$
0.6Segment 2


6,450.4


304.5


411.5


750.5


Segment 3


10,054.7


59.4





3,056.4


1,358.3Total subprime ARM loans


22,370.2

$
1,304.1

$
411.5

$
4,026.3

$
1,358.9Other loans


32,039.2Foreclosed real estate


3,343.7$
57,753.1


---

Factors That May Affect Our Future Results

On July 1, 2008, Countrywide completed its Merger with Red Oak Merger Corporation, pursuant to the terms of the previously
announced merger agreement. Upon consummation of the Merger, Red Oak Merger Corporation was renamed "Countrywide Financial Corporation." As a result of the Merger, actual results may differ
significantly from historical results or those anticipated.

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:



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 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

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expectations
may not be described in any such report or document. 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 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 June 30, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION



See Note 26Legal Proceedingsto the consolidated financial
statements for litigation and regulatory disclosures.



100

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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: August 11, 2008

By:

/s/ANDREW GISSINGER IIIAndrew Gissinger III Chief Executive OfficerDated: August 11, 2008

By:

/s/ANNE D. MCCALLIONAnne D. McCallion Chief Financial Officer


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COUNTRYWIDE FINANCIAL CORPORATION
FORM 10-Q
June 30, 2008
INDEX OF EXHIBITS

Exhibit No.

Description3.3*

Certificate of Incorporation of Countrywide Financial Corporation (the "Company") (incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K, filed with the SEC on July 8, 2008).3.4*

Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed with the SEC on
July 8, 2008).4.63*

First Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, the Company and The Bank of New York Mellon, as trustee, to
the Subordinated Indenture between the Company, and The Bank of New York Mellon, as trustee, dated as of May 16, 2006 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the SEC on
July 8, 2008).4.64*

First Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, the Company, Countrywide Home Loans, Inc. ("CHL"), and
The Bank of New York Mellon, as trustee, to the Indenture between the Company, CHL, and The Bank of New York, as trustee, dated as of February 1, 2005 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K, filed with the SEC on July 8, 2008).4.65*

Second Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, CHL, the Company, and The Bank of New York Mellon, as
trustee, to the Indenture between Countrywide Funding Corporation, Countrywide Credit Industries, Inc., and The Bank of New York, as trustee dated as of January 1, 1992, as supplemented by First Supplemental Indenture, dated as of
June 15, 1995, among CHL (formerly Countrywide Funding Corporation), the Company (formerly Countrywide Credit Industries, Inc.), and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.3 to the Company's Current
Report on Form 8-K, filed with the SEC on July 8, 2008).4.66*

First Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, CHL, the Company, and The Bank of New York Mellon, as
trustee, to the Indenture between CHL, Countrywide Credit Industries, Inc., and The Bank of New York, as trustee dated as of December 1, 2001 (incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K,
filed with the SEC on July 8, 2008).4.67*

First Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, the Company, CHL, Bank of America Corporation, and The Bank
of New York Mellon, as trustee, to the Indenture between the Company, CHL, and The Bank of New York, as trustee, dated as of May 22, 2007 (incorporated by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K, filed with
the SEC on July 8, 2008).


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Exhibit No.

Description4.68*

Second Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, the Company, CHL, and The Bank of New York Mellon, as trustee, to the
Subordinated Indenture between the Company, CHL, and The Bank of New York, as trustee, dated as of April 11, 2003, as supplemented by the First Supplemental Indenture, dated as of April 11, 2003, among the Company, CHL, and The Bank of New
York, as trustee (incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K, filed with the SEC on July 8, 2008).4.69*

Second Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, the Company, and The Bank of New York Mellon, as trustee,
to the Junior Subordinated Indenture between the Company, and The Bank of New York, as trustee, dated as of November 8, 2006, as supplemented by the Supplemental Indenture, dated as of November 8, 2006, between the Company and The Bank of
New York, as trustee (incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 8-K, filed with the SEC on July 8, 2008).4.70*

First Supplemental Indenture, dated July 1, 2008, among Red Oak Merger Corporation, CHL, the Company, and The Bank of New York Mellon, as
trustee, to the Indenture among CHL, Countrywide Credit Industries, Inc. and The Bank of New York, as trustee, dated as of June 4, 1997 (incorporated by reference to Exhibit 4.8 to the Company's Current Report on Form 8-K, filed
with the SEC on July 8, 2008).4.71*

Second Supplemental Trust Deed, dated July 1, 2008, among Red Oak Merger Corporation, the Company, CHL, and Deutsche Trustee Company Limited,
as trustee, to the Trust Deed among the Company, CHL, and Deutsche Trustee Company Limited, as trustee, dated as of August 15, 2005, as supplemented and restated by First Supplemental Trust Deed, dated as of August 31, 2006, among CHL, the
Company, and Deutsche Trustee Company Limited, as trustee (incorporated by reference to Exhibit 4.9 to the Company's Current Report on Form 8-K, filed with the SEC on July 8, 2008).4.72*

Fifth Supplemental Trust Deed, dated July 1, 2008, among Red Oak merger Corporation, CHL, the Company, and Deutsche Trustee Company Limited, as
trustee, to the Trust Deed among CHL, the Company (formerly Countrywide Credit Industries, Inc.), and Bankers Trustee Company Limited, as trustee, dated as of May 1, 1998, as supplemented and restated by Fourth Supplemental Trust Deed,
dated as of January 29, 2002, among CHL, the Company (formerly Countrywide Credit Industries, Inc.), and Deutsche Trustee Company Limited, as trustee (incorporated by reference to Exhibit 4.10 to the Company's Current Report on
Form 8-K, filed with the SEC on July 8, 2008).4.73*

First Supplemental Note Deed Poll, dated July 1, 2008, between Red Oak Merger Corporation and the Company to the Note Deed Poll by the Company,
dated as of April 29, 2005 (incorporated by reference to Exhibit 4.11 to the Company's Current Report on Form 8-K, filed with the SEC on July 8, 2008).+10.118

The Company's Change in Control Severance Plan (As Amended and Restated June 24, 2008).+10.119

First Amendment dated June 18, 2008 to the Company's 401(k) Savings and Investment Plan, as amended and restated effective January 1,
2007.12.1

Computation of the Ratio of Earnings to Fixed Charges.


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Exhibit No.

Description31.1

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.


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