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

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.05 Par Value		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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):

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

As of June 30, 2007, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the Registrant's Common Stock held by non-affiliates was $20,784,169,522 based on the closing price as reported on the New York Stock Exchange.

As of February 26, 2008, there were 580,784,609 shares of Countrywide Financial Corporation Common Stock, $0.05 par value, outstanding.

Document		Parts Into Which Incorporated
Definitive Proxy Statement for an Annual Meeting of Stockholders which involves the election of directors to be filed by April 29, 2008, which is within 120 days after the end of fiscal year 2007		Part III

Countrywide Financial Corporation

2007 Annual Report on Form 10-K

Table of Contents

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

During 2007, significant disruptions occurred in the U.S. mortgage market and the global capital markets, both of which we have historically relied upon to finance our mortgage production and operations. The combination of a weakening housing market and concern over certain industry-wide product offerings negatively impacted the expectations of future performance and the value investors assign to mortgage loans and securities. Because of this, investor demand for non-agency mortgage-backed securities ("MBS") abruptly declined and participants in the debt markets substantially curtailed financing of our and others' mortgage loan inventories.

As a result of all of these factors, we and other industry participants have recorded increased credit losses and inventory valuation adjustments in 2007.

As more fully detailed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2008, and the Registration Statement on Form S-4 of Bank of America Corporation ("Bank of America") filed on February 12, 2008, we entered into an agreement and plan of merger (the "Merger Agreement") with Bank of America. The Merger Agreement provides for Countrywide to merge (the "Merger") with and into a wholly-owned merger subsidiary of Bank of America ("Merger Sub"), with Merger Sub continuing as the surviving company.

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

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

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

We manage our business through five business segments—Mortgage Banking, Banking, Capital Markets, Insurance and Global Operations. We primarily conduct the following operations in these segments:

Mortgage banking is our core business, generating 50% of our revenues before provision for loan losses in 2007. We are a real-estate lending-centered company and have built upon our mortgage banking operations in recent years to capitalize on meaningful related opportunities with the intent of stabilizing our consolidated earnings profile. For financial information about our segments, see the Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Segment Results section and Note 27—Segments and Related Information in the financial statement section of this Report.

We have a Website located at www.countrywide.com on which we make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports available, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC"). Our Corporate Governance Guidelines, our Code of Business Ethics, the charters of the committees of our Board of Directors and all amendments and updates to these documents are also available on our Website and printed copies are available upon request.

We produce residential and commercial mortgage loans within the Mortgage Banking, Banking and Capital Markets Segments. A significant amount of the mortgage loans that we originate or purchase in our Mortgage Banking and Capital Markets Segments are sold into the secondary mortgage markets, primarily in the form of securities and to a lesser extent in the form of loans. We generally perform the ongoing servicing functions related to the residential mortgage loans that we produce. Loans produced in our Banking Segment are generally held for investment.

The majority of our loan production consists of Prime Mortgage Loans. Prime Mortgage Loans include conventional mortgage loans, loans insured by the Federal Housing Administration ("FHA") and loans guaranteed by the Veterans Administration ("VA"). A significant portion of the conventional loans we produce qualify for inclusion in guaranteed mortgage securities backed by Fannie Mae or

Freddie Mac ("conforming loans"). Some of the conventional loans we produce either have an original loan amount in excess of the Fannie Mae and Freddie Mac loan limit for single-family loans or otherwise do not meet Fannie Mae or Freddie Mac guidelines. Loans that do not meet Fannie Mae or Freddie Mac guidelines are referred to as "nonconforming loans." In certain tables and elsewhere in this Report, FHA and VA loans may be referred to as Government Loans.

We have historically originated and purchased mortgage loans that generally fall into one of the following four categories:

During 2007, secondary mortgage market demand for non agency-eligible loans (nonconforming Prime Mortgage Loans, Prime Home Equity Loans and Nonprime Mortgage Loans) was substantially curtailed. Accordingly we revised our underwriting standards and product offerings to reflect these changes and de-emphasized non agency-eligible loans.

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

Our Mortgage Banking Segment produces mortgage loans through a variety of channels on a national scale. The mortgage loans we produce in this segment are generally sold into the secondary mortgage market, primarily in the form of securities, and to a lesser extent in the form of loans. We typically perform the ongoing servicing functions related to the mortgage loans that we produce. We also provide various loan closing services such as escrow, flood determination and appraisal. Historically, mortgage banking loan production has occurred in Countrywide Home Loans ("CHL"). Over the past several years, we have been transitioning this production to our bank subsidiary, Countrywide Bank, FSB ("Countrywide Bank" or the "Bank"). As of December 31, 2007, over 90% of our monthly mortgage loan production occurred in Countrywide Bank. Effective January 1, 2008, our production channels have moved into the Bank, completing the migration of substantially all of our loan production activities from CHL to the Bank. The mortgage loan production, the related balance sheet and the income relating to the holding and sale of these loans is included in our Mortgage Banking Segment regardless of whether the activity occurred in CHL or Countrywide Bank. We group the activities of our Mortgage Banking Segment into three business sectors—Loan Production, Loan Servicing and Loan Closing Services.

We source mortgage loans through three production channels: the Retail Channel (Consumer Markets and Full Spectrum Lending), the Wholesale Lending Channel and the Correspondent Lending Channel.

The Retail Channel consists of the Consumer Markets Division ("CMD") and the Full Spectrum Lending Division ("FSLD"). CMD generally originates prime loans through existing relationships with customers and organizations that influence the placement of mortgage services, while FSLD focuses on new customer acquisitions through Internet, direct mail and mass media marketing channels.

For 2007, Countrywide was ranked by Inside Mortgage Finance as the third largest retail lender, in terms of volume, among residential retail mortgage lenders nationwide. (Reprinted with the permission of Inside Mortgage Finance Inc. ("IMF") Copyrighted. All rights reserved by IMF.)

CMD originates mortgage loans through three business groups: the Distributed Retail group, the Business-to-Consumer group and the Strategic Business Alliances group.

The Distributed Retail group is the branch network which originates loans through relationships with consumers, builders and Realtors® and through joint ventures. As of December 31, 2007, this group consisted of 661 branch offices in 48 states and the District of Columbia. This group has a sales force of 6,136, which includes those dedicated to joint venture relationships. The Distributed Retail group originated 72% of CMD's total volume for the year ended December 31, 2007.

The Business-to-Consumer group primarily originates mortgage loans directly from existing customers through the Internet and through our call centers. The Business-to-Consumer group focuses on customer retention through marketing and by providing our existing customers with an efficient and convenient means to obtain financing for a new home, refinancing for their existing mortgage or a home equity loan. As of December 31, 2007, the Business-to-Consumer group consisted of five call centers with a sales staff of 1,090. This group accounted for 26% of CMD's total volume for the year ended December 31, 2007.

The Strategic Business Alliance group facilitates and manages the development of new sources of loans through relationships with organizations that influence the placement of mortgage services. This group focuses primarily on developing revenue-sharing arrangements such as joint ventures, third party outsourcing, relocation lending, marketing service agreements and brokered-in agreements. This group accounted for 2% (excluding Distributed Retail volume from joint venture relationships) of CMD's total volume for the year ended December 31, 2007.

FSLD originates Prime Mortgage Loans with the primary focus on refinance and home equity products. FSLD operates through a network of 94 retail branch offices located in 37 states, as well as four call centers. The branches and call centers of FSLD are supported by two fulfillment centers for processing, underwriting and funding of these mortgage loans. FSLD also originated Nonprime Mortgage Loans until Nonprime Mortgage Loan production was discontinued in late 2007.

FSLD's mortgage production is generated through customer retention efforts directed to Countrywide's nonprime servicing portfolio and new customer acquisition through Internet, direct mail and mass media marketing channels. FSLD also employed a network of sales associates who were dedicated to the fulfillment of referrals of Nonprime Mortgage Loan customers from CMD until late 2007.

Our Wholesale Lending Channel ("WLD") underwrites and funds mortgage loans sourced by mortgage loan brokers and other financial intermediaries. WLD sources loans through approximately 30,000 mortgage loan brokers nationwide. WLD offers a wide variety of Prime Mortgage Loans and Prime Home Equity Loan products. Business is solicited through a sales force, the Internet and advertising.

As of December 31, 2007, WLD operated 39 wholesale loan centers and three regional loan centers in various parts of the United States. WLD also originated Nonprime Mortgage Loans until Nonprime Mortgage Loan production was discontinued in late 2007.

For 2007, Countrywide was ranked by Inside Mortgage Finance as the largest wholesale originator, in terms of volume, among residential wholesale mortgage lenders nationwide. (Reprinted with the permission of IMF. Copyrighted. All rights reserved by IMF.)

Our Correspondent Lending Channel ("CLD") purchases mortgage loans from other lenders, which include mortgage bankers, commercial banks, savings and loan associations, home builders and credit unions. As of December 31, 2007, this Channel had correspondent relationships with approximately 1,760 lenders, who are subject to initial and ongoing credit evaluation and monitoring. CLD operates in all 50 states.

For 2007, Countrywide was ranked by Inside Mortgage Finance as the largest correspondent lender, in terms of volume, among residential correspondent mortgage lenders nationwide. (Reprinted with the permission of IMF. Copyrighted. All rights reserved by IMF.)

Since 1992, we have adopted a variety of affordable home loan initiatives designed to increase homeownership opportunities for low-to moderate-income borrowers and communities and minority borrowers. Our long-time initiatives, known as the We House America® Initiatives, supports affordable housing programs undertaken by Fannie Mae and promoted by various government agencies, including the U.S. Department of Housing and Urban Development ("HUD").

We have specifically designed the House America® loan program to meet the needs of low-to moderate-income borrowers and others with financial, employment or personal situations which might prevent them from qualifying for traditional mortgages. These loan programs enable such borrowers to qualify for a home loan by allowing, for example, lower down payments, lower cash reserves, alternative income sources and more flexible underwriting criteria than on a typical loan program. The mortgage loans we produce through House America® are sold and serviced on a non-recourse basis, generally through guarantee programs sponsored by Fannie Mae.

The We House America® Initiatives include telephone-based counseling services provided by the House America Counseling Center and Internet-based resources to educate prospective first-time minority and low-to moderate-income homebuyers about the home loan process. The House America® counseling center also provides Spanish-speaking counselors and educational materials printed in both English and Spanish.

We have made other significant commitments to affordable lending and multicultural markets initiatives designed to increase homeownership opportunities among minority and immigrant communities. For example, we are approved to participate in more than 1,160 homebuyer assistance loan programs that assist borrowers with down payments and closing costs, which are offered by state, county and city agencies, municipalities and not-for-profit organizations. In early 2005, we extended our five-year We House America® Campaign, with a goal of originating $1.0 trillion in loans to targeted

borrower populations by the end of 2010. As of December 31, 2007, we made loans to 5.1 million borrowers and funded $827 billion (including Prime and Nonprime Mortgage Loans) toward this goal.

When we sell or securitize mortgage loans, we generally retain the rights to service these loans. In servicing mortgage loans, we collect and remit loan payments, respond to customer inquiries, account for principal and interest, hold custodial (impound) funds for payment of property taxes and insurance premiums, counsel delinquent mortgagors and supervise foreclosures and property dispositions. We receive servicing fees and other remuneration in return for performing these functions.

We recognize the value of the servicing rights we retain when the servicing rights are contractually separated from the loans either through sale of the loans or when the loans are securitized. The value we assign to servicing rights is referred to as mortgage servicing rights ("MSRs"). Our MSRs arise from contractual agreements between us and investors (or their agents) in MBS and mortgage loans. We may also retain financial interests ("retained interests") when we securitize mortgage loans. We include the value of these retained interests on our balance sheet. The Loan Servicing Sector statement of operations includes the changes in value related to our MSRs and retained interests, as well as the revenues and expenses arising from servicing the mortgage loans. Although MSRs generally arise from the sale or securitization of mortgage loans that we originate, we also occasionally purchase MSRs from others. For a more complete description of MSRs, see Note 3—Loan Sales in the financial statement section of this Report.

MSRs and retained interests are generally subject to a loss in value when mortgage rates decline. To moderate the effect on earnings caused by a rate-driven decline in the value of MSRs and retained interests, we maintain a portfolio of financial instruments, primarily derivative contracts, which generally increase in value when interest rates decline. This portfolio of financial instruments is referred to as the "Servicing Hedge." See Note 4—Derivative Financial Instruments—Risk Management Activities Related to Mortgage Servicing Rights (MSRs) and Retained Interests in the financial statement section of this Report for a further discussion of our Servicing Hedge.

The various functions within our loan servicing operations are briefly described in the following paragraphs. These operations are performed primarily in nine locations using the same systems and processes: two in California, three in Texas, one in Arizona, two in India and one in Costa Rica.

Our customer service call centers managed nearly 61 million contacts with customers in 2007. These contacts were primarily handled through our customer service representatives, automated phone system and website (www.customers.countrywide.com). This division also prints monthly statements and oversees outbound customer correspondence.

Our Remittance Processing division processes all payments, loan payoffs and payoff demand statements. Approximately 48% of our customers make their monthly payments electronically using various automated payment methods.

Our Investor Accounting department reconciles custodial accounts, processes investor remittances and maintains accounting records on behalf of our mortgage investors, including Fannie Mae, Freddie Mac and the Government National Mortgage Association ("Ginnie Mae"), as well as private investors.

Our Home Retention unit works with delinquent borrowers to bring their mortgages back to current status and avoid foreclosure if possible. Our objective in the loss mitigation process is to develop foreclosure prevention options that have the highest probability of successful resolution for the borrower and ultimately the investor. Countrywide uses multiple tools to evaluate borrower needs and reconcile them with investor guidelines in order to offer the borrower the most advantageous workout possible. These options include, but are not limited to: payment plans, payment forbearance, loan modification, acceptance of deed to the collateral property in lieu of foreclosure and acceptance of the net proceeds from the borrower's sale of the property (also referred to as a short sale).

Loss mitigation is most effective when we are able to establish early contact with the borrower. When a loan becomes delinquent, we attempt to communicate with our borrowers through frequent outreach efforts throughout the collection process using tools such as brochures, housing fairs, counseling letters, telephone calls and DVD mailings.

When contact is established with a borrower, Countrywide attempts to obtain information from the borrower relating to the borrower's financial condition and obtains an estimate of the value of the property securing the loan. Based on this information, Countrywide assesses the borrower's short-term ability to reinstate the loan to current status and evaluates the options available based on that assessment. If that is not possible, we determine what sort of assistance the borrower needs. This includes understanding their current debt to income ratio, as well as analyzing the borrower's future ability to pay. Modification and payment capitalization transactions are focused on borrowers who have demonstrated the capacity and incentive to perform successfully under the new terms of the loan. We have also developed loan modification programs designed to assist borrowers with refinancing their adjustable-rate mortgage ("ARM") and pay-option ARM loans before their loans reset. Alternative options such as short sales and acceptance of deeds in lieu of foreclosure are considered only after it has been determined that the borrower has no viable ability to remain in the home.

These efforts are tailored to the specific circumstances of a borrower and comply with the requirements of the mortgage investor. Our Home Retention division proactively works to preserve homeownership by aligning with consumer advocacy groups, providing customer outreach and supporting early intervention.

Foreclosure and bankruptcy are complex processes that are subject to federal and state laws and regulations, as well as mortgage investor and insurer requirements. Our workflow-based systems facilitate consistent and compliant processing of defaulted mortgage loans, as well as an efficient flow of data between internal and external business partners. We use our own companies in support of many of our foreclosure and bankruptcy activities to minimize related costs and to increase efficiency.

We perform several loan servicing functions internally that other loan servicers commonly outsource to third parties. Our integrated services include performing property tax payment processing, property inspections, and insurance tracking and premium payment processing. We believe the integration of these functions gives us a competitive advantage by lowering overall servicing costs from

what would otherwise be incurred and enabling us to provide a high level of service to our mortgage customers and mortgage investors.

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:

We attribute the overall increase in delinquencies in our servicing portfolio from December 31, 2006 to December 31, 2007, 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. Changing borrower profiles and trends toward higher initial combined loan-to-value ratios have made this impact most significant on nonprime delinquency. We believe the delinquency rates in our servicing portfolio are consistent with rates for similar mortgage loan portfolios in the industry.

The following is a summary of the geographical distribution of loans included in the Company's servicing portfolio for the top five states as measured by the total unpaid principal balance:

		December 31,
		2007				2006
State		Unpaid Principal Balance		% Total Balance		Unpaid Principal Balance		% Total Balance
		(dollar amounts in millions)
California
	Southern	$	253,306	17	%	$	237,013	18	%
	Northern		135,753	9	%		130,409	10	%

			389,059	26	%		367,422	28	%
Florida			113,052	8	%		97,442	8	%
Texas			66,411	4	%		57,724	4	%
New York			52,082	4	%		43,846	3	%
New Jersey(1)			51,901	4	%		—	—
Arizona(1)			—	—			43,143	3	%
All other states			803,534	54	%		688,817	54	%

	Total	$	1,476,039	100	%	$	1,298,394	100	%

We provide loan closing products and services such as credit reports, flood determinations, appraisals and title reports through our LandSafe, Inc. group of companies. We provide these services primarily to customers referred by our loan production channels and our business units and also to third parties.

The mortgage lending industry is dominated by large, sophisticated financial institutions. To compete effectively, we must have a very high level of operational, technological, and managerial expertise as well as access to capital at a competitive cost. As a result of reduced access to capital, general housing trends, rising delinquencies and defaults and other factors, many mortgage lenders have recently experienced severe financial difficulty, with some exiting the business or filing for bankruptcy protection. Primarily because of these factors, the industry continues its consolidation trend.

Our Banking Operations primarily fund and purchase mortgage loans and home equity loans for investment purposes. The majority of these loans are sourced through our production channels. For liquidity and asset-liability management purposes, we also invest in securities such as collateralized mortgage obligations and agency MBS. Banking Operations activities provide the Company with an expanded product menu, lower cost funding sources and opportunities for a stable source of revenue in the form of net interest income.

Asset growth is funded by the Bank's liability base. The Bank obtains retail deposits, primarily certificates of deposit, through 194 financial centers (163 of which are located in CHL's retail branch offices) as of December 31, 2007, call centers and the Internet. Countrywide Bank also offers deposit accounts through deposit brokers (generally, well-recognized financial intermediaries).

A significant portion of Countrywide Bank's deposit liabilities are comprised of custodial funds that relate to our loan servicing portfolio. Countrywide Bank also offers commercial deposit accounts to title and mortgage insurance companies through a commercial banking unit. The Bank also borrows funds from other sources to supplement its deposit liabilities, including mortgage loan-secured borrowings from the Federal Home Loan Bank ("FHLB") of Atlanta and repurchase agreements secured by loans and securities.

Countrywide Bank acts as a mortgage document custodian, primarily for our mortgage banking operations. As a document custodian, we verify, maintain and release collateral for issuers, servicers, sellers and purchasers of debt securitizations. We also provide other services, including safekeeping, collateral review/certification, collateral releases and customer reporting.

Properties securing the residential mortgage loans in our Banking Operations' portfolio of loans held for investment are concentrated in the State of California. The following is a summary of the geographical distribution of loans included in the Banking Operations' residential loan portfolio for the top three states as measured by the total unpaid principal balance:

		December 31,
		2007				2006
State		Unpaid Principal Balance		% Total Balance		Unpaid Principal Balance		% Total Balance
		(dollar amounts in thousands)
California
	Southern	$	23,411,207	27	%	$	19,638,756	27	%
	Northern		13,648,780	16	%		13,272,718	19	%

			37,059,987	43	%		32,911,474	46	%
Florida			6,039,096	7	%		4,292,588	6	%
Virginia			3,664,964	4	%		3,777,253	5	%
All other states			40,277,574	46	%		30,816,948	43	%

	Total	$	87,041,621	100	%	$	71,798,263	100	%

We provide committed and uncommitted lines of credit to mortgage bankers to finance their mortgage loan inventories, which we refer to as warehouse lending, through both a non-depository lending company and Countrywide Bank. All of these mortgage bankers sell loans to our Mortgage Banking Segment's CLD. All of these advances are secured by mortgage loans that have a market value in excess of the balance of our advances.

We operate in a highly competitive environment. Competition for retail deposits comes primarily from other insured depository institutions, which include more than 7,300 commercial banks and almost 1,300 savings institutions. We attract and retain deposits through a combination of competitive rates, physical presence, experienced banking professionals and easy access to our products through call centers and the Internet at www.countrywidebank.com. Because of our low-cost structure relative to other financial institutions, we are able to offer deposit rates that are among the most competitive in the industry.

Countrywide Bank invests primarily in adjustable-rate and short duration residential mortgage loans. Competition in making real estate loans comes principally from other savings institutions, mortgage banking companies and commercial banks. The majority of loans that the Banking Segment invests in are sourced by our production channels. Countrywide Bank also competes with commercial banks and investment banks in the purchase of loans from third parties.

Our Banking Segment's competitive position is enhanced by its relationship with our Mortgage Banking Segment. For example, a significant portion of Countrywide Bank's deposit liabilities consists of custodial funds directed by our Servicing Sector. As discussed above, Countrywide Bank obtains retail deposit products through financial centers placed within certain of CMD's retail branch offices. This economical use of space reduces the Bank's deposit acquisition costs.

Our Capital Markets Segment primarily operates as a registered securities broker-dealer, which is also a primary dealer of U.S. Treasury securities. We also operate a residential mortgage loan manager, a commercial mortgage loan originator, a broker-dealer in Hong Kong, an introducing broker of futures contracts, an asset manager, and a broker of MSRs. During 2007, we ceased the operations of broker-dealers in Japan and the United Kingdom and significantly downsized our trading of derivatives as a result of the market disruption. With the exception of our commercial mortgage activities, we transact primarily with institutional customers, such as banks, other depository institutions, insurance companies, asset managers, mutual funds, pension plans, other broker-dealers and governmental agencies. Customers of our commercial real estate finance business are the owners or sponsors of commercial properties, who can be individuals or institutions.

Conduit activities include the purchase, warehousing and ultimate disposition of residential mortgage loans on behalf of CHL. In our conduits, we manage both Prime Mortgage Loans and Nonprime Mortgage Loans which are either acquired from third parties or originated in our Mortgage Banking Segment. We accumulate these loans for disposition either in the form of securitizations or loan sales. We also manage the acquisition and disposition of delinquent or otherwise illiquid residential mortgage loans, some of which have been originated under FHA and VA programs. We attempt to cure the loans, using the operations of our Servicing Sector, with the intent to securitize those loans that become eligible for securitization. The remaining loans are serviced through foreclosure and liquidation, which includes the collection of government insurance and guarantee proceeds relating to defaulted FHA and VA program loans. Our conduit activities have been severely constrained in the latter part of 2007 amid significant turmoil in the U.S. mortgage market and the global capital markets.

Capital Markets participates in both competitive bid and negotiated underwritings and performs underwriting services for CHL, Countrywide Bank and third parties. Underwriting activities may encompass the assumption of the market risk of buying a new issue of securities from the issuer and reselling the securities to investors, either directly or through dealers. Capital Markets primarily underwrites mortgage-related debt securities and certificates of deposit. Capital Markets earns an underwriting spread that is the difference between the amount paid to the issuer of securities and the offering price to investors, net of expenses. The spread earned on each transaction and the level of market risk assumed may vary based upon the nature of the market and the terms of the underwriting agreement. Our underwriting activities have also been severely constrained in the latter part of 2007 as a result of the market disruption.

Securities trading activities include the trading of debt securities in the secondary market after the original issuance of the security and, to a much lesser extent, trading of derivative financial instruments. We generally trade mortgage-related fixed-income securities, including MBS, collateralized mortgage obligations and asset-backed securities ("ABS") issued by Fannie Mae, Freddie Mac, Ginnie Mae and other financial institutions, including CHL. We also trade securities issued by the U.S. Department of Treasury and other governmental agencies. As a result of the market disruption in 2007, our non agency trading activities have been significantly constrained.

Capital Markets originates and sells commercial mortgage loans. Commercial mortgages are mortgages secured by commercial properties, such as apartment buildings, retail properties, office buildings, industrial sites and hotels. As a result of the market disruption in 2007, our commercial lending activities have been significantly constrained.

Brokering activities include brokerage, in an agent capacity, of residential mortgage loan transactions, MSRs and exchange traded futures and commodity options contracts. The brokerage of residential mortgage loans, MSRs and futures and options contracts may be between third parties or between CHL or Countrywide Bank and third parties.

Asset management activities are conducted for the benefit of investors. This includes managing a private equity fund and a collateralized debt obligation. We receive fees, including performance fees, for providing these services. We may also share in the results of the funds when we hold an investment interest in the fund.

The securities industry is both highly competitive and fragmented. In the mortgage securities market, we compete with global investment banks as well as regional broker-dealers. We believe by leveraging the resources, contacts and knowledge of the Countrywide organization and by specializing in the mortgage securities market, we can offer information, products and services tailored to the unique needs of institutional customers, giving us an advantage in the market. In contrast, many of our competitors offer a broader range of products and services and have more reliable sources of liquidity, which may place us at a competitive disadvantage.

For 2007, according to Inside MBS & ABS, we ranked fourth among Non-Agency MBS Underwriters.

We manage these activities through two business units—Balboa Insurance Group and Balboa Reinsurance Company.

Our insurance operations include our insurance underwriters/carriers and their affiliated businesses, and our agency operations.

We underwrite property, casualty, life and disability insurance in 50 states and the District of Columbia through the insurers that make up Balboa Insurance Group. Our retail insurance products are offered by select general insurance agents serving the consumer market, including our insurance agency.

Our Insurance Operations' property and casualty division has received an "A (Excellent)" rating from A.M. Best Company, an insurance company rating and information service. Our life insurance operations maintain an "A- (Excellent)" rating from A.M. Best Company. The "Excellent" rating is defined by the A.M. Best Company as having "an excellent ability to meet ongoing obligations to policy holders."

Our insurance agencies provide consumers, in particular our mortgage customers, with homeowners, life, disability, automobile and various other insurance products. Our insurance agencies also operate a full-service commercial insurance program that offers a comprehensive menu of products and services to meet the insurance needs of small, mid-size and large businesses. The commercial insurance group distributes a wide array of competitively priced property and casualty and employee benefits programs in specialty niche markets, including home builders, mortgage brokers and bankers, real estate brokers and commercial property owners, through call centers, Internet, independent agents and captive agents in retail mortgage branch offices.

We provide mortgage reinsurance to the insurance companies that provide primary mortgage insurance ("PMI") on loans in our servicing portfolio. This reinsurance covers losses in excess of a specified percentage of the principal balance of a given pool of mortgage loans, subject to a contractual limit, in exchange for a portion of the pools' mortgage insurance premium. We provide this coverage with respect to substantially all of the loans in our portfolio that are covered by PMI, which generally includes all conventional loans with an original loan amount in excess of 80% of the property's appraised value.

The lender-placed insurance market is dominated by a small number of providers, competing on policy terms and conditions, service, technological innovation, compliance capability, loan tracking ability and price.

The homeowners, automobile, term life, credit-life and credit-disability marketplaces are dominated by large, well-known providers. Consumers select such insurance based on price, service and the efficiency and effectiveness of marketing and underwriting operations.

We compete generally by providing high-quality service and pricing our products at competitive rates, as well as by leveraging our residential mortgage loan customer base.

We have significant financing needs. Our short-term financing needs arise primarily from the following:

Recent disruptions in the public corporate debt and secondary mortgage markets have resulted in changes in our financing needs and how we finance our operations. Before August 2007, a substantial portion of our financing needs was met by the issuance of unsecured and asset-backed commercial paper and by the sale of mortgage loans into the secondary mortgage market, primarily in the form of MBS and ABS. The current lack of liquidity in those markets, particularly for non agency-eligible mortgage loans, has resulted in an increase in our financing needs as we have to hold certain loans for longer periods of time pending sale and hold loans for investment that have become nonsalable due to market disruptions. To meet those increased needs, we took the following actions:

As a result of these changes, our funding model more closely resembles that of a thrift holding company. We now meet our financing needs primarily through the following means:

We use short-term deposits, unsecured revolving lines of credit, secured revolving lines of credit and repurchase agreements to finance a significant portion of our inventory of mortgage loans held for sale and securities trading portfolio. Mortgage loans held for investment are financed with a combination of deposit liabilities and secured FHLB advances.

We rely on the secondary mortgage market as a source of long-term capital to support our mortgage banking operations. In response to the recent decline in secondary mortgage market liquidity for non agency-eligible mortgage loans, we have modified our product offerings such that the majority of loans we originate are eligible for sale to Fannie Mae, Freddie Mac or Ginnie Mae. At this time, virtually all non agency-eligible loans are being held on our balance sheet.

Our strategy to ensure our ongoing access to the secondary mortgage market is to consistently produce quality mortgages and service those mortgages at levels that meet or exceed secondary mortgage market standards. We make significant investments in personnel and technology to ensure the quality of our mortgage loan production.

While the short-term public corporate debt markets are no longer a practical source of financing for us, access to the medium-term debt and equity markets will remain an important source of financing to us when market conditions permit. Our continued access to those markets is dependent on maintaining investment-grade credit ratings. Investment grade ratings are also important for counterparty retention and maintaining escrow deposits. Among other considerations, maintenance of our current investment-grade ratings requires that we have high levels of liquidity, including access to alternative sources of funding such as deposits, FHLB advances and committed lines of credit provided by highly-rated banks. We also must maintain adequate capital that meets or exceeds current rating agency requirements. We currently have investment grade ratings from all three rating agencies.

	Countrywide Financial Corporation	Countrywide Home Loans	Countrywide Bank
Rating Agency	Short-Term	Long-Term	Rating Outlook(1)	Short-Term	Long-Term	Rating Outlook(1)	Short-Term	Long-Term	Rating Outlook(1)
Standard & Poor's	A-2	BBB+	Credit Watch Negative	A-2	BBB+	Credit Watch Negative	A-2	A-	Credit Watch Negative
Moody's Investors Service	P3	Baa3	Negative	P3	Baa3	Negative	P2	Baa1	Negative
Fitch	F2	BBB+	Negative	F2	BBB+	Negative	F2	BBB+	Negative

Our primary source of equity capital is retained earnings. We supplement our equity capital with subordinated debt and junior subordinated debentures that receive varying degrees of "equity treatment" from rating agencies, bank lenders and regulators. From time to time, we may issue common stock or other debt securities that receive high equity treatment as a means of supplementing our capital base and supporting our growth. To this end, during 2007, we issued $2.0 billion of preferred stock which ranks senior to our common stock with respect to payment of dividends and distribution upon liquidation.

For a further discussion of our liquidity and capital management see the section in this Report entitled Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.

We typically bear interest rate risk from the time we commit to make a loan at a specified interest rate through the sale or repayment of the loan. We also bear interest rate risk related to the interests we retain in the loans we sell, which are typically in the form of MSRs and retained interests, and to the extent that our loan and securities investment portfolios' yields change on a different basis or at different times than the rates we pay on our borrowings. For a further discussion of our interest rate risk and how this risk is managed, see the section in this Report entitled Management's Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.

One significant risk for the Company is credit risk, which is the risk that a borrower will not repay the loan's balance as agreed and the risk that the proceeds from liquidation of the collateral securing the loan will not be adequate to repay the loan's balance. Historically, our primary source of credit risk has been the continuing investments and/or obligations we retain either in the form of credit-enhancing subordinated interests, corporate guarantees or representations and warranties issued when we sell or securitize loans and through the structure of certain of our securitizations. In addition, as our portfolio of investment loans has grown, our portfolio credit risk has also grown. We also have credit risk that a counterparty will not perform in accordance with contractual terms and we will not realize uncollateralized gains that have been recorded. For a further discussion of our exposure to credit risk and how we manage this risk, see the section in this Report entitled Management's Discussion and Analysis of Financial Condition and Results of Operations—Credit Risk Management.

Countrywide, like all large corporations, is exposed to many types of operational risk, including the risk of fraud by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunication systems.

For a further discussion of our operational risk and how we manage this risk see the section in this Report entitled Management's Discussion and Analysis of Financial Condition and Results of Operations—Operational Risk.

As a savings and loan holding company, Countrywide is supervised and regulated by the Office of Thrift Supervision ("OTS"), as is its federal savings bank subsidiary, Countrywide Bank. Because it is an FDIC-insured institution, Countrywide Bank also is subject to regulation by the FDIC. Countrywide Bank's relationship with its depositors and borrowers also is regulated to a great extent by both federal and state laws, especially in matters concerning the ownership of deposit accounts and the form and content of Countrywide Bank's loan documents. As a regulated financial services firm, our relationships and good standing with regulators are of fundamental importance to the continuation and growth of our businesses. The OTS, the SEC and other regulators have broad enforcement powers and powers to approve, deny, or refuse to act upon our applications or notices to conduct new activities, acquire or divest businesses or assets or reconfigure existing operations.

There are numerous rules governing the regulation of financial services institutions and their holding companies, including Countrywide and its subsidiaries, some of which are summarized below. Accordingly, the following discussion is general in nature and does not purport to be complete or to describe all of the laws and regulations that apply to us. The laws and regulations should be referenced for more information. Failure to comply with applicable laws and regulations could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements, and cease and desist orders.

Limitation on Activities: As a unitary savings and loan holding company, Countrywide is limited to business activities that are permitted under applicable provisions of the Home Owners' Loan Act and regulations promulgated thereunder.

Regulatory Capital Requirements: As a unitary savings and loan holding company, Countrywide is not subject to any regulatory capital requirements. However, the OTS expects savings and loan holding companies to maintain capital that is sufficient to support the holding company's business activities, and the risks inherent in those activities. Furthermore, Countrywide Bank, as a federal savings association, is subject to OTS capital requirements as described further below under "Federal Savings Bank Regulatory Capital Requirements."

Enforcement: The OTS has the power to take enforcement action against savings and loan holding companies and their affiliates to the extent that any action or business taken or conducted by the holding company or affiliate threatens the safety, soundness or stability of the subsidiary insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order, to removal of officers or directors of the institution, receivership, conservatorship, or the termination of deposit insurance. Civil money penalties may be imposed for a wide range of violations and actions.

General: As a federal savings bank, Countrywide Bank is subject to regulation and examination by the OTS. The Bank's deposits are insured by the Deposit Insurance Fund of the FDIC to the extent provided by applicable federal law. The OTS is empowered to issue cease and desist orders against a federal savings bank if it determines that activities of the institution represent unsafe and unsound banking practices or violations of law or regulation. The OTS has the power to impose upon federal savings banks and certain affiliated parties civil money penalties for violations of banking statutes and regulations. In addition, the FDIC has the authority to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings association. If action is not taken by the OTS, the FDIC has authority to take action under specified circumstances. These authorities are primarily intended to protect the depositors of the federal savings bank and the Deposit Insurance Fund of the FDIC, not shareholders or other creditors of the federal savings bank or its holding companies.

Federal Savings Bank Regulatory Capital Requirements: The OTS regulations require savings associations to meet three minimum capital standards: at least: an 8% risk-based capital ratio; a 4% leverage ratio (3% for institutions receiving the highest supervisory rating); and a 1.5% tangible capital ratio. The risk-based capital ratio is defined as the ratio of total capital to risk-weighted assets. Risk-weighted assets include risk-weighted off-balance sheet activities, risk-weighted recourse obligations, direct credit substitutes and certain other positions, all as computed in accordance with OTS regulations. The OTS' leverage ratio is defined as the ratio of core capital to adjusted total assets. The tangible capital ratio is defined as the ratio of tangible capital (the components of which are very similar to those of core capital) to adjusted total assets.

In addition to the foregoing, the OTS, the FDIC and other federal banking agencies possess broad powers under current federal law to take "prompt corrective action" in connection with depository institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories for insured depository institutions: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." To be considered "well capitalized," an institution must maintain a Total Risk-Based capital ratio of 10% or greater, a Tier 1 Risk-Based capital ratio of 6% or greater, a leverage capital ratio of 5% or greater, and not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An "adequately capitalized" institution must have a Tier 1 Risk-Based capital ratio of at least 4%, a Total Risk-Based capital ratio of at least 8%, and a leverage (or "Tier 1") capital ratio of at least 4%.

If an institution fails to meet the adequate capitalization requirements, progressively more severe restrictions are placed on the institution's operations, management and capital distributions, depending on the capital category in which an institution is placed. At December 31, 2007, Countrywide Bank exceeded the OTS regulatory capital requirements to be classified as "well capitalized," with a Tier 1 capital ratio of 7.2% and a Total Risk-Based capital ratio of 14.4%.

Basel II Capital Standards: We may be required to comply with, or decide to adopt, certain new capital and other regulatory requirements proposed by the Basel Committee on Banking Supervision, as proposed and to be implemented in the United States. The federal banking agencies have approved a final rule, effective April 1, 2008, to implement new risk-based capital requirements in the United States. These new requirements, which are often referred to as the Basel II Accord, will, among other things, modify the capital charge applicable to credit risk and incorporate a capital charge for operational risk. The Basel II Accord also places greater reliance on market discipline than current standards. The Basel II standards will be mandatory with respect to banking organizations with total banking assets of $250 billion or more or total on-balance-sheet foreign exposure of $10 billion or more. The threshold for mandatory adoption is determined by reference to the federal savings bank subsidiary. Based on Countrywide Bank's total banking assets at December 31, 2007, Countrywide would not be required to adopt the Basel II standards. Basel II's framework offers banks a choice of three methodologies for determining risk weights—(1) a "Standardized" approach, (2) an advanced internal ratings-based approach, and (3) an advanced measurements approach. Mandatory organizations will have to use Basel II's most advanced methods only.

Organizations that do not meet the size criteria of a mandatory organization may choose voluntarily to comply with the more advanced requirements specified under the new capital framework and are called "opt in" organizations. Institutions that choose not to opt in will continue to operate under existing risk-based capital rules, subject to any changes made to those standards.

The banking agencies have issued a proposal that would allow the voluntary adoption of the Standardized approach to offer general organizations a set of regulatory capital requirements that have more risk sensitivity than the current Basel I rules, but less complexity than the Basel II advanced standards. The federal banking regulatory agencies are considering revised capital standards that would apply to all financial institutions that are not subject to the Basel II Accord ("Basel 1A"), with the expressed intention to align those standards more closely with those that would be applicable to Basel II institutions. At this time, Countrywide cannot predict the final form the optional Basel II Standardized approach will take, when it will be implemented, the effect that it might have on Countrywide Bank's financial condition or results of its operations, or how these effects might impact Countrywide Financial Corporation. We are monitoring the evolution of the Basel II Standardized approach, whether we will be required or elect to adopt Basel II, its potential impact on the Bank, Countrywide Financial Corporation and the industry at large. If Countrywide Financial Corporation adopts the Basel II Advanced approach, voluntarily or mandatorily, or the Basel II Standardized approach, the Basel II Accord requirements would replace existing risk-based capital requirements, but not the leverage capital requirements imposed under U.S. law and regulation.

Qualified Thrift Lender Test: As a federal savings bank, Countrywide must comply with the Qualified Thrift Lender ("QTL") Test. The QTL Test requires that a savings association, including a federal savings bank, have assets designated as "qualified thrift investments" constituting no less than 65% of its "portfolio assets" in at least nine months of the most recent 12-month period. "Portfolio assets" generally means total assets of a savings association, less the sum of certain specified assets. Qualified thrift investments are defined to include residential mortgage lending assets and certain consumer and small business related assets. If an institution does not meet the QTL Test, it may be precluded from interstate branching and engaging in any new activities, and may be subject to certain other restrictions.

Deposit Insurance and Assessments: The FDIC insures deposit accounts in Countrywide Bank generally up to a maximum of $100,000 per separately-insured depositor, and up to a maximum of $250,000 per separately-insured depositor for certain retirement accounts. The FDIC uses a risk-based assessment system to determine assessment rates to be paid by member institutions such as the Bank. In addition, the FDIC collects funds from insured institutions sufficient to pay interest on debt obligations of the Financing Corporation. The Financing Corporation is a government-sponsored entity that was formed to borrow the money necessary to carry out the closing and ultimate disposition of failed thrift institutions by the Resolution Trust Corporation. The current annual rate established by the FDIC for the Financing Corporation assessment is 1.14 basis points.

Loans to One Borrower: Federal law imposes restrictions on the amount of loans that a federal savings bank can lend to one borrower. The maximum amount that a federal savings bank may loan to one borrower generally is limited to 15% of the bank's capital, plus an additional 10% for loans fully secured by readily marketable collateral, as such term is defined in applicable regulation.

Limitations on Transactions with Affiliates: Countrywide Bank is subject to restrictions on transactions with affiliates that are the same as those applicable to commercial banks under Sections 23A and 23B of the Federal Reserve Act, as well as certain additional restrictions imposed on federal savings associations by the Home Owners' Loan Act. The term "affiliate" under these laws means any company that controls or is under common control with a savings association and includes Countrywide and its non-bank subsidiaries. Transactions between Countrywide Bank and certain affiliates are restricted to an aggregate percentage of Countrywide Bank's capital, and where required must be collateralized with certain specified assets. Permissible transactions with affiliates must be on terms that are at least as favorable to the savings association as comparable transactions with non-affiliates.

Countrywide Bank also is restricted in its ability to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, to the same extent as such restrictions apply to commercial banks.

Payment of Dividends: As a federal savings bank, the Bank is subject to the provisions of the OTS regulations and the Federal Deposit Insurance Act ("FDIA") relating to dividends and it is not permitted to pay dividends if it is undercapitalized or if payment would cause it to become undercapitalized. The OTS has prescribed that the Company and its affiliates are not authorized to receive, and Countrywide Bank is not authorized to pay the Company or its affiliates, capital distributions without receipt of prior written OTS non-objection.

Bank Secrecy Act: Countrywide Bank is subject to extensive anti-money laundering provisions and requirements, which require the institution to have in place a comprehensive customer identification program and an anti-money laundering program and procedures. These laws and regulations also prohibit financial institutions from engaging in business with foreign shell banks; require financial institutions to have due diligence procedures and, in some cases, enhanced due diligence procedures for foreign correspondent and private banking accounts; and improve information sharing between financial institutions and the U.S. government. Countrywide Bank has established polices and procedures intended to comply with these provisions.

Community Reinvestment Act ("CRA"): The Bank is subject to the CRA and implementing regulations. CRA regulations establish the framework and criteria by which the bank regulatory agencies assess an institution's record of helping to meet the credit needs of its community, including low- and moderate- income neighborhoods. The OTS is required to assess a saving association's record of compliance with the CRA, and to assign one of four possible ratings to an institution's CRA performance, including "outstanding," "satisfactory," "needs to improve," and "substantial noncompliance." CRA ratings are taken into account by regulators in reviewing certain applications made by the Company and its banking subsidiaries. A savings association's failure to comply with the

provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. As of December 31, 2007, Countrywide Bank's CRA rating was "satisfactory."

Fair Lending Laws: The Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A savings association's failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OTS, as well as other federal regulatory agencies and the Department of Justice.

Federal Home Loan Bank System: Countrywide Bank is a member of the Federal Home Loan Bank of Atlanta, which is one of the 12 regional banks in the FHLB System. The primary purpose of the FHLBs is to provide funding to their members for making housing loans as well as for making affordable housing and community development lending. As a member of the Federal Home Loan Bank of Atlanta, Countrywide Bank is required to acquire and hold FHLB shares in an amount at least equal to 0.2% of Countrywide Bank's assets, up to a maximum of $25.0 million, plus 4.5% of total FHLB advances.

Regulation of Other Activities: The investments and activities of the Bank as a federally chartered savings bank are also subject to regulation by federal banking agencies with respect to:

Interagency Statement on Subprime Mortgage Lending: On July 10, 2007, the federal bank regulatory agencies issued a final interagency statement to address issues and questions related to certain subprime mortgage products and lending practices. The guidance addresses concerns with so called "2/28," "3/27," and similar ARMs that can expose borrowers to significant payment shock once introductory rates expire. The statement set forth expectations for sound lending practices and clear communications with borrowers, addressing, among other things, the following lending practices of concern: (1) initial payments based on an introductory interest rate that is substantially lower than the fully-indexed rate, (2) very high or no limits on payment or interest-rate increases, (3) limited documentation of a borrower's income, and (4) substantial prepayment penalties and/or prepayment penalties that extend beyond the initial interest rate adjustment period. The statement also addresses concerns that borrowers may not be adequately informed of the product features, material loan terms,

and product risks by stating that communications with consumers should provide clear and balanced information about the relative benefits and risks of such products. The statement supplements the Interagency Guidance on Nontraditional Mortgage Product Risks issued by the federal bank regulatory agencies on residential mortgage products that allow borrowers to defer repayment of principal and/or interest, including "interest-only" mortgage loans and "payment option" adjustable-rate mortgages, that have the potential for negative amortization. The guidance requires that an institution's management assess a borrower's ability to repay the loan, including any additional principal balances resulting from negative amortization which occurs when deferred interest payments are added to the principal balance. In particular, the guidance requires that for all nontraditional mortgage loan products, an institution's analysis of a borrower's repayment capacity should include an evaluation of the ability to repay the debt at final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule. In addition, for products that permit negative amortization, the repayment analysis should be based upon the initial loan amount plus any balance increase that may accrue from the negative amortization features. The guidance contains further steps which must be taken with respect to loans that have additional risk-layering features, such as reduced documentation programs and simultaneous second liens. The guidance also articulates portfolio management measures that should be taken by institutions that originate or invest in nontraditional mortgage products. Finally, the guidance also requires that financial institutions provide customers sufficient information to clearly understand the loan terms and associated risks prior to a customer's choosing a nontraditional mortgage product.

Various legislation, including proposals to change substantially the financial institution regulatory system, is from time to time proposed for adoption. Currently, there are a number of proposed and recently enacted federal, state and local laws and regulations and guidance addressing mortgage lending and servicing practices. Congress is considering several bills to combat abuses in the mortgage lending market and to provide substantial new protections to mortgage consumers. While it is not possible to predict which of these bills may pass, key provisions of the bills under consideration would:

Also, Congress is considering changes to federal bankruptcy laws that would, if passed, allow judges presiding in Chapter 13 bankruptcy cases to modify the terms of mortgages secured by a borrower's principal residence, including but not limited to, the interest rate, loan maturity and principal balance.

In addition to these consumer protection efforts, Congress is also considering expanding federal housing finance programs to address liquidity concerns and improve consumer access to mortgage

credit. Legislation to reform the FHA's home loan programs has passed both the U.S. House of Representatives and U.S. Senate. The bills would lower down payment requirements and increase FHA loan limits in high cost markets. Congress may also attempt to pass legislation to reform oversight of the government sponsored enterprises that would include provisions to increase the loan limits for Fannie Mae and Freddie Mac in high cost areas. These efforts may proceed notwithstanding recent enactment of "economic stimulus" legislation that included temporary loan limit increases.

At the state level, legislation building on the passage of mortgage lending restrictions in 2007 in states such as Minnesota, Maine, and North Carolina may appear in a number of jurisdictions. State bills attempting to establish new consumer protections governing loan servicing practices and foreclosure procedures also are expected in 2008.

The Federal Reserve Board also has proposed changes to Regulation Z (Truth in Lending) to protect consumers from unfair, deceptive or abusive home mortgage lending and advertising practices. The proposal includes four key protections for "higher-priced mortgage loans" secured by a consumer's principal dwelling: (1) creditors would be prohibited from engaging in a pattern or practice of extending credit without considering a borrower's ability to repay the loan; (2) creditors would be required to verify the income and assets they rely upon in making a loan; (3) prepayment penalties would only be permitted if certain conditions are met, including the condition that no penalty will apply for at least sixty days before any possible payment increase; and (4) creditors would have to establish escrow accounts for taxes and insurance. In addition, the following protections would apply to all loans secured by a consumer's principal dwelling, regardless of the loan's APR: (a) lenders would be prohibited from making payments, directly or indirectly, to mortgage brokers, including through "yield-spread premiums" unless the broker previously entered into a written agreement with the consumer disclosing the broker's total compensation and other facts; (b) creditors and mortgage brokers would be prohibited from coercing a real estate appraiser to misstate a home's value; and (c) companies that service mortgage loans would be prohibited from engaging in certain practices. While the final form of the rules cannot be predicted, it is expected the Federal Reserve Board will issue final regulations by mid-2008.

Finally, the U.S. Treasury Department convened meetings of the major mortgage servicers and mortgage securities investors in late 2007. The group developed and has begun implementing a framework for modifying certain first-lien subprime residential ARMs to provide a five-year extension of their starter interest rates. The plan applies to subprime residential adjustable rate mortgages originated between January 1, 2005 and July 31, 2007, which: (1) have an initial fixed rate period of 36 months or less; (2) face an initial interest rate reset between January 1, 2008 and July 31, 2010; and (3) are currently included in securitized pools. Borrowers are eligible for the five-year extension if they are current in their mortgages, and are determined to not be able to afford the reset mortgage and meet certain other established criteria that will allow a streamlined assessment of the likelihood of default. However, in the face of concerns about increasing delinquency and foreclosure rates and the pace of industry loss mitigation efforts, this voluntary plan may be revised and/or federal and state mandates may emerge that impose additional or different loss mitigation and servicing requirements.

In general, there are a number of federal and state proposals that could impose new loan disclosure requirements; restrict or prohibit certain loan terms, fees and charges such as prepayment penalties; may require borrower counseling; and increase penalties for non-compliance. We cannot reasonably predict the final content of the legislative proposals, if any, that will be enacted or the regulatory proposals, if any, that will be adopted. Therefore, we cannot predict the potentially adverse impact that they, or any implementing regulations, could have on the Company's business, results of operations or financial condition. We also cannot reasonably predict the impact that the U.S. Treasury Department plan, subsequent revisions, or other loss mitigation and servicing proposals could have on the Company.

Our non-bank subsidiaries are subject to supervision by the OTS and may be subject to the supervision of, and regulation and licensure by, other state and federal regulatory agencies. In addition, certain federal, agency and state laws apply to specific business segment activities, whether performed by Countrywide Bank or the non-bank subsidiaries.

In addition, we are subject to a number of federal, state and local laws aimed at protecting a consumer's privacy. Generally, privacy laws cover a wide range of issues including limiting a company's ability to share information with third parties or affiliates, providing stronger identity theft protection, victim's assistance programs and security breach notification, providing the ability to avoid telemarketing solicitations through "do-not-call" lists, and limiting e-mail and fax advertising. These laws also impose penalties for non-compliance.

Our mortgage banking business is subject to the rules, regulations or guidelines of, and/or examination or investigation by, the following entities with respect to the processing, originating, selling and servicing of mortgage loans:

The rules, regulations and requirements of these entities, among other things, impose licensing obligations on the Company or its subsidiaries; establish standards for advertising as well as processing, underwriting and servicing mortgage loans and appraisal practices; prohibit discrimination; restrict certain loan features in some cases and fix maximum interest rates and fees in some states.

As an FHA lender, we are required to submit to the FHA Commissioner, on an annual basis, audited financial statements. Ginnie Mae, HUD, Fannie Mae and Freddie Mac require the maintenance of specified net worth levels (which vary among the entities). Our affairs are also subject to examination by the Federal Housing Commissioner to assure compliance with FHA regulations, policies and procedures.

Mortgage origination activities are subject to the Fair Housing Act, Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and the Home Ownership Equity Protection Act and the regulations promulgated under those statutes, as well as other federal laws and other regulations. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs, prohibit referral fees and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution, income level and annual percentage rate over certain thresholds.

Securities broker-dealer operations in the United States are subject to federal and state securities laws, as well as the rules of the SEC and the Financial Industry Regulatory Authority. Our securities broker-dealer operations in Hong Kong are subject to the rules of the Securities and Futures Commission of Hong Kong. Our introducing futures broker is regulated by the National Futures Association, the Commodities and Futures Trading Commission and the Chicago Mercantile Exchange. State, federal and foreign securities laws govern many aspects of a broker-dealer's business, including the maintenance of required levels of capital, the establishment of segregated cash or securities accounts for the benefit of customers, the monthly and annual reporting of operating and financial data to regulators, the approval and documentation of trading activity, the retention of records and the governance of the manner in which business may be conducted with customers. Our discontinued broker-dealer operations in Japan were subject to the regulations of the Financial Services Agency of Japan and the Japan Securities Dealers Association. The operations of our discontinued securities broker-dealer in the United Kingdom were subject to the regulation of the Financial Services Authority of the United Kingdom. Commercial loan originations are subject to the licensing and regulations of various individual states.

Countrywide, by virtue of its ownership of insurance companies, is a member of an insurance holding company group pursuant to the provisions of the Insurance Holding Company Acts (collectively the "Holding Company Acts"). The insurance company entities are subject to the various state insurance departments' broad regulatory, supervisory and administrative powers. These powers relate primarily to: the standards of capital and solvency which must be met and maintained; the licensing of insurers and their agents; the nature and limitation of insurers' investments; the approval of rates, rules and forms; the issuance of securities by insurers; periodic examinations of the affairs of insurers; and the establishment of reserves required to be maintained for unearned premiums, losses and other purposes.

Pursuant to the Holding Company Acts, the Company must provide state insurance departments with certain financial information. In addition, certain transactions specified by the Holding Company Acts may not be effected without the prior notice and/or approval of the applicable insurance department. Examples of transactions that may require prior approval include, but are not limited to, sales, purchases, exchanges, loans and extensions of credit, and dividends and investments between the insurance company entity and other entities within the holding company group.

Countrywide files a consolidated federal income tax return and a combined income tax return in California and certain other states. Additional income tax returns are filed on a separate entity basis in various other states and localities.

Deferred taxes are provided for the future tax effects of temporary differences between the book and tax basis of assets and liabilities. The Company's primary temporary difference relates to its investment in MSRs created upon the sale of mortgage loans. According to the Internal Revenue Code and related administrative guidance, substantially all of the Company's gain on sale of loans is recognized in future periods as servicing fee income is earned.

Countrywide is generally subject to California's higher income tax rate for financial corporations in lieu of having to pay certain state and local personal property and other taxes that are paid by non-financial corporations. The statutory financial corporation tax rate was 10.84% for 2007 and 2006. The Company apportions taxable income to the various states in which it does business based on its level of business activity in those states, which is determined primarily by reference to payroll costs,

revenues and property (including loans outstanding). Among the many factors that the Company considers in determining where to conduct its business activities are prevailing state income tax rates.

As a matter of course, the Company is regularly audited by federal, state and other tax authorities. The Internal Revenue Service has examined Countrywide's tax returns for tax years through 2004, and is currently examining 2005 and 2006. The Company is currently under examination for tax years 2003 and 2004 by the California Franchise Tax Board, which has previously audited tax years through 2001. Management believes it has adequately provided for potential tax liabilities that may be assessed for years in which the statute of limitations remains open.

At December 31, 2007, the Company had a workforce of 50,600, including regular employees and temporary staff, engaged in the following activities:

Countrywide Financial Corporation was incorporated in New York on March 14, 1969, and on February 6, 1987, was reincorporated in Delaware. The Company was originally named OLM Credit Industries, Inc., and has also been known as Countrywide Credit Industries, Inc.

The following table presents our consolidated loan production by loan type for the periods indicated:

The following table presents our Mortgage Banking Segment loan production by loan type:

The following table presents mortgage loan production of the Correspondent Lending Channel in our Mortgage Banking Segment by loan type:

The following table presents the mortgage loan production of the Consumer Markets Division in our Mortgage Banking Segment by loan type:

The following table presents the mortgage loan production of the Full Spectrum Lending Division in our Mortgage Banking Segment by loan type:

The following table presents the mortgage loan production of the Wholesale Lending Channel in our Mortgage Banking Segment by loan type:

The following table presents our mortgage loan production in our Capital Markets Segment by loan type. Non-commercial real estate loans consist of mortgage loans managed on behalf of CHL:

The following table presents our mortgage loan production for Banking Operations by loan type:

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:

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 management's expectations. Some of these factors are discussed below.

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.

Our business and earnings are sensitive to general business and economic conditions in the United States. These conditions include short-term and long-term interest rates, inflation, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy, as well as the local economies in which we conduct business.

Our business and earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies. We are particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board's policies influence the size of the mortgage origination market, which significantly impacts the earnings of our Loan Production Sector and the value of our investment in MSRs and retained interests. The Federal Reserve Board's policies also influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. Changes in those policies are beyond our control and difficult to predict and can have a material effect on the Company's business liquidity, results of operations and financial condition.

Political conditions can also impact our earnings. Acts or threats of war or terrorism, as well as actions taken by the U.S. or other governments in response to such acts or threats, could impact business and economic conditions in the United States.

As a result of disruptions in the debt and secondary mortgage market conditions, we have retained, and expect to continue to retain, more loans in our portfolio held for investment or to hold additional loan or security inventory until market conditions improve. In 2007, we increased our

portfolio of loans held for investment by 28.1% to $100.4 billion, compared to $78.3 billion in 2006. These factors may expose us to higher credit losses compared to the past due to a higher proportion of loans held for investment, and may expose us to the potential of increased loan delinquencies and defaults and further write-downs of loans in our held for investment portfolio.

Significant disruptions in the U.S. mortgage market and global capital market conditions caused us to reduce our loan products offered, tighten underwriting standards and adjust loan pricing. These actions, along with those of other mortgage lenders, had the effect of reducing the availability of mortgage credit to borrowers. This lack of mortgage credit contributed to a weakening of the housing market and may have contributed to the significant increase in the number of homeowners who became delinquent on their home loans. Continued disruptions in the U.S. mortgage market and global capital market conditions and additional weakening in the housing market could further depress mortgage loan performance and continue to increase our credit costs.

Another factor that may contribute to higher delinquency and default rates is the increase in monthly payments on adjustable rate mortgage loans. Any increase in prevailing market interest rates may result in increased payments for borrowers who have adjustable rate mortgage loans. Moreover, with respect to hybrid mortgage loans after their initial fixed rate period, and with respect to mortgage loans with a negative amortization feature which reach their negative amortization cap, additional borrowers will experience a substantial increase in their monthly payment even without an increase in prevailing market interest rates. The increase in the monthly payment amount increases the risk that borrowers will become delinquent and ultimately default on their loans.

Our profitability in our Mortgage Banking, Banking and Capital Markets Segments is impacted by the ability of our customers to repay their loans. Our Banking Segment is impacted if the borrowers in their portfolio of loans held for investment are unable to repay their loans. The Mortgage Banking and Capital Markets Segments are impacted by the credit risk that we retain when we sell the loans that we produce. When we sell loans, we retain credit risk in the form of subordinated mortgage-backed securities, including residual and mezzanine securities, and through the representations and warranties made to the issuing trusts for mortgage-backed securities issued by us or purchasers of loans we have sold, through the issuance of corporate guarantees and through the cash flow prioritization structure of certain securitizations. A significant portion of our portfolio of mortgage-backed securities consists of subordinated securities that absorb all or a disproportionately high percentage of the losses realized on the loans in the related mortgage pool. The buyers of our loans are expected to make more claims against our corporate guarantees and mortgage loan representations and warranties if more of our borrowers default on their loans. Higher borrower defaults can also lead to reprioritization of cash flow in certain of our securitizations that subordinate our rights to cash from the securitizations. While we estimate and provide for credit losses accruing to our portfolio of loans held for investment and mortgage-backed securities and record liabilities for our obligations, worsening economic and real estate market conditions could further negatively impact our allowance for loan losses, the fair value of the mortgage-backed securities we retain and increase our liabilities.

Part of our strategy to mitigate credit exposure is to obtain mortgage insurance coverage. Although we purchase credit enhancement from those mortgage insurance providers that have an AA- rating or equivalent from the credit rating agencies, our credit losses would increase if the mortgage insurance companies were unable to fulfill their contractual obligations.

We have significant financing needs that we historically have met through the capital markets, including the debt and secondary mortgage markets. These markets are currently experiencing unprecedented disruptions, which have had and may continue to have an adverse impact on the Company's earnings and financial condition. Current conditions in the debt markets, which have increased the cost and significantly reduced the availability of debt, may continue or worsen in the future.

Since we are highly dependent on the availability of credit to finance our operations, a reduction in available credit or other financing sources, such as through the FHLB or from deposits to Countrywide Bank, could have an adverse impact on our earnings and financial condition, particularly in the short term. If we were restricted from obtaining additional advances from the FHLB or unable to pledge certain assets that we have historically pledged, it could adversely affect our liquidity and operations.

The secondary mortgage markets are also currently experiencing unprecedented disruptions resulting from reduced investor demand for mortgage loans and mortgage-backed securities and increased investor yield requirements for those loans and securities. These conditions may continue or worsen in the future. A prolonged period of secondary market illiquidity may continue to impact our loan production volumes and could have an adverse impact on our future earnings and financial condition through reduced loan margins.

We have substantial relationships with Fannie Mae and Freddie Mac, including loan sale and servicing arrangements that are material to our business. A significant portion of the conventional loans that we originate or purchase qualify for inclusion in guaranteed mortgage securities backed by Fannie Mae or Freddie Mac. We also derive other material financial benefits from these relationships, including the government-sponsored enterprises ("GSEs") assumption of credit risk on loans included in such securities in exchange for payment of guarantee fees; benefits to revenues and liquidity from escrow and account funds deposited with Countrywide Bank and other financial institutions, and the avoidance of certain loan inventory finance costs through streamlined loan funding and sale procedures. A substantial reduction in the volume of loans that Fannie Mae and Freddie Mac agree to purchase or the loss of our servicing rights or the other material financial benefits we receive from these entities could have a material adverse effect on our results of operation and financial condition.

As government-sponsored enterprises, Fannie Mae and Freddie Mac are subject to extensive regulation and oversight by governmental agencies. Changes in the manner in which the GSEs conduct business in the marketplace or with Countrywide in particular could have a material adverse effect on our business, operations or prospects. Changes in regulations or the occurrence of other events that adversely impact the business, operations or prospects of Fannie Mae or Freddie Mac could have a material adverse effect on our business, operations or prospects.

Three credit rating agencies follow Countrywide. Moody's Investor Services has assigned us an investment grade rating of Baa3, which is the lowest investment grade rating, while Fitch Ratings and Standard & Poor's have each assigned us an investment grade rating of BBB+. As of December 31, 2007, all three credit rating agencies had placed us on some form of negative outlook. These ratings reflect the credit agencies' concern that continued stresses in the mortgage markets will continue to present financial challenges for us in the near term. If we were to be downgraded by any of these

ratings agencies and lose our investment grade rating, such downgrade could potentially result in the acceleration of certain secured debt obligations and adversely affect our ability to conduct trading applicable to the management and hedging of our MSR assets, retained interests, inventory of loans, commitments to originate and purchase loans and our broker-dealer operations. Additionally, such downgrade would increase our financing costs and have a potential negative impact on our ability to attract and retain bank deposits.

If the Bank were to lose its investment grade rating, it could adversely affect its ability to hold custodial accounts on deposits and retain commercial deposits. As of December 31, 2007, up to $4.2 billion of our custodial deposits may be subject to placement with another bank if the Bank's credit rating was reduced below investment grade.

The level and volatility of interest rates significantly affect the mortgage industry. For example, a decline in mortgage rates has historically increased the demand for home loans as borrowers refinance, but also has historically led to accelerated payoffs in our mortgage servicing portfolio, which has negatively impacted the value of our MSRs.

We attempt to manage interest rate risk in our mortgage banking business primarily through the natural counterbalance of our loan production and servicing operations. In addition, we also use derivatives extensively to manage the interest rate, or price, risk inherent in our assets, liabilities and loan commitments. Our main objective in managing interest rate risk is to moderate the impact of changes in interest rates on our earnings over time; however, our interest rate risk management strategies may result in significant earnings volatility in the short term. The success of our interest rate risk management strategies is largely dependent on our ability to predict the earnings sensitivity of our loan servicing and loan production operations in various interest rate environments. There are many market factors that impact the performance of our interest rate risk management activities including interest rate volatility, the shape of the yield curve and the spread between mortgage interest rates and Treasury or swap rates. The success of this strategy impacts our net income. This impact, which can be either positive or negative, can be material.

We operate in highly competitive industries that could become even more competitive as a result of economic, legislative, regulatory and technological changes. Competition to produce mortgage loans comes primarily from large commercial banks, savings institutions and investment banks.

We face competition in such areas as mortgage product offerings, rates and fees, and customer service, both at the retail and institutional level. In addition, technological advances and heightened e-commerce activities have increased consumers' accessibility to products and services generally. This has intensified competition among banking as well as nonbanking companies in offering financial products and services.

Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can also result from media coverage, whether accurate or not. Negative public opinion can adversely affect our ability to attract and retain customers, trading counterparties and employees and can expose us to litigation and regulatory action. Because virtually all of our businesses operate under the "Countrywide" brand, actual or alleged conduct by one business can result in negative public

opinion about other Countrywide businesses. Although we take steps to minimize reputation risk in dealing with our customers and communities, as a large diversified financial services company with a relatively high industry profile, this risk will always be present in our organization.

Our failure to comply with any federal, state and local laws or regulations, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could adversely affect our earnings. Any failure to comply with such applicable laws and regulations also could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements, and cease and desist orders.

Countrywide and its subsidiaries are subject to examination by regulators such as the OTS, which results in examination reports and supervisory ratings (which are not publicly available) that can impact the conduct and growth of our businesses. Our supervisory ratings are based on compliance with applicable laws and regulations, capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. A supervisory rating downgrade by any of our federal bank regulators potentially can result in the imposition of significant limitations on our activities and growth. These regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. This supervisory framework could materially impact the conduct, growth, and profitability of our operations.

We are regulated by banking, mortgage lending and insurance laws at the federal, state and local levels, and proposals for further regulation of the financial services industry are continually being introduced. We also are subject to many other federal, state and local laws and regulations that affect our business, including those regarding taxation and privacy. Congress and state legislatures, as well as federal and state regulatory agencies and local governments, review such laws, regulations and policies and periodically propose changes or issue guidance that could affect us in substantial and unpredictable ways. Such changes could, for example, limit the types and value of financial services and products we offer, alter our liability or increase our cost to offer such services and products. It is possible that one or more legislative proposals may be adopted or regulatory changes may be implemented that would have an adverse effect on our business.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to borrowers under certain loan programs, we assume that the information provided by a customer is accurate and complete and we do not independently verify that information. Our financial condition and results of operations could be negatively impacted to the extent we rely on customer information that is not complete or accurate.

Countrywide, like all large corporations, is exposed to many types of operational risk, including the risk of fraud by employees or outsiders, misinterpretation or misapplication of rules, regulations or other requirements, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunication systems. Given the high volume of transactions at Countrywide, certain errors may be repeated or compounded before they are discovered and successfully corrected. Our dependence upon automated systems to record and process transaction volume may further increase the risk that technical system flaws, or employee tampering or mistakes or manipulation of those systems will result in losses that are difficult to detect. We may be subject to disruptions of our systems arising from events that are wholly or partially beyond our control (including, for example, computer viruses or electrical or telecommunications outages), which may give rise to losses in service to customers and to loss or liability. We are exposed to the risk that our external vendors may be unable to fulfill their contractual obligation to us (or will be subject to the same risk of fraud or operational errors by their respective employees as we are), and to the risk that our (or our vendors') business continuity and data security systems prove not to be adequate to allow us to resume operations in the event of a disruption to our (or our vendors') operations. We also face the risk that the design of our controls and procedures prove inadequate or are circumvented, thereby causing delays in detection or errors in information. Although we maintain a system of controls designed to manage operational risk at appropriate levels, there can be no assurance that we will not suffer losses from operational risks in the future that may be material in amount.

We have identified several accounting policies as being "critical" to the presentation of our financial condition and results of operations because they involve major aspects of our business, they require management to make judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions. These critical accounting policies relate to the computation of our allowance for loan losses; valuation of MSRs and retained interests; accounting for gain on sale of loans and securities, including the valuation of loans and securities pending sale; valuation of liabilities incurred in sale or securitization of loans; determination of impairment related to future funding obligation under rapid amortization; and accounting for derivatives and our related interest rate risk management activities. Because of the inherent uncertainty of the estimates associated with these critical accounting policies, we cannot provide any assurance that we will not make significant subsequent adjustments to the related amounts recorded. For more information, please refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies section in this Report.

Our financial reporting complies with U.S. GAAP, and U.S. GAAP is subject to change over time. If new rules or interpretations of existing rules require us to change our financial reporting, our reported results of operations and financial condition could be affected substantially, including requirements to restate historical financial reporting.

Our success depends, in large part, on our ability to attract and retain a highly skilled workforce. Competition for the best people in most activities we engage in can be intense. If we are unable to attract and retain such people, our business and financial results could be adversely impacted.

The above description of risk factors is not exhaustive. Other factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:

Other risk factors are described elsewhere herein as well as in other reports and documents that we file with or furnish to the SEC. Other factors that could also cause results to differ from our 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.

We have 39 office locations that support our administrative activities. These locations are office buildings or space in office buildings and most are located in Southern California, Dallas-Fort Worth, Texas, Tampa, Florida and Chandler, Arizona. Of these locations, we own 22 properties and lease 17 properties, which are generally on one- to ten-year terms. These locations are primarily used in our Mortgage Banking and Banking Segments, with approximately 11 being used by our Capital Markets and Insurance Segments. We have two locations in the U.K., one in Costa Rica and four in India that are primarily used by our Global Operations Segment. We also have retail branch offices throughout the United States, which are generally leased on two- to five-year terms and which are used primarily by our Mortgage Banking Segment.

We are defendants in various legal proceedings involving matters generally incidental to our businesses.

In addition, various lawsuits alleging claims for derivative relief on behalf of the Company and securities, retirement plan, and other class action suits have recently been brought against us and certain of our current and former officers, directors and retirement plan administrators in either federal district court in Los Angeles, California, or state superior court in Los Angeles, or state court in Delaware. Among other things, these lawsuits allege breach of state law fiduciary duties and violation of the federal securities laws and the Employee Retirement Income Security Act of 1974 ("ERISA"). These cases allege, among other things, that we did not disclose complete and accurate information about our mortgage lending practices and financial condition. The shareholder derivative cases brought in federal court are brought on our behalf and do not seek recovery of damages from us. Two

consolidated cases alleging claims for derivative relief on behalf of the Company are also pending in federal district court in Delaware, and allege, among other things, that certain of our proxy filings contain incorrect statements relating to the compensation of our Chief Executive Officer.

Various class action lawsuits relating to our proposed merger with Bank of America have been filed in the state courts of California and Delaware on behalf of a proposed class of Countrywide shareholders against the Company, our directors and Bank of America. The class action lawsuits filed in state court in California have been removed to federal court in Los Angeles. These lawsuits allege that the Company's directors breached their fiduciary duties to the Company's shareholders by entering into the merger agreement with Bank of America and that Bank of America allegedly aided and abetted those alleged breaches. Similarly, the plaintiffs in the shareholder derivative lawsuits brought in California state and federal court recently have amended their complaints to add similar class action allegations relating to the proposed merger with Bank of America.

Although we believe we have meritorious defenses to each of these actions and intend to defend them vigorously, it is difficult to predict the resulting outcome of these proceedings, particularly where investigations and proceedings are in early stages. Given the inherent difficulty in predicting the outcome of our legal proceedings, we cannot estimate losses or ranges of losses for legal proceedings where there is only a reasonable possibility that a loss may be incurred, such as those discussed in the two immediately preceding paragraphs. We provide 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 legal proceedings discussed above cannot be ascertained at this time, we believe that any resulting liability will not materially affect our consolidated financial position; such resolution, however, could be material to our operating results for a particular future period depending upon the outcome of the proceedings and the operating results for a particular period. Our assessment is based, in part, on the existence of insurance coverage.

Item 5. Market for the Company's Common Stock, Related Stockholder Matters and Issuer Purchase of Equity Securities

The Company's common stock is listed on the New York Stock Exchange (Symbol: CFC). Until January 27, 2007, the Company's common stock was also listed on NYSE Arca, Inc., formerly the Pacific Stock Exchange. The Company decided to voluntarily delist its common stock from NYSE Arca, Inc. to eliminate duplicative requirements inherent in dual listings as a result of the NYSE Group's recent merger with the parent company of NYSE Arca, Inc. The following table sets forth the high and low sales prices (as reported by the New York Stock Exchange) for the Company's common stock and the amount of cash dividends declared during the last two periods:

	Stock Price
Period Ended	Stock Price				Cash Dividends Declared
Period Ended	High		Low		Cash Dividends Declared
March 31, 2006	$	37.23	$	31.86	$	0.15
June 30, 2006	$	43.67	$	35.93	$	0.15
September 30, 2006	$	39.99	$	32.20	$	0.15
December 31, 2006	$	43.09	$	34.50	$	0.15

	Stock Price
Period Ended	Stock Price				Cash Dividends Declared
Period Ended	High		Low		Cash Dividends Declared
March 31, 2007	$	45.19	$	33.13	$	0.15
June 30, 2007	$	42.24	$	32.32	$	0.15
September 30, 2007	$	37.52	$	15.00	$	0.15
December 31, 2007	$	20.53	$	8.21	$	0.15

The Company has declared and paid cash dividends on its common stock quarterly since 1982. The Board of Directors of the Company declares dividends based on its review of the most recent quarter's profitability along with the Company's earnings prospects and capital requirements. During each of the years ended December 31, 2007 and 2006, the Company declared quarterly cash dividends on its common stock totaling $0.60 per share.

The ability of the Company to pay dividends in the future is limited by the earnings, cash position, retained earnings and capital needs of the Company, projected growth rates, liquidity, general business conditions and other factors deemed relevant by the Company's Board of Directors. The Company is prohibited under certain of its debt agreements, including its guarantee of CHL's revolving credit facilities, from paying dividends on any capital stock (other than dividends payable in capital stock or stock rights) if in default. The Company also may not declare or pay dividends or other distributions (other than in common stock or other junior stock) with respect to any common stock, or repurchase or redeem any common stock, unless all accumulated and unpaid dividends have been paid on its 7.25% non-voting convertible preferred stock.

The primary source of funds for payments to stockholders by the Company is dividends received from its subsidiaries. Accordingly, such payments by the Company in the future also depend on various restrictive covenants in the debt obligations of its subsidiaries, the earnings, the cash position and the capital needs of its subsidiaries, as well as laws and regulations applicable to its subsidiaries. Unless the Company maintains a specified minimum level of net worth and certain other financial ratios, it cannot pay dividends and remain in compliance with certain of CHL's debt obligations (including its revolving

credit facilities). See Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources. The ability of Countrywide Bank to pay dividends is limited by banking regulations. As of February 26, 2008 there were 1,852 shareholders of record of the Company's common stock, with 580,784,609 common shares outstanding.

The following table shows repurchases by the Company of its common stock for each calendar month during the quarter ended December 31, 2007.

Calendar Month		Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program(2)	Maximum Amount That May Yet Be Purchased Under the Plan or Program(2)
October		1,232	$	16.97	n/a	n/a
November		4,511	$	14.12	n/a	n/a
December		1,428	$	9.14	n/a	n/a

	Total	7,171	$	13.67	n/a	$0.1 billion

Item 7. 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 Risk Factors of this Report.

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

Following is a summary of our results of operations for the years ended December 31, 2007 and 2006:

		Years Ended December 31,
		Years Ended December 31,					% Change
		2007			2006		% Change
		(dollar amounts in thousands, except per share data)
Consolidated Company
	Revenues	$	6,061,437		$	11,417,128	(47	%)
	Net (loss) earnings	$	(703,538	)	$	2,674,846	N/M
	Diluted (loss) earnings per share	$	(2.03	)	$	4.30	N/M
	Total assets at period end	$	211,730,061		$	199,946,230	6	%
Key Segment Pre-tax (Loss) Earnings
	Mortgage Banking	$	(1,517,083	)	$	2,062,399	N/M
	Banking	$	(268,752	)	$	1,380,384	N/M
	Capital Markets	$	14,957		$	553,500	(97	%)
	Insurance	$	600,542		$	320,133	88	%

The results for 2007 were largely affected by significant disruptions in the U.S. mortgage market and the global capital debt markets, both of which we have historically relied upon to finance our mortgage production. The combination of a weakening housing market and concern over certain industry-wide product offerings negatively impacted the expectations of future performance and the value investors assign to mortgage loans and securities. Because of this, investor demand for non-agency mortgage backed securities abruptly declined in the third quarter of 2007 and participants in the commercial paper and repurchase segments of the debt markets substantially curtailed their financing of our mortgage loan inventories.

Mortgage lenders, including Countrywide, responded by adjusting their loan program and underwriting standards, which had the effect of reducing the availability of mortgage credit to borrowers. These developments further weakened the housing market and affected mortgage loan performance, resulting in increased losses in our portfolio of loans held for investment and retained interests created in our loan sales activities. Because of these developments, we recognized significant inventory valuation adjustments, credit related costs and retained interest impairment in 2007.

We discuss our results of operations in detail in the following section, Results of Operations Comparison—Year Ended December 31, 2007 ("2007") and Year Ended December 31, 2006 ("2006").

Historically, our primary source of credit risk has been the continuing investment and/or obligations we retain, including credit-enhancing subordinated interests, corporate guarantees, and representations and warranties issued when we sell or securitize loans. Estimated credit losses are considered in the valuation of our subordinated interests; however, the entire carrying value of such interests is generally at risk, although cash flow accruing to these interests is available to absorb credit losses in the loan pools underlying such subordinated interests.

As our portfolio of investment loans has grown, our portfolio credit risk has also grown. During 2007, our portfolio of loans held for investment was affected by the deteriorating real estate market and economic conditions that have not abated as of the date of filing of this Report. As a result of the conditions that prevailed during 2007, the performance of our credit-sensitive assets was adversely affected. We expect credit quality to continue to deteriorate in the near term, which will continue to cause us to record significant provisions for credit losses and charge-offs relating to these assets.

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

			Years Ended December 31,
			Years Ended December 31,				% Change
			2007		2006		% Change
			(dollar amounts in thousands)
Key Credit Quality & Performance Indicators
Loans Held for Investment at period end(1)			$	94,772,621	$	78,346,811	21	%
Nonperforming assets at period end:
	Nonaccrual loans(2)		$	3,452,734	$	677,885	409	%
	Foreclosed real estate			807,843		251,163	222	%

		Total nonperforming assets	$	4,260,577	$	929,048	359	%

Allowances for credit losses			$	2,437,875	$	334,921	628	%
Provision for credit losses(3)			$	2,316,463	$	236,726	879	%
Net charge-offs			$	703,380	$	156,841	348	%
Carrying value of credit-sensitive retained interests at period end			$	736,286	$	2,064,330	(64	%)
Losses absorbed by credit-sensitive retained interests during the year			$	1,283,095	$	174,209	637	%
Liability for representations and warranties at period end			$	639,637	$	390,111	64	%
Losses resulting from representations and warranties during the year			$	84,994	$	87,795	(3	%)

	Years Ended December 31,
	2007		2006
	(in thousands)
Loans held for sale	$	206,690	$	566,610
Government guaranteed loans, held for investment		397,630		334,465

	$	604,320	$	901,075

	Years Ended December 31,
	2007			2006
	(in thousands)
Provision for loan losses	$	2,776,223		$	299,610
Provision for losses on unfunded commitments		30,280			2,879
Accrual for pool mortgage insurance receivable		(490,040	)		(65,763	)

	$	2,316,463		$	236,726

We discuss credit developments in detail in the section Credit Risk Management, following.

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 and repurchase agreements segments of the public corporate debt markets were severely restricted by illiquidity, particularly for mortgage companies and other financial institutions. These conditions have not abated through the date of this Report.

In response to the disruption in the second half of 2007, we accelerated the integration of our mortgage banking activities into our bank subsidiary which has access to stable, non-capital markets based funding; significantly changed our underwriting standards to focus the majority of our loan production on loans that are available for direct sale to or securitization into programs sponsored by the government-sponsored agencies; issued $2.0 billion of 7.25% convertible cumulative preferred stock; and modified our funding structure to that of a thrift holding company. Because of the adjustments we made to our operations, as of December 31, 2007:

We discuss liquidity developments in detail in the section Liquidity Management, following.

As more fully detailed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2008, and the Registration Statement on Form S-4 of Bank of America filed on February 12, 2008, we entered into a Merger Agreement with Bank of America. The Merger Agreement provides for Countrywide to merge with and into a wholly-owned merger subsidiary of Bank of America ("Merger Sub"), with Merger Sub continuing as the surviving company.

The 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 mortgage loan sale and securitization activities; our investments in MSRs and retained interests; our measurement of provisions and reserves associated with the credit risk inherent in our operations and our use of derivatives to manage interest rate risk. Our critical accounting policies involve the following five areas: 1) accounting for gain on sale of loans and securities including the valuation of loans held for sale; 2) valuation of MSRs and retained interests; 3) valuation of liabilities incurred in sale of loans; 4) determination of impairment related to future funding obligation under rapid amortization; 5) computation of allowance for loan losses and 6) accounting for derivatives and interest rate risk management activities.

When we sell loans in the secondary mortgage market, we generally do not sell the MSRs that are created. Depending on the type of securitization, we may also retain other financial interests, including but not limited to, interest-only securities, principal-only securities and residual securities.

We determine the gain on sale of a security or loans by allocating the carrying value of the underlying mortgage loans between securities or loans sold and the interests we continue to hold, based on their relative fair values. The gain on sale we report is the difference between the proceeds we receive from the sale and the cost allocated to the securities or loans sold. The proceeds include cash and other assets obtained (primarily MSRs) less any liabilities incurred (i.e., liabilities for representations and warranties or other recourse provisions). The timing of gain recognition is dependent on the terms of the transaction meeting very specific accounting criteria and, as a result, the gain on sale may be recorded in a different form or in a different accounting period from when the transfer of the loans is completed. In addition, the amount of gain on sale recorded is influenced by the values of the MSRs and retained interests at the time of sale. See the Valuation of MSRs and

Retained Interests section of this Report for a discussion of the judgments and estimates involved in the valuation of MSRs and retained interests.

Carrying value of mortgage loans underlying a security(1)			$	1,000,000

Fair values:
	Security		$	999,000
	MSRs			10,000
	Retained interests			4,000
	Liabilities incurred			(1,000	)
Sales proceeds:
	Cash		$	999,000
	MSRs			10,000
	Liabilities incurred			(1,000	)

			$	1,008,000

Fair value used to allocate basis:
	Loans sold (sales proceeds)		$	1,008,000
	Retained interests			4,000

			$	1,012,000

Computation of gain on sale of security:
	Sales proceeds		$	1,008,000
	Less: Cost allocated to loans sold [$1,000,000 × ($1,008,000÷$1,012,000)]			996,047

		Gain on sale	$	11,953

Initial recorded value of retained interests ($1,000,000 - $996,047)			$	3,953

As a result of the market disruption in the latter part of 2007, the precise market value of our non-conforming prime, Prime Home Equity and Nonprime Loans was not readily determinable. These loans represent approximately 44% of mortgage loans originated or purchased for resale excluding loans secured by commercial real estate at December 31, 2007. In addition, we transferred approximately $21.8 billion of mortgage loans from held for sale to held for investment in 2007. The loans transferred were primarily non-conforming prime, Prime Home Equity and Nonprime Loans and were transferred at the lower of cost or fair value, resulting in a write-down of such loans in the amount of $1.1 billion.

The Company generally estimates the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans. If quoted market prices are not available, fair value is estimated based on other relevant factors, including dealer price quotations, prices available for similar instruments, and valuation models intended to approximate the amounts that would be received from a third party. We regularly compare the values developed from our valuation models to executed trades to assure that the valuations are reflective of actual sale prices. However, due to the illiquidity of the mortgage marketplace prevalent at December 31, 2007, which resulted in a lack of executed trades that could be used to assure that the valuations are reflective of fair value, it was necessary to look for

alternative sources of value, including the whole loan purchase market for similar loans, and to apply more judgment to the valuations of non-conforming prime, home equity and nonprime loans.

Based on our analysis of available market data for non agency-eligible loans during the fourth quarter of 2007, we determined that the whole loan purchase market was the most appropriate market for products traded in that market, including Prime Home Equity and prime non-conforming fixed-rate and hybrid ARM loans. For the portion of such loans that did not meet the specific loan level requirements of this market, we estimated the value of these loans using a valuation model. The key assumptions used in the valuation model are prepayment speeds, loss estimates and the discount rate. We develop prepayment and credit loss assumptions based on the historical performance of the loans in our servicing portfolio adjusted for the current economic environment as appropriate. The discount rate used in these valuations was derived from the whole loan purchase market, adjusted for our estimate of the required yield for these loans. We believe that such assumptions are consistent with assumptions that other major market participants use in determining such assets' fair values.

The remainder of our prime non-conforming loans, most significantly pay-option ARMs, and our Nonprime Loans was valued using required subordination levels combined with required yields available for securities backed by similar product type and credit grades where observable trades existed. We use a third party vendor model to determine the required subordination levels. We estimate required yields by reference to actual trades where available combined with adjustments to the observable yields based on historical spreads, adjusted for the illiquidity in the current environment. We believe that such assumptions are consistent with assumptions that other major market participants use in determining such loans' fair values.

The precise market value of MSRs and retained interests cannot be readily determined because these assets are not actively traded in stand-alone markets. Considerable judgment is required to determine the fair values of our MSRs and retained interests, and the exercise of such judgment can significantly impact the Company's earnings. Small changes in the assumptions used to estimate the value of MSRs and retained interests can have a significant effect on our estimates of value. Similarly, relatively small changes in value of these assets can have a material effect on earnings for a particular period. As a result, senior financial management exercises extensive and active oversight of this process. The Company's Asset/Liability Committee, which is comprised of several of our senior financial executives, ultimately approves the valuation of MSRs and retained interests.

Our MSR valuation process combines the use of a discounted cash flow model and extensive analysis of current market data to arrive at an estimate of fair value at each balance sheet date. The cash flow assumptions and prepayment assumptions used in our discounted cash flow model are based on market factors and encompass the historical performance of our MSRs. We perform research and analysis to assure that the assumptions we use are consistent with assumptions and data used by market participants valuing similar MSRs. The key assumptions used in the valuation of MSRs include mortgage prepayment speeds and the discount rate (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 our valuation is obtained from peer group MSR valuation surveys, MSR market trades, MSR broker valuations and prices of interest-only securities.

The following table shows the key assumptions we used to determine the fair values of our MSRs at December 31, 2007 and the value sensitivity of our MSRs to changes in such assumptions.

		MSRs
		(dollar amounts in thousands)
Fair value of MSRs		$	18,958,180
Fair value as a percentage of MSR portfolio			1.40	%
Weighted-average service fee			0.35	%
Multiple of net service fee			4.0
Weighted-average life (in years)			6.4
Weighted-average annual prepayment speed			17.9	%
	Impact of 5% adverse change	$	417,503
	Impact of 10% adverse change	$	812,734
	Impact of 20% adverse change	$	1,543,224
Weighted-average OAS(1)			6.2	%
	Impact of 5% adverse change	$	171,217
	Impact of 10% adverse change	$	339,005
	Impact of 20% adverse change	$	664,784

The yield implied in the market value of the MSRs was 10.9% at December 31, 2007.

For our retained interests, we also estimate fair value through the use of discounted cash flow models. The key assumptions used in the valuation of our retained interests include mortgage prepayment speeds, discount rates, and for retained interests containing credit risk, the net lifetime credit losses. For further discussion of credit risk, see section in this Report entitled Management's Discussion and Analysis of Financial Condition and Results of Operations—Credit Risk Retained in Loan Sales. We develop cash flow, prepayment and net lifetime credit loss assumptions based on the historical performance of the loans underlying our retained interests adjusted for the current economic environment as appropriate. We believe that such assumptions are consistent with assumptions that other major market participants use in determining such assets' fair values. The process for estimating lifetime credit losses used in the valuation of residual interests or the valuation of liabilities incurred is similar. See the section following entitled Valuation of Liabilities Incurred in Sale of Loans for additional discussion of estimated lifetime credit losses.

The following table shows the key assumptions we used to determine the fair values of our retained interests at December 31, 2007, and the fair value sensitivity of our retained interests to changes in such assumptions.

		Retained Interests
		(dollar amounts in thousands)
Fair value of retained interests		$	2,450,397
Weighted-average life (in years)			6.4
Weighted-average annual prepayment speed			21.0	%
	Impact of 5% adverse change	$	58,405
	Impact of 10% adverse change	$	104,890
	Impact of 20% adverse change	$	188,018
Weighted-average annual discount rate			17.3	%
	Impact of 5% adverse change	$	47,641
	Impact of 10% adverse change	$	92,599
	Impact of 20% adverse change	$	174,999
Weighted-average net lifetime credit losses			10.9	%
	Impact of 5% adverse change	$	55,679
	Impact of 10% adverse change	$	103,286
	Impact of 20% adverse change	$	182,934

These sensitivities shown for MSRs and retained interests 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. As the figures indicate, changes in fair value based on a given percentage variation in individual assumptions generally cannot be extrapolated. In addition, in the above tables, the effect of a variation in a particular assumption on the fair value of the MSRs or retained interests 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.

We incur liabilities in our loan sales and securitizations through representations and warranties we make or through other recourse provisions, such as corporate guarantees. An active market to transfer the liabilities relating to representations and warranties and corporate guarantees does not exist. Therefore, management must estimate the fair value of such liabilities. When credit risk is retained through liabilities incurred in the sale or securitization of loans, the lifetime credit losses are estimated as follows and are discounted at a risk-free rate of return.

Our process for estimating lifetime credit losses benefits from the extensive history and experience we have developed from our mortgage loan servicing portfolio. This estimation process is also subject to the uncertainty that reliance on historical factors giving rise to losses and offsetting recoveries does not accurately reflect current conditions or predict future events. We address this risk by considering current economic and market conditions. Based on our assessments of current conditions, we make appropriate adjustments to our historically developed assumptions when necessary to adjust historical

factors to account for present conditions. The effect of changes in certain key assumptions on our estimated liability for representations and warranties and corporate guarantees is as follows:

		Liability for Representations and Warranties and Corporate Guarantees
		(in thousands)
Liability for representations and warranties and corporate guarantees at December 31, 2007		$	685,839
Impact of a change in default rates on the liability of a:
	5% adverse change	$	15,608
	10% adverse change	$	31,215
	20% adverse change	$	62,431
Impact of a change in loss severity on the liability of a:
	5% adverse change	$	20,340
	10% adverse change	$	40,680
	20% adverse change	$	81,360

Credit risk is an integral consideration in the valuation of retained interests. The impact of changes in credit loss assumptions on the value of retained interests is included in the section, Valuation of MSRs and Retained Interests.

Under the terms of the Company's home equity line of credit securitizations, Countrywide makes advances to borrowers when they request a subsequent draw on their line of credit and Countrywide is 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 Countrywide's 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 rapid amortization, has the effect of extending the time period for which the Company's advances are outstanding, and may result in Countrywide not receiving reimbursement for all of the funds advanced. During 2007, Countrywide recorded impairment losses of $704.1 million related to estimated future draw obligations on the securitization deals that have entered or are expected to enter rapid amortization status.

We estimate the impairment losses related to future draw obligations through the use of discounted cash flow models. This estimate requires projections of future expected funding obligations under a rapid amortization event compared to the expected fair value of the amount to be recovered as of the required funding date. The resulting amount is then discounted to a present value amount based on an appropriate risk-free interest rate to arrive at the amount of our funding obligation. The key assumptions used in our estimation process include mortgage prepayment speeds, additional draws on home equity lines of credit, discount rates, and net lifetime credit losses. As discussed in the preceding section entitled Valuation of MSRs and Retained Interests, we develop cash flow, prepayment and net lifetime credit loss assumptions based on the historical performance of the loans underlying our retained interests adjusted for the current economic environment, as appropriate, and our assumptions of additional draws on home equity lines of credit are developed in a similar manner. The process for estimating lifetime credit losses used in the valuation of residual interests, the valuation of liabilities incurred and our estimated impairment losses related to future draw obligations is similar. See the preceding section entitled Valuation of Liabilities Incurred in Sale of Loans for additional discussion of estimated lifetime credit losses.

The allowance for loan losses is our best estimate of the credit losses incurred in our loan investment portfolio.

We continually assess the credit quality of our portfolios of loans held for investment to identify and provide for losses incurred. Once a loan is included in our investment portfolio, how we assess loan credit quality is based on whether the loan is part of a pool of homogeneous loans or is individually evaluated for impairment.

Our mortgage loan portfolios are comprised primarily of large groups of homogeneous loans secured by residential real estate and made to consumers. We do not evaluate individual homogenous loans for impairment. We estimate the losses incurred in our homogeneous loan pools by estimating how many of the loans will default and how much of the loans' balances will be lost in the event of default.

We estimate how many of our homogeneous loans will default based on the loans' attributes (occupancy status, loan-to-value ratio, borrower credit score, etc.) which is further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). This estimate is based on our historical experience with our loan servicing portfolio. Our estimate is adjusted to reflect our assessment of environmental factors not yet reflected in the historical data underlying our loss estimates, such as trends in real estate values, local and national economic trends, changes in underwriting standards and changes in the regulatory environment.

The likelihood of default is based on analysis of movement of loans with the measured attributes from either current or each of the delinquency categories to default over a twelve-month period. Loans 90 or more days past due or those expected to migrate to 90 or more days past due within the twelve-month period are assigned a rate of default that measures the percentage of such loans that will default over their lives as we assume that the condition causing the ultimate default presently exists. We estimate how much of the defaulted loans' balances will be lost based on our estimate of the average loss severity for defaulted loans by type (Prime Mortgage, Nonprime Mortgage or Prime Home Equity Loans).

Loan losses are charged off against the allowance for loan losses when management believes the loss is confirmed. We make an initial assessment of whether a charge-off is required on our mortgage loans no later than the 180^th day of delinquency.

On a regular basis, we individually evaluate loans in our warehouse and commercial lending portfolios for impairment based on borrower-provided financial information and our assessments of collateral. We have an internally-developed loan rating system for our warehouse lending and other commercial loans that is used to determine when an allowance is required for a loan. We charge off losses in individually evaluated loans when the loss is confirmed. The charge-off is based on our estimate of value of the collateral securing the loan. We develop an allowance for losses on warehouse lending loans for which specific losses have not been identified. This allowance is developed by applying credit loss factors applicable to the individual loan's assigned ratings.

We also individually evaluate mortgage loans in our portfolio of loans held for investment when we agree to modification of the loans' contractual terms that we make because we, for economic or other reasons related to the borrower's financial difficulties, grant a concession to the borrower that we would not otherwise consider. We classify these loans as troubled debt restructurings. Troubled debt restructurings may include changing repayment terms, reducing the stated interest rate, reducing the

loan's principal balance or accrued interest, or extending the maturity date of the loan. Upon completion of a troubled debt restructuring, we establish a valuation allowance to recognize the impairment of the loan.

The amount of the impairment valuation allowance is established based on whether the loan is collateral dependent and delinquent when the loan is modified:

Loan losses are charged against the allowance when management believes the loss is confirmed. We make an initial assessment of whether a charge-off is required on our mortgage loans no later than the 180^th day of delinquency.

Our allowance estimation process benefits from the extensive history and experience we have developed in our mortgage loan servicing activities. However, this process is subject to risks and uncertainties, including reliance on historical loss information that may not represent current conditions and the proper identification of factors giving rise to credit losses. For example, new products may have default rates and loss severities which differ from those products we have historically offered and upon which our estimates are based. We address this risk by actively monitoring the delinquency and default experience of our homogenous pools by considering current economic and market conditions. Based on our assessments of current conditions, we make appropriate adjustments to our historically developed assumptions when necessary to adjust historical factors to account for present conditions. Our senior management is actively involved in the review and approval of our allowance for loan losses.

The following example illustrates the sensitivity of our allowance for credit losses, giving effect to mortgage pool insurance, to changes in assumptions:

		Allowance for Credit Losses
		(in thousands)
Allowance for loan losses		$	2,399,491
Liability for unfunded loan commitments			38,384

	Allowance for credit losses		2,437,875
Pool mortgage insurance receivable			(555,803	)

Allowance for credit losses, net of pool mortgage insurance at December 31, 2007(1)		$	1,882,072

Impact of a change in default rates on the required allowance of:
	5% adverse change	$	93,572
	10% adverse change	$	186,654
	20% adverse change	$	419,276
Impact of a change in loss severity on required allowance of:
	5% adverse change	$	214,594
	10% adverse change	$	436,663
	20% adverse change	$	917,401

These sensitivities are hypothetical and should be used with caution. In the preceding tables, the effect of a variation in a particular assumption on the allowance for loan losses is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another which might compound or counteract the sensitivities.

We use derivatives extensively in connection with our interest rate risk management activities. We record all derivative instruments at fair value.

We may qualify some of our interest rate risk management activities for hedge accounting. A primary requirement to qualify for hedge accounting is the documented expectation and demonstration, both initially and on an ongoing basis, that our interest rate risk management activity is highly effective. We use standard statistical measures to determine the effectiveness of our hedging activity. If we are unable to, or choose not to, qualify certain interest rate risk management activities for hedge accounting, then a possible earnings mismatch may be created because, unlike the derivative instruments, the change in fair value of the related asset or liability may not be reflected in current-period earnings. This issue is potentially most significant with our inventory of loans held for sale, which is required to be carried at the lower of amortized cost or estimated fair value and our debt instruments and other liabilities that are carried at historical cost. With the market disruption in late 2007, we were not able to qualify a significant portion of our non-conforming Prime Mortgage Loan inventory for hedge accounting.

In connection with our mortgage loan origination activities, we issue commitments to make or purchase loans (also referred to as interest rate lock commitments or "IRLCs"). An IRLC guarantees a loan's terms, subject to credit approval, for a period typically between seven and 75 days. The majority of our IRLCs qualify as derivative instruments and, therefore, are required to be recorded at fair value with changes in fair value reflected in current-period earnings. However, there is no active market for

IRLCs that can be used to determine their fair value and as a result we utilize an alternative method for estimating the fair value of our IRLCs.

We estimate the fair value of an IRLC based on the change in estimated fair value of the underlying mortgage loan, adjusted for the probability that the loan will fund within the terms of the IRLC. The change in fair value of the underlying mortgage loan is measured from the date we issue the commitment. Therefore, at the time of issuance the estimated fair value of an IRLC is zero. After issuance, the value of an IRLC can be either positive or negative, depending on the change in value of the underlying mortgage loan. The Company generally estimates the fair value of the underlying loan based on quoted market prices for securities backed by similar types of loans. If quoted market prices are not available, fair value is estimated based on other relevant factors, including dealer price quotations, prices available for similar instruments, and valuation models intended to approximate the amounts that would be received from a third party. We regularly compare the values developed from our valuation models to executed trades to assure that the valuations are reflective of actual sale prices. However, due to the illiquidity of the mortgage marketplace prevalent at December 31, 2007 and a lack of executed trades that could be used to assure that the valuations are reflective of fair value, it was necessary to look for alternative sources of value, including the whole loan purchase market for similar loans, and to apply more judgment to the valuations of non-conforming prime, home equity and nonprime loans.

The primary factor influencing the probability that the loan will fund within the terms of the IRLC is the change, if any, in mortgage rates subsequent to the commitment date. In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicant's committed rate. The probability that a loan will fund within the terms of the IRLC also is influenced by the source of the application, age of the application, purpose for the loan (purchase or refinance) and the application approval rate. We have developed closing ratio estimates using empirical data that take into account all of these variables, as well as renegotiations of rate and point commitments that tend to occur when mortgage rates fall. These closing ratio estimates are used to calculate the aggregate balance of loans that we expect to fund within the terms of the IRLCs.

Results of Operations Comparison—Year Ended December 31, 2007 ("2007") and Year Ended December 31, 2006 ("2006")

We recorded a net loss for 2007 of $703.5 million, as compared to net earnings of $2,674.8 million in 2006. Our diluted loss per share was $2.03 compared to diluted earnings per share of $4.30 from the year-ago period.

The results for 2007 were largely affected by marketplace concerns about the credit performance of securitized mortgage loans and the worsening credit performance of our portfolio of loans held for investment:

The Mortgage Banking Segment generated a pre-tax loss of $1,517.1 million, a worsening of results of operations of $3,579.5 million from 2006. This decrease was largely due to a 55% decline in gain on sale of loans and securities within the Production Sector from $4,897.8 million in 2006 to $2,220.2 million in 2007. This decline began early in 2007 with nonprime loans and expanded during the year to include all non-agency products. The impairment of our mortgage loan pipeline and inventory amounting to $1,458.6 million is included in gain on sale of loans and securities. In the Loan Servicing sector, we have recorded impairment of credit-sensitive residuals in the amount of $2,303.8 million and a provision for loan losses of $448.6 million.

The Banking Segment produced a pre-tax loss of $268.8 million, a $1,649.1 million decline from 2006, largely due to increased credit-related costs on the portfolio of loans held for investment.

The Capital Markets Segment was negatively affected by declining liquidity and prices in the mortgage-related securities market. As a result of these conditions, the Capital Markets Segment recorded losses on sales of securities and inventory and reported pre-tax earnings of $15.0 million during 2007, a decline of $538.5 million from 2006.

These decreases were partially offset by an increase in the profitability of the Insurance Segment, due to an increase in the net earned premiums and a reversal of loss reserves related to the 2003 book of reinsurance business on which negligible remaining loss exposure was deemed to exist in 2007.

			Years Ended December 31,
			2007			2006
			(in thousands)
Mortgage Banking:
	Loan Production		$	(1,185,080	)	$	1,310,895
	Loan Servicing			(441,133	)		660,021
	Loan Closing Services			109,130			91,483

		Total Mortgage Banking		(1,517,083	)		2,062,399

Banking				(268,752	)		1,380,384
Capital Markets				14,957			553,500
Insurance				600,542			320,133
Global Operations				27,502			28,642
Other(1)				(167,440	)		(10,923	)

	Total		$	(1,310,274	)	$	4,334,135

The pre-tax (loss) earnings of each segment includes intercompany transactions, which are eliminated in the "other" category.

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

			Years Ended December 31,
			2007		2006
			(in millions)
Segment:
	Mortgage Banking		$	385,141	$	421,084
	Banking Operations			18,090		23,759
	Capital Markets—Conduit acquisitions from nonaffiliates			5,003		17,658

		Total Residential Mortgage Loan Fundings		408,234		462,501
	Commercial Real Estate			7,400		5,671

			$	415,634	$	468,172

Product:
	Prime Mortgage		$	356,842	$	374,029
	Prime Home Equity			34,399		47,876
	Nonprime Mortgage			16,993		40,596
	Commercial Real Estate			7,400		5,671

			$	415,634	$	468,172

Our total loan production was $415.6 billion for 2007, as compared to $468.2 billion in 2006. Loan production decreased due to an approximately 20% decline in the mortgage market from 2006, which occurred largely in the latter part of 2007 as a result of a tightening of underwriting and loan program guidelines done in response to increased marketplace concerns about mortgage loan performance, as well as economic conditions which include a weakening housing market. The tightening of underwriting and loan program guidelines included reductions in the availability of reduced documentation loans and loans on investor-owned properties and a reduction in the maximum loan-to-value or combined loan-to-value ratios. The impact of these changes was most significant to Nonprime Mortgage, Prime Home Equity and non-conforming Prime Mortgage Loans. We discontinued production of Nonprime Mortgage Loans in late 2007. The decrease in loan production volume was partially offset by an increase in our market share from 14.1% to 15.5% (based on our internal market estimates). The increase in our market share was primarily driven by increased market share in our Correspondent Lending Channel.

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

		Years Ended December 31,
		2007		2006
		(in millions)
Purpose:
	Non-purchase	$	239,988	$	257,031
	Purchase		175,646		211,141

		$	415,634	$	468,172

Interest Rate Type:
	Fixed	$	304,749	$	256,087
	Adjustable		110,885		212,085

		$	415,634	$	468,172

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

The Loan Production Sector sources mortgage loans through the three production channels of our mortgage banking subsidiary, Countrywide Home Loans—the Retail Channel (Consumer Markets and Full Spectrum Lending), Wholesale Lending Channel and Correspondent Lending Channel. These loans are funded through any one of these channels or through Countrywide Bank, FSB ("Countrywide Bank" or the "Bank"). As a result of the market disruption in the current year, we decided to accelerate our plans to migrate virtually all of our loan production into the Bank which has greater access to sources of liquidity. During 2007, 55% of the loans funded in the Mortgage Banking Segment were funded through the Bank compared to 25% for the prior year. In the quarter ended December 31, 2007, 91% of the Mortgage Banking loan production was funded through the Bank. Effective January 1, 2008, our production channels have moved into the Bank, completing the migration of substantially all of our loan production activities from CHL to the Bank. The mortgage loan production, the related balance sheet and the income relating to the holding and sale of these loans is included in our Mortgage Banking Segment regardless of whether the activity occurred in CHL or Countrywide Bank.

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

				Years Ended December 31,(1)
				2007		2006
				(in millions)
Channel:
	Originated:
		Retail:
			Consumer Markets	$	105,639	$	118,596
			Full Spectrum Lending		31,332		35,067

					136,971		153,663
		Wholesale Lending			68,473		89,393

			Total originated		205,444		243,056
	Purchased—Correspondent Lending				179,697		178,028

				$	385,141	$	421,084

Mortgage Loan Type:
	Prime Mortgage			$	345,795	$	344,370
	Prime Home Equity				23,535		39,962
	Nonprime Mortgage				15,811		36,752

				$	385,141	$	421,084

Purpose:
	Non-purchase			$	221,214	$	230,536
	Purchase				163,927		190,548

				$	385,141	$	421,084

Interest Rate Type:
	Fixed			$	288,346	$	245,215
	Adjustable				96,795		175,869

				$	385,141	$	421,084

			Years Ended December 31,
			2007					2006
			Amount			Percentage of Loan Production Volume		Amount		Percentage of Loan Production Volume
			(dollar amounts in thousands)
Revenues:
	Prime Mortgage		$	3,167,692				$	3,992,395
	Nonprime Mortgage			(189,369	)				847,314
	Prime Home Equity			(217,695	)				809,069

		Total revenues		2,760,628		0.71	%		5,648,778	1.34	%

Expenses:
	Compensation			2,090,772		0.54	%		2,346,670	0.56	%
	Other operating			1,403,287		0.36	%		1,435,460	0.34	%
	Allocated corporate			451,649		0.12	%		555,753	0.13	%

		Total expenses		3,945,708		1.02	%		4,337,883	1.03	%

Pre-tax (loss) earnings			$	(1,185,080	)	(0.31	%)	$	1,310,895	0.31	%

Total Mortgage Banking loan production			$	385,141,000				$	421,084,000

The Loan Production sector incurred a pre-tax loss of $1,185.1 million during 2007 compared to pre-tax earnings of $1,310.9 million in 2006. The current year loss resulted primarily from the disruption in the secondary market beginning in the third quarter of 2007 for non-agency loans, including prime non-conforming, Prime Home Equity and Nonprime Mortgage Loans. The illiquidity and credit spread widening caused by the market disruption had a significant negative impact on the value of such loans and the amount of loans that were sold. As a result, we recorded inventory valuation and pipeline write-downs on such loans during 2007 of $1,354.4 million, net of a credit hedge in place for part of the period. In addition, the volume of nonprime loans and home equity loans sold declined to $23.5 billion in 2007 compared to $65.1 billion in 2006, contributing to the decline in revenues.

Expenses decreased from the prior year driven primarily by a reduction in variable compensation expenses that resulted from the decline in the volume of loans produced, and remained flat as a percentage of loans produced. The decline in the volume of loans produced reflects a smaller origination market in the latter part of the year, which was largely attributable to the tightening of underwriting and loan program guidelines as well as economic conditions including a weakening housing market. Significant adjustments have been made to our infrastructure and staffing levels as appropriate for a smaller origination market and further adjustments will be made in the future as appropriate. The majority of the expense reductions were made in the latter part of the year so we do not expect to see the full benefit of these reductions until 2008.

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware (State or Other Jurisdiction of Incorporation or Organization)		13-2641992 (I.R.S. Employer Identification No.)
4500 Park Granada, Calabasas, CA (Address of principal executive offices)		91302 (Zip Code)

			Page
PART I
	Item 1.	Business	1
		Overview	1
		Available Information	2
		Loan Production	2
		Mortgage Banking Segment	4
		Banking Segment	11
		Capital Markets Segment	13
		Insurance Segment	15
		Global Operations Segment	16
		Financing of Operations	16
		Regulations	19
		Workforce	28
		Additional Information	28
		Loan Production Tables	29
	Item 1A.	Risk Factors	37
	Item 1B.	Unresolved Staff Comments	43
	Item 2.	Properties	43
	Item 3.	Legal Proceedings	43
	Item 4.	Submission of Matters to a Vote of Security Holders	44
PART II
	Item 5.	Market for the Company's Common Stock, Related Stockholder Matters and Issuer Purchase of Equity Securities	45
	Item 6.	Selected Consolidated Financial Data	47
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	49
		Overview	49
		Critical Accounting Policies	52
		Results of Operations Comparison—Year Ended December 31, 2007 and Year Ended December 31, 2006	61
		Results of Operations Comparison—Year Ended December 31, 2006 and Year Ended December 31, 2005	85
		Liquidity and Capital Resources	107
		Credit Risk Management	116
		Quantitative and Qualitative Disclosures About Market Risk	134
		Operational Risk	140
		Loan Servicing	141
		Inflation	142
		Seasonality	143
		Off-Balance Sheet Arrangements and Aggregate Contractual Obligations	143
		Prospective Trends	144
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	151
	Item 8.	Financial Statements and Supplementary Data	151
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	151
	Item 9A.	Controls and Procedures	152
	Item 9B.	Other Information	154

PART III
	Item 10.	Directors and Executive Officers of the Registrant	155
	Item 11.	Executive Compensation	155
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	155
	Item 13.	Certain Relationships and Related Transactions	155
	Item 14.	Principal Accountant Fees and Services	155
PART IV
	Item 15.	Exhibits, Financial Statement Schedules	156

			Mortgage Loan Production(1)
			Years Ended December 31,
			2007		2006		2005		2004		2003
			(in millions)
Segment:
	Mortgage Banking		$	385,141	$	421,084	$	427,916	$	317,811	$	398,310
	Banking Operations			18,090		23,759		46,432		27,116		14,354
	Capital Markets—conduit acquisitions from nonaffiliates			5,003		17,658		21,028		18,079		22,200

		Total Residential Mortgage Loans		408,234		462,501		495,376		363,006		434,864
	Commercial Real Estate			7,400		5,671		3,925		358		—

		Total mortgage loans	$	415,634	$	468,172	$	499,301	$	363,364	$	434,864

Product:
	Prime Mortgage		$	356,842	$	374,029	$	405,889	$	292,672	$	396,934
	Prime Home Equity			34,399		47,876		44,850		30,893		18,103
	Nonprime Mortgage			16,993		40,596		44,637		39,441		19,827
	Commercial Real Estate			7,400		5,671		3,925		358		—

		Total mortgage loans	$	415,634	$	468,172	$	499,301	$	363,364	$	434,864

				Workforce
Mortgage Banking:
	Loan Production:
		Retail Lending:
			Consumer Markets	15,103
			Full Spectrum Lending	4,074

				19,177
		Wholesale Lending		2,221
		Correspondent Lending		1,151

			Total Loan Production	22,549
	Loan Servicing			8,854
	Loan Closing Services			1,854
Banking				2,708
Capital Markets				855
Insurance				2,611
Global Operations				4,847
Corporate Administration and Other				6,322

	Total			50,600

	December 31,
	2007			2006
		Facilities			Facilities
	Sales Force	Branches	Call Centers	Sales Force	Branches	Call Centers
Channel:

		Years Ended December 31,
		2007			2006			2005			2004			2003
		(in millions)
Beginning owned servicing portfolio		$	1,280,119		$	1,081,189		$	821,475		$	630,451		$	441,267
Add: Residential loan production(1)			405,544			456,949			494,380			363,006			434,864
Purchased MSRs (bulk acquisitions)			21,735			15,781			51,377			40,723			6,944
Less: Principal repayments			(255,408	)		(273,800	)		(284,924	)		(212,705	)		(252,624	)
Servicing sold			—			—			(1,119	)		—			—

Ending owned servicing portfolio			1,451,990			1,280,119			1,081,189			821,475			630,451
Subservicing portfolio			24,049			18,275			29,901			16,847			14,404

	Total servicing portfolio(2)	$	1,476,039		$	1,298,394		$	1,111,090		$	838,322		$	644,855

MSR portfolio		$	1,355,492		$	1,174,874		$	979,207		$	758,975		$	581,964
Mortgage loans owned			96,498			105,245			101,982			62,500			48,487
Subservicing portfolio			24,049			18,275			29,901			16,847			14,404

	Total servicing portfolio(2)	$	1,476,039		$	1,298,394		$	1,111,090		$	838,322		$	644,855

				As of December 31,
				2007			2006			2005			2004			2003
				(dollar amounts in millions)
Composition of owned servicing portfolio at period end:
	Conventional mortgage			$	1,233,169		$	1,063,141		$	861,926		$	639,148		$	512,889
	Nonprime Mortgage				110,555			116,270			116,101			84,608			36,332
	Prime Home Equity				41,204			47,628			53,253			45,053			24,174
	Government:
		FHA-insured mortgage			50,317			39,011			36,949			39,618			43,281
		VA-guaranteed mortgage			16,745			14,069			12,960			13,048			13,775

			Total owned portfolio	$	1,451,990		$	1,280,119		$	1,081,189		$	821,475		$	630,451

Delinquent mortgage loans(1):
	30 days				3.36	%		2.95	%		2.59	%		2.35	%		2.35	%
	60 days				1.35	%		0.98	%		0.87	%		0.70	%		0.72	%
	90 days or more				2.25	%		1.09	%		1.15	%		0.78	%		0.84	%

		Total delinquent mortgage loans			6.96	%		5.02	%		4.61	%		3.83	%		3.91	%

Loans pending foreclosure(1)					1.04	%		0.65	%		0.44	%		0.42	%		0.43	%

Delinquent mortgage loans(1):
	Conventional				4.19	%		2.76	%		2.60	%		2.24	%		2.21	%
	Nonprime Mortgage				27.29	%		19.03	%		15.20	%		11.29	%		12.46	%
	Prime Home Equity				5.92	%		2.93	%		1.57	%		0.79	%		0.73	%
	Government				14.15	%		13.94	%		14.61	%		13.14	%		13.29	%
		Total delinquent mortgage loans			6.96	%		5.02	%		4.61	%		3.83	%		3.91	%
Loans pending foreclosure(1):
	Conventional				0.63	%		0.31	%		0.20	%		0.21	%		0.21	%
	Nonprime Mortgage				5.54	%		3.53	%		2.03	%		1.74	%		2.30	%
	Prime Home Equity				0.12	%		0.12	%		0.06	%		0.03	%		0.02	%
	Government				1.33	%		1.28	%		1.09	%		1.21	%		1.20	%
		Total loans pending foreclosure			1.04	%		0.65	%		0.44	%		0.42	%		0.43	%

			Consolidated Mortgage Loan Production
			Years Ended December 31,
			2007			2006			2005			2004			2003
			(dollars in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			1,092,759			723,933			776,479			826,914			1,509,925
	Volume of Loans		$	216,829		$	149,095		$	159,561		$	134,762		$	234,526
		Percent of Total Dollar Volume		52.1	%		31.9	%		32.0	%		37.1	%		53.9	%
Conventional Non-conforming Loans
	Number of Loans			331,800			730,511			866,476			529,192			562,389
	Volume of Loans		$	117,634		$	211,841		$	235,614		$	144,663		$	138,006
		Percent of Total Dollar Volume		28.3	%		45.2	%		47.2	%		39.8	%		31.7	%
Prime Home Equity Loans
	Number of Loans			514,629			716,353			728,252			587,046			453,817
	Volume of Loans		$	34,399		$	47,876		$	44,850		$	30,893		$	18,103
		Percent of Total Dollar Volume		8.3	%		10.2	%		9.0	%		8.5	%		4.2	%
Nonprime Mortgage Loans
	Number of Loans			90,917			245,881			278,112			250,030			124,205
	Volume of Loans		$	16,993		$	40,596		$	44,637		$	39,441		$	19,827
		Percent of Total Dollar Volume		4.1	%		8.7	%		8.9	%		10.9	%		4.6	%
FHA/VA Loans
	Number of Loans			137,922			89,753			80,555			105,562			196,063
	Volume of Loans		$	22,379		$	13,093		$	10,714		$	13,247		$	24,402
		Percent of Total Dollar Volume		5.4	%		2.8	%		2.1	%		3.6	%		5.6	%
Commercial Real Estate Loans
	Number of Loans			1,069			620			258			30			—
	Volume of Loans		$	7,400		$	5,671		$	3,925		$	358			—
		Percent of Total Dollar Volume		1.8	%		1.2	%		0.8	%		0.1	%		0.0	%
Total Loans
	Number of Loans			2,169,096			2,507,051			2,730,132			2,298,774			2,846,399
	Volume of Loans		$	415,634		$	468,172		$	499,301		$	363,364		$	434,864
	Average Loan Amount(1)		$	188,000		$	185,000		$	181,000		$	158,000		$	153,000
	Non-Purchase Transactions(2)			58	%		55	%		53	%		51	%		72	%
	Adjustable-Rate Loans(2)			27	%		45	%		52	%		52	%		21	%

			Mortgage Banking Segment Mortgage Loan Production(1)
			Years Ended December 31,
			2007			2006			2005			2004			2003
			(dollars in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			1,088,051			708,613			766,613			821,932			1,509,721
	Volume of Loans		$	215,741		$	145,711		$	157,271		$	133,852		$	234,455
		Percent of Total Dollar Volume		56.0	%		34.6	%		36.8	%		42.1	%		58.9	%
Conventional Non-conforming Loans
	Number of Loans			312,801			648,786			712,270			430,362			492,512
	Volume of Loans		$	107,684		$	185,566		$	186,526		$	114,315		$	111,661
		Percent of Total Dollar Volume		28.0	%		44.1	%		43.6	%		36.0	%		28.0	%
Prime Home Equity Loans
	Number of Loans			330,222			580,969			492,586			391,967			292,171
	Volume of Loans		$	23,535		$	39,962		$	33,334		$	23,351		$	12,268
		Percent of Total Dollar Volume		6.1	%		9.5	%		7.8	%		7.4	%		3.1	%
Nonprime Mortgage Loans
	Number of Loans			85,166			227,313			254,172			218,821			95,062
	Volume of Loans		$	15,811		$	36,752		$	40,089		$	33,481		$	15,525
		Percent of Total Dollar Volume		4.1	%		8.7	%		9.3	%		10.5	%		3.9	%
FHA/VA Loans
	Number of Loans			137,878			89,753			80,445			102,207			196,058
	Volume of Loans		$	22,370		$	13,093		$	10,696		$	12,812		$	24,401
		Percent of Total Dollar Volume		5.8	%		3.1	%		2.5	%		4.0	%		6.1	%
Commercial Real Estate Loans
	Number of Loans			—			—			—			—			—
	Volume of Loans			—			—			—			—			—
		Percent of Total Dollar Volume		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Total Loans
	Number of Loans			1,954,118			2,255,434			2,306,086			1,965,289			2,585,524
	Volume of Loans		$	385,141		$	421,084		$	427,916		$	317,811		$	398,310
	Average Loan Amount		$	197,000		$	187,000		$	186,000		$	162,000		$	154,000