10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

Commission file number: 1-8422

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

Delaware (State or other jurisdiction of incorporation or organization)	13-2641992 (IRS Employer Identification No.)
4500 Park Granada, Calabasas, California (Address of principal executive offices)	91302 (Zip Code)

(818) 225-3000
(Registrant's telephone number, including area code)

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

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

Large accelerated filer ý Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o        No ý

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

Class	Outstanding at November 8, 2007
Common Stock, $0.05 par value	578,700,245

COUNTRYWIDE FINANCIAL CORPORATION

FORM 10-Q

September 30, 2007

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements:
	Consolidated Balance Sheets—September 30, 2007 and December 31, 2006	1
	Consolidated Statements of Operations—Three and Nine Months Ended September 30, 2007 and 2006	2
	Consolidated Statement of Changes in Shareholders' Equity—Nine Months Ended September 30, 2007 and 2006	3
	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2007 and 2006	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	47
	Overview	47
	Results of Operations Comparison—Quarters Ended September 30, 2007 and 2006	51
	Results of Operations Comparison—Nine Months Ended September 30, 2007 and 2006	74
	Quantitative and Qualitative Disclosures About Market Risk	93
	Credit Risk Management	95
	Loan Servicing	106
	Liquidity and Capital Resources	107
	Off-Balance Sheet Arrangements and Aggregate Contractual Obligations	112
	Prospective Trends	113
	Regulatory Trends	116
	New Accounting Standards	117
	Factors That May Affect Our Future Results	118
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	119
Item 4.	Controls and Procedures	119
PART II. OTHER INFORMATION		121
Item 1.	Legal Proceedings	121
Item 1A.	Risk Factors	121
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	122
Item 6.	Exhibits	122

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30, 2007			December 31, 2006
		(Unaudited)			(Audited)
		(in thousands, except share data)
ASSETS
Cash		$	4,768,363		$	1,407,000
Mortgage loans held for sale			30,857,778			31,272,630
Trading securities owned, at fair value			13,148,722			20,036,668
Trading securities pledged as collateral, at fair value			1,789,450			1,465,517
Securities purchased under agreements to resell, securities borrowed and federal funds sold			14,890,965			27,269,897
Loans held for investment, net of allowance for loan losses of $1,219,963 and $261,054, respectively			83,558,176			78,085,757
Investments in other financial instruments, at fair value			27,119,157			12,769,451
Mortgage servicing rights, at fair value			20,068,153			16,172,064
Premises and equipment, net			1,632,818			1,625,456
Other assets			11,402,883			9,841,790
	Total assets	$	209,236,465		$	199,946,230
LIABILITIES
Deposit liabilities		$	54,749,389		$	55,578,682
Securities sold under agreements to repurchase			16,389,611			42,113,501
Trading securities sold, not yet purchased, at fair value			2,385,048			3,325,249
Notes payable			105,794,292			71,487,584
Accounts payable and accrued liabilities			10,095,489			8,187,605
Income taxes payable			4,570,404			4,935,763
	Total liabilities		193,984,233			185,628,384
Commitments and contingencies			—			—
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.05—authorized, 1,500,000 shares; issued and outstanding at September 30, 2007, 20,000 shares of 7.25% Series B non-voting convertible cumulative shares with a total liquidation preference of $2,000,000			1			—
Common stock—authorized, 1,000,000,000 shares of $0.05 par value; issued, 576,816,280 shares and 585,466,719 shares at September 30, 2007 and December 31, 2006, respectively; outstanding, 576,376,128 shares and 585,182,298 shares at September 30, 2007 and December 31, 2006, respectively			28,841			29,273
Additional paid-in capital			4,110,950			2,154,438
Retained earnings			11,168,990			12,151,691
Accumulated other comprehensive loss			(56,550	)		(17,556	)
	Total shareholders' equity		15,252,232			14,317,846
	Total liabilities and shareholders' equity	$	209,236,465		$	199,946,230

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

1

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

			Three Months Ended September 30,						Nine Months Ended September 30,
			2007			2006			2007			2006
			(Unaudited) (in thousands, except per share data)
Revenues
	(Loss) gain on sale of loans and securities		$	(718,620	)	$	1,373,901		$	2,008,942		$	4,262,529
	Interest income			3,255,110			3,288,160			10,106,736			8,727,498
	Interest expense			(2,548,801	)		(2,489,190	)		(7,941,494	)		(6,543,619	)
		Net interest income		706,309			798,970			2,165,242			2,183,879
	Provision for loan losses			(934,268	)		(37,996	)		(1,379,154	)		(163,032	)
		Net interest (expense) income after provision for loan losses		(227,959	)		760,974			786,088			2,020,847
	Loan servicing fees and other income from mortgage servicing rights and retained interests			1,442,279			1,228,541			4,250,823			3,635,587
	Realization of expected cash flows from mortgage servicing rights			(696,361	)		(749,543	)		(2,353,368	)		(2,148,483	)
	Change in fair value of mortgage servicing rights			(830,932	)		(1,125,133	)		400,581			314,391
	Impairment of retained interests			(716,658	)		(141,857	)		(1,414,376	)		(211,013	)
	Servicing Hedge gains (losses)			1,183,543			1,034,353			(303,284	)		(472,591	)
		Net loan servicing fees and other income from mortgage servicing rights and retained interests		381,871			246,361			580,376			1,117,891
	Net insurance premiums earned			389,921			300,774			1,076,482			864,793
	Other			124,821			140,485			452,319			392,599
		Total revenues		(49,966	)		2,822,495			4,904,207			8,658,659
Expenses
	Compensation			1,073,754			1,138,901			3,258,178			3,357,426
	Occupancy and other office			284,474			257,908			817,704			764,319
	Insurance claims			145,136			101,951			357,210			328,802
	Advertising and promotion			88,350			68,955			237,907			194,871
	Other			326,022			218,568			835,417			663,643
		Total expenses		1,917,736			1,786,283			5,506,416			5,309,061
(Loss) earnings before income taxes				(1,967,702	)		1,036,212			(602,209	)		3,349,598
	(Benefit) provision for income taxes			(767,009	)		388,648			(320,565	)		1,296,333
		NET (LOSS) EARNINGS	$	(1,200,693	)	$	647,564		$	(281,644	)	$	2,053,265
(Loss) earnings per share
	Basic		$	(2.85	)	$	1.06		$	(1.24	)	$	3.38
	Diluted		$	(2.85	)	$	1.03		$	(1.24	)	$	3.29

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

2

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

						Common Stock											Accumulated Other Comprehensive Income (Loss)
				Convertible Preferred Stock							Additional Paid-in Capital			Retained Earnings
						Shares		Amount												Total
											(Unaudited)
				(in thousands, except share data)
Balance at December 31, 2005				$	—	600,030,686		$	30,008		$	2,954,019		$	9,770,719		$	61,114		$	12,815,860
Remeasurement of mortgage servicing rights to fair value upon adoption of SFAS 156					—	—			—			—			67,065			—			67,065
Balance as adjusted, January 1, 2006					—	600,030,686			30,008			2,954,019			9,837,784			61,114			12,882,925
Comprehensive income:
	Net earnings for the period				—	—			—			—			2,053,265			—			2,053,265
	Other comprehensive income (loss), net of tax:
		Net unrealized losses from available-for-sale securities			—	—			—			—			—			(49,981	)		(49,981	)
		Net unrealized losses from cash flow hedging instruments			—	—			—			—			—			(9,982	)		(9,982	)
		Net change in foreign currency translation adjustment			—	—			—			—			—			13,727			13,727
			Total comprehensive income																		2,007,029
Issuance of common stock pursuant to stock-based compensation plans					—	15,438,630			779			343,836			—			—			344,615
Excess tax benefit related to stock-based compensation					—	—			—			106,372			—			—			106,372
Issuance of common stock, net of treasury stock					—	864,734			43			30,211			—			—			30,254
Issuance of common stock in conversion of convertible debt					—	414,868			21			1,444			—			—			1,465
Cash dividends paid—$0.45 per common share					—	—			—			—			(273,512	)		—			(273,512	)
Balance at September 30, 2006				$	—	616,748,918		$	30,851		$	3,435,882		$	11,617,537		$	14,878		$	15,099,148
Balance at December 31, 2006				$	—	585,182,298		$	29,273		$	2,154,438		$	12,151,691		$	(17,556	)	$	14,317,846
Remeasurement of income taxes payable upon adoption of FIN 48					—	—			—			—			(12,719	)		—			(12,719	)
Balance as adjusted, January 1, 2007					—	585,182,298			29,273			2,154,438			12,138,972			(17,556	)		14,305,127
Comprehensive income:
	Net loss for the period				—	—			—			—			(281,644	)		—			(281,644	)
	Other comprehensive income (loss), net of tax:
		Net unrealized losses from available-for-sale securities			—	—			—			—			—			(55,156	)		(55,156	)
		Net change in foreign currency translation adjustment			—	—			—			—			—			13,875			13,875
		Change in unfunded liability relating to defined benefit plans			—	—			—			—			—			2,287			2,287
			Total comprehensive loss																		(320,638	)
Issuance of common stock pursuant to stock-based compensation plans					—	11,921,010			604			290,320			—			—			290,924
Excess tax benefit related to stock-based compensation					—	—			—			76,874			—			—			76,874
Issuance of Series B preferred stock					1	—			—			1,999,999			—			—			2,000,000
Beneficial conversion feature on Series B preferred stock					—	—			—			424,444			(424,444	)		—			—
Issuance of common stock, net of treasury stock					—	776,332			39			27,356			—			—			27,395
Repurchase and cancellation of common stock					—	(21,503,512	)		(1,075	)		(862,481	)		—			—			(863,556	)
Cash dividends paid—$0.45 per common share					—	—			—			—			(263,894	)		—			(263,894	)
Balance at September 30, 2007				$	1	576,376,128		$	28,841		$	4,110,950		$	11,168,990		$	(56,550	)	$	15,252,232

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

3

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Nine Months Ended September 30,
					2007			2006
					(Unaudited) (in thousands)
Cash flows from operating activities:
	Net (loss) earnings				$	(281,644	)	$	2,053,265
		Adjustments to reconcile net (loss) earnings to net cash (used) provided by operating activities:
			Gain on sale of loans and securities			(2,008,942	)		(4,262,529	)
			Accretion of discount on securities			(378,805	)		(335,855	)
			Interest capitalized on loans			(657,524	)		(491,375	)
			Amortization of deferred premiums, discounts, fees and costs, net			282,794			256,331
			Accretion of fair value adjustments and discount on notes payable			(69,660	)		(60,066	)
			Change in fair value of hedged notes payable and related interest-rate and foreign-currency swaps			(25,898	)		(25,793	)
			Amortization of deferred fees on time deposits			15,070			15,100
			Provision for loan losses			1,379,154			163,032
			Change in MSR value due to realization of expected cash flows from mortgage servicing rights			2,353,368			2,148,483
			Change in fair value of mortgage servicing rights			(400,581	)		(314,391	)
			Impairment of retained interests			1,454,442			146,800
			Servicing hedge losses			303,284			472,591
			Write-down of available-for-sale securities			25,760			—
			Stock-based compensation expense			73,123			123,355
			Depreciation and other amortization			228,774			191,540
			Accrued restructuring charges			51,277			—
			Provision for deferred income taxes			419,865			622,182
			Origination and purchase of loans held for sale			(335,103,753	)		(321,516,353	)
			Proceeds from sale and principal repayments of loans held for sale			324,348,057			330,200,952
			Decrease (increase) in trading securities			6,505,377			(8,454,071	)
			Net increase in retained interests and servicing hedge securities accounted for as trading securities			(1,752,334	)		(740,623	)
			Increase in other assets			(1,623,694	)		(715,598	)
			(Decrease) increase in trading securities sold, not yet purchased, at fair value			(940,201	)		1,110,515
			Increase in accounts payable and accrued liabilities			1,468,229			2,069,652
			(Decrease) increase in income taxes payable			(750,341	)		466,903
				Net cash (used) provided by operating activities		(5,084,803	)		3,124,047
Cash flows from investing activities:
	Decrease (increase) in securities purchased under agreements to resell, federal funds sold and securities borrowed					12,378,932			(1,786,255	)
	Repayments (additions) to loans held for investment, net					7,473,835			(11,532,058	)
	Sales of loans held for investment, net					—			73,699
	Additions to investments in other financial instruments accounted for as available for sale					(18,213,733	)		(2,556,545	)
	Proceeds from sale and repayment of investments in other financial instruments accounted for as available for sale					4,684,108			2,384,235
	Purchases of mortgage servicing rights					(195,522	)		(48,817	)
	Purchases of premises and equipment, net					(187,511	)		(440,829	)
		Net cash provided (used) by investing activities				5,940,109			(13,906,570	)
Cash flows from financing activities:
	Net (decrease) increase in deposit liabilities					(844,363	)		16,441,635
	Net (decrease) increase in securities sold under agreements to repurchase and federal funds purchased					(25,723,890	)		3,557,092
	Net decrease in short-term borrowings					(7,564,671	)		(8,642,721	)
	Issuance of long-term debt					58,775,855			11,144,305
	Repayment of long-term debt					(23,321,403	)		(11,246,387	)
	Excess tax benefit related to stock-based compensation					66,783			103,211
	Issuance of Series B preferred stock					2,000,000			—
	Repurchase and cancellation of common stock					(863,556	)		—
	Issuance of common stock					245,196			251,514
	Payment of dividends					(263,894	)		(273,512	)
		Net cash provided by financing activities				2,506,057			11,335,137
Net increase in cash						3,361,363			552,614
Cash at beginning of period						1,407,000			1,031,108
		Cash at end of period			$	4,768,363		$	1,583,722

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

4

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Basis of Presentation

        Countrywide Financial Corporation ("Countrywide") 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.

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

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

        In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. For further information, including a description of the Company's significant accounting policies, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2006, for the Company (the "2006 Annual Report").

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

Note 2—Adoption of New Accounting Pronouncements

        Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS 133 and SFAS 140 ("SFAS 155"), was effective for all financial instruments acquired or issued after December 31, 2006. This Statement:

•

Establishes a requirement to evaluate whether interests in securitized financial instruments contain an embedded derivative that requires bifurcation;



•

Permits fair value accounting to be elected for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;



•

Clarifies which interest-only stripped securities and principal-only stripped securities are not subject to SFAS 133; and



•

Clarifies that concentration of credit risks in the form of subordination are not embedded derivatives.

        The application of SFAS 155 did not have a significant impact on the consolidated financial position or earnings of the Company.

5

        FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, ("FIN 48") was issued to clarify the requirements of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, relating to the recognition of income tax benefits.

        FIN 48 provides a two-step approach to recognizing and measuring tax benefits when the benefits' realization is uncertain. The first step is to determine whether the benefit is to be recognized; the second step is to determine the amount to be recognized:

•

Income tax benefits should be recognized when, based on the technical merits of a tax position, the entity believes that if a dispute arose with the taxing authority and were taken to a court of last resort, it is more likely than not (i.e., a probability of greater than 50 percent) that the tax position would be sustained as filed; and



•

If a position is determined to be more likely than not of being sustained, the reporting enterprise should recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.

        FIN 48 was applicable beginning January 1, 2007. The opening balances of income taxes payable and retained earnings were adjusted for the cumulative effect of applying the provisions of FIN 48 as follows:

	Income Taxes Payable		Retained Earnings
	(in thousands)
Balance at December 31, 2006	$	4,935,763	$	12,151,691
Remeasurement of income tax liability upon adoption of FIN 48		12,719		(12,719	)
Balance at January 1, 2007	$	4,948,482	$	12,138,972

        The total amount of unrecognized tax benefits on uncertain tax positions as of January 1, 2007 was $180.6 million. If recognized, $126.8 million of unrecognized tax benefits would impact the Company's effective income tax rate. As of September 30, 2007, there have been no material changes to the unrecognized tax benefits, including those that would impact the Company's effective income tax rate.

        As of January 1, 2007 and September 30, 2007, the Company is not aware of any tax positions for which it was reasonably possible that a change in the amount of unrecognized tax benefits during the next twelve months would significantly impact the Company's effective income tax rate.

        The Company recognizes interest and penalties related to income tax uncertainties in its provision for income taxes and income taxes payable. The after-tax equivalent of approximately $17.2 million for interest and penalties on uncertain tax positions was included in income taxes payable at January 1, 2007. As of September 30, 2007 there have been no material changes to the amounts of interest and penalties recognized in the statement of earnings or balance sheet.

        During the quarter ended September 30, 2007, the administrative review of the IRS examination results for 2003 and 2004 was completed. Tax years after 2004 remain subject to review by the IRS. The California Franchise Tax Board examination for 2003 and 2004 is not expected to be completed by December 31, 2007 and the 2002 tax year is still open to examination.

        During the quarter ended June 30, 2007, the Company recognized a non-recurring reduction of its deferred income tax liabilities in connection with moving certain operations to other states. This

6

adjustment resulted in a reduced income tax rate of 27.0 percent for the second quarter and was the principal factor contributing to a 53.2 percent income tax (benefit) rate on the pretax loss for the nine months ended September 30, 2007.

        Due to the high degree of variability of the estimated annual effective tax rate when considering the range of projected income for the remainder of the year, the Company has determined that the actual year-to-date effective tax rate is the best estimate of the annual effective tax rate.

Note 3—(Loss) Earnings Per Share

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

        The Company has potentially dilutive shares in the form of employee stock-based compensation instruments (primarily stock options), convertible debentures and convertible preferred stock. As detailed in Note 15—Notes Payable—Convertible Debentures, in May 2007, the Company issued two series of convertible debentures totaling $4.0 billion. As detailed in Note 16—Series B Convertible Preferred Stock, the Company entered into an agreement and issued $2.0 billion of convertible preferred stock on August 22, 2007. Due to the loss attributable to common shareholders for the quarter and nine months ended September 30, 2007, no potentially dilutive shares are included in loss per share calculations as including such shares in the calculation would be anti-dilutive.

        The terms of the preferred stock agreement allow the shares to be converted at any time at a conversion price of $18 per share, which was below the closing price of the Company's stock of $21.82 on August 22, 2007, the date of the preferred stock agreement. Because of the beneficial conversion price in relation to the stock price on August 22, 2007 along with the immediate convertibility of the shares of preferred stock, the loss attributable to common shareholders has been increased by the value of this beneficial conversion feature, which amounted to $424.4 million, for the quarter and nine months ended September 30, 2007. The effect of this beneficial conversion feature has been reflected in shareholders' equity as a transfer from retained earnings to additional paid-in capital during the three months ended September 30, 2007.

7

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

			Three Months Ended September 30,					Nine Months Ended September 30,
			2007			2006		2007			2006
			(in thousands, except per share data)
Net (loss) income:
	Net (loss) income		$	(1,200,693	)	$	647,564	$	(281,644	)	$	2,053,265
	Beneficial conversion feature of convertible preferred stock			(424,444	)		—		(424,444	)		—
	Dividends on convertible preferred stock			(16,111	)		—		(16,111	)		—
	Interest on convertible debentures			—			—		—			15
	Net (loss) income attributable to common shareholders		$	(1,641,248	)	$	647,564	$	(722,199	)	$	2,053,280
Weighted-average shares outstanding:
	Basic weighted-average number of common shares outstanding			575,089			612,168		582,257			607,233
	Effect of dilutive securities:
		Dilutive stock-based compensation instruments		—			15,404		—			17,404
		Convertible debentures		—			—		—			72
	Diluted weighted-average number of common shares outstanding			575,089			627,572		582,257			624,709
Net (loss) income per common share:
	Basic (loss) earnings per share		$	(2.85	)	$	1.06	$	(1.24	)	$	3.38
	Diluted (loss) earnings per share		$	(2.85	)	$	1.03	$	(1.24	)	$	3.29

        During the quarter ended September 30, 2006, stock appreciation rights and options to purchase 13,742,512 shares, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. During the nine months ended September 30, 2006, stock appreciation rights and options to purchase 13,699,070 shares were outstanding but not included in the computation of dilutive earnings per share because they were anti-dilutive.

Note 4—Loan Sales

        As more fully discussed in Note 3—Loan Sales included in the consolidated financial statements in the 2006 Annual Report, the Company retains financial interests in its loan sales activities in the form of interest-only, principal-only and subordinated interests. The Company also obtains mortgage servicing rights ("MSRs") through its loan sales activities.

        MSRs and retained interests are carried at fair value. The Company estimates fair value through the use of discounted cash flow models. The key assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. The key assumptions used in the valuation of retained interests include mortgage prepayment speeds, discount rates, and for those subordinated interests

8

containing credit risk, net credit losses over the expected lifetime of the security. The discounted cash flow models incorporate cash flow and prepayment projections based on data drawn from the historical performance of the loans underlying the Company's MSRs and retained interests, which management believes are consistent with assumptions other major market participants would use in determining the assets' fair value.

        Key assumptions used in measuring the fair value of the Company's MSRs at September 30, 2007 and December 31, 2006, and the effect on their fair value from adverse changes in those assumptions, are as follows (weighted averages are based upon unpaid principal balance):

		September 30, 2007			December 31, 2006
		(dollar amounts in thousands)
Fair value of MSRs		$	20,068,153		$	16,172,064
Weighted-average life (in years)			6.4			5.8
Weighted-average annual prepayment speed			18.1	%		21.0	%
	Impact of 5% adverse change	$	377,734		$	293,639
	Impact of 10% adverse change	$	736,554		$	571,577
	Impact of 20% adverse change	$	1,402,871		$	1,085,394
Weighted-average option-adjusted spread over LIBOR			6.1	%		6.2	%
	Impact of 5% adverse change	$	164,003		$	129,460
	Impact of 10% adverse change	$	325,280		$	256,746
	Impact of 20% adverse change	$	639,945		$	505,029

9

        Key assumptions used in measuring the fair value of the Company's retained interests at September 30, 2007 and December 31, 2006, and the effect on their fair value from adverse changes in those assumptions are as follows (weighted averages are based on unpaid principal balances):

		September 30, 2007			December 31, 2006
		(dollar amounts in thousands)
Fair value of retained interests		$	2,463,528		$	3,040,575
Weighted-average life (in years)			6.8			3.1
Weighted-average annual prepayment speed			20.1	%		30.6	%
	Impact of 5% adverse change	$	54,646		$	97,971
	Impact of 10% adverse change	$	104,719		$	184,866
	Impact of 20% adverse change	$	196,663		$	335,668
Weighted-average annual discount rate			20.4	%		18.2	%
	Impact of 5% adverse change	$	41,595		$	33,809
	Impact of 10% adverse change	$	80,872		$	60,475
	Impact of 20% adverse change	$	152,896		$	127,056
Weighted-average net lifetime credit losses			9.4	%		2.7	%
	Impact of 5% adverse change	$	58,075		$	48,550
	Impact of 10% adverse change	$	110,523		$	117,336
	Impact of 20% adverse change	$	199,954		$	224,616

        These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a given percentage variation in individual assumptions generally cannot be extrapolated. Also, in the preceding tables, the effect of a variation in a particular assumption on the fair value of the MSRs or retained interests 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.

Note 5—Derivative Financial Instruments

Derivative Financial Instruments

        A significant market risk facing the Company is interest rate risk, which includes the risk that changes in market interest rates will result in unfavorable changes in the value of our assets or liabilities ("price risk") and the risk that net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. The overall objective of the Company's interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

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

•

The Company uses various financial instruments, including derivatives, to manage the interest rate risk related specifically to the values of its commitments to make loans (also referred to as interest rate lock commitments or "IRLCs"), mortgage loans held by the Company pending sale ("Mortgage Loan Inventory"), retained interests and trading securities, as well as a portion of its debt.

10

•

Structurally, the Company manages interest rate risk in its Mortgage Banking Segment through the natural counterbalance of its loan production and servicing businesses. In its Banking Segment, the Company manages interest rate risk by funding the segment's interest-earning assets with liabilities of similar duration or a combination of derivative instruments and certain liabilities that create repricing characteristics that closely reflect the repricing behaviors of those assets.

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

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

        The Company manages the price risk related to the Mortgage Loan Inventory primarily by entering into forward sales of MBS and Eurodollar futures. The values of these forward MBS sales and Eurodollar futures move in opposite direction to the value of the Mortgage Loan Inventory. To manage the credit spread risk associated with its Mortgage Loan Inventory, the Company may enter into credit default swaps or similar instruments. The Company actively manages the risk profiles of its IRLCs and Mortgage Loan Inventory on a daily basis.

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

        During the nine months ended September 30, 2007, the interest rate risk management activities associated with 54% of the fixed-rate mortgage loan inventory and 40% of the adjustable-rate mortgage loan inventory were accounted for as fair value hedges. For the nine months ended September 30, 2007 and 2006, the Company recognized net pre-tax losses of $67.1 million and $84.0 million, respectively, representing the ineffective portion of the hedges of its Mortgage Loan Inventory that qualified as fair value hedges.

Risk Management Activities Related to Mortgage Servicing Rights and Retained Interests

        To moderate negative impacts on earnings caused by a rate-driven decline in fair value of its MSRs and retained interests from securitization, the Company maintains a portfolio of financial instruments, including derivatives and securities, which generally increase in value when interest rates decline. In addition, the Company uses credit default swaps or similar instruments to moderate the negative impact on earnings caused by a credit spread-driven decline in fair value. This portfolio of financial instruments is collectively referred to herein as the "Servicing Hedge."

11

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

	Balance, December 31, 2006		Additions		Dispositions/ Expirations			Balance, September 30, 2007
	(in millions)
Interest rate swaptions	$	41,750	$	99,175	$	(52,000	)	$	88,925
Interest rate swaps		29,025		75,385		(30,610	)		73,800
Mortgage forward rate agreements		48,000		67,000		(91,000	)		24,000
Long treasury futures		—		26,750		(6,750	)		20,000
Long put options on interest rate futures		—		28,140		(17,850	)		10,290
Long call options on interest rate futures		4,500		113,270		(108,770	)		9,000
Credit default swaps		—		424		(424	)		—

Risk Management Activities Related to Issuance of Long-Term Debt

        The Company has entered into interest rate swap contracts in which the rate received is fixed and the rate paid is adjustable and is indexed to LIBOR. These interest rate swaps enable the Company to convert a portion of its fixed-rate long-term debt to U.S. dollar LIBOR-based floating-rate debt (notional amount of $6.9 billion as of September 30, 2007) and a portion of its foreign currency-denominated fixed and floating-rate long-term debt to U.S. dollar LIBOR-based floating-rate debt (notional amount of $4.2 billion as of September 30, 2007). These transactions are generally designated as fair value hedges under SFAS 133. For the nine months ended September 30, 2007 and 2006, the Company recognized net pre-tax gains of $25.9 million and $25.8 million, respectively, representing the ineffective portion of its fair value hedges of debt.

Risk Management Activities Related to Deposit Liabilities

        The Company has entered into interest rate swap contracts that have the effect of converting a portion of its fixed-rate deposit liabilities to LIBOR-based variable-rate deposit liabilities. These transactions are designated as fair value hedges. For the nine months ended September 30, 2007 and 2006, the Company recognized net pre-tax losses of $0.5 million and $3.6 million, respectively, representing the hedge ineffectiveness relating to these swaps.

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

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

12

Note 6—Mortgage Loans Held for Sale

        Mortgage loans held for sale include the following:

		September 30, 2007			December 31, 2006
		(in thousands)
Prime		$	17,076,835		$	22,494,274
Nonprime			5,665,930			4,917,895
Commercial real estate			2,489,811			1,930,100
Prime home equity			126,235			1,813,947
Deferred premiums, discounts, fees and costs, net			(324,501	)		116,414
Lower of cost or market valuation allowance			(235,513	)		—
	Mortgage loans originated or purchased for resale		24,798,797			31,272,630
Mortgage loans held in SPEs			6,058,981			—
		$	30,857,778		$	31,272,630

        The Company generally estimates the fair value of loans held for sale based on quoted market prices for securities backed by similar types of loans. If quoted market prices are not available, fair value is estimated based on other relevant factors, including dealer price quotations, prices available for similar instruments, and valuation models intended to approximate the amounts that would be received from a third party. We regularly compare the values developed from our valuation models to executed trades to assure that the valuations are reflective of actual sale prices. However, due to the illiquidity of the mortgage marketplace prevalent at September 30, 2007, it was necessary to look for alternative sources of value, including the whole loan purchase market for similar loans, and to apply more judgment to the valuations of non-conforming prime, home equity and nonprime loans, which represented approximately 60% of mortgage loans originated or purchased for resale excluding commercial real estate at September 30, 2007, because of a lack of executed trades that could be used to assure that the valuations are reflective of fair value.

        Countrywide Securities Corporation ("CSC") may from time to time reacquire securities, which benefit from derivative instruments, which were previously sold to nonaffiliates in the Company's securitization transactions. These transactions are part of CSC's normal market-making and trading activities and as such the securities are classified as trading securities. For such reacquired securities not to cause the Company to re-recognize the securitization transaction on its balance sheet, such trading securities shall be held temporarily. If management subsequently determines that the securities will be held longer than temporarily, the related securitization transaction must be re-recognized as a secured borrowings in Notes Payable with the securities recorded as debt at their fair value and an offsetting entry to loans held for sale ("Mortgage Loans held in SPEs") until the repurchased securities are sold.

        During the nine months ended September 30, 2007, CSC reacquired securities with embedded derivatives in its market-making and trading activities. After reacquiring those securities, the market for non-agency mortgage-backed securities was disrupted. Management concluded that certain securities it owned on September 30, 2007 no longer would be held only temporarily. As a result, a liability for asset-backed secured financings in Notes Payable of $6.1 billion and related loans held for sale were included on the Company's balance sheet at September 30, 2007.

13

        At September 30, 2007, the Company had pledged $0.3 billion, $2.3 billion, $0.2 billion, $4.6 billion and $2.1 billion in mortgage loans originated or purchased for sale to secure asset-backed commercial paper, a secured revolving line of credit, securities sold under agreements to repurchase, collateral for asset-backed secured financings and to secure Federal Home Loan Bank ("FHLB") advances, respectively and $6.1 billion of Mortgage Loans held in SPEs pledged as collateral for asset-backed secured financings.

        At December 31, 2006, the Company had pledged $7.9 billion, $0.6 billion and $0.03 billion in mortgage loans held for sale to secure asset-backed commercial paper, a secured revolving line of credit and securities sold under agreements to repurchase, respectively.

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

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

			September 30, 2007		December 31, 2006
			(in thousands)
Mortgage pass-through securities:
	Fixed-rate		$	9,222,886	$	13,502,403
	Adjustable-rate			201,285		1,381,675
		Total mortgage pass-through securities		9,424,171		14,884,078
Collateralized mortgage obligations				2,683,594		3,307,594
U.S. Treasury securities				1,080,340		1,801,221
Obligations of U.S. Government-sponsored enterprises				736,149		781,657
Derivative financial instruments				444,259		15,728
Interest-only securities				260,063		287,206
Asset-backed securities				191,136		203,979
Mark-to-market on TBA securities				114,015		144,674
Residual securities				1,768		52,097
Other				2,677		23,951
			$	14,938,172	$	21,502,185

14

        Trading securities by credit rating were as follows:

			September 30, 2007
					Credit Rating
			Total		AAA		AA		A		<A		Not Rated
			(in thousands)
Mortgage pass-through securities:
	Fixed-rate		$	9,222,886	$	9,222,886	$	—	$	—	$	—	$	—
	Adjustable-rate			201,285		201,285		—		—		—		—
		Total mortgage pass-through securities		9,424,171		9,424,171		—		—		—		—
Collateralized mortgage obligations				2,683,594		2,387,888		129,101		96,406		68,875		1,324
U.S. Treasury securities				1,080,340		1,080,340		—		—		—		—
Obligations of U.S. Government-sponsored enterprises				736,149		736,149		—		—		—		—
Derivative financial instruments				444,259		—		—		—		—		444,259
Interest-only securities				260,063		182,359		—		—		—		77,704
Asset-backed securities				191,136		153,742		16,017		6,337		15,040		—
Mark-to-market on TBA securities				114,015		—		—		—		—		114,015
Residual securities				1,768		—		—		—		304		1,464
Other				2,677		—		—		—		—		2,677
			$	14,938,172	$	13,964,649	$	145,118	$	102,743	$	84,219	$	641,443

        As of September 30, 2007, $11.4 billion of the Company's trading securities had been pledged as collateral for financing purposes, of which the counterparty had the contractual right to sell or re-pledge $1.8 billion.

        As of December 31, 2006, $19.5 billion of the Company's trading securities had been pledged as collateral for financing purposes, of which the counterparty had the contractual right to sell or re-pledge $1.5 billion.

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

	September 30, 2007		December 31, 2006
	(in thousands)
U.S. Treasury securities	$	1,296,107	$	2,803,030
Obligation of U.S. Government-sponsored enterprises		503,138		305,826
Derivative financial instruments		483,866		9,235
Mark-to-market on TBA securities		98,752		181,119
Mortgage pass-through securities—fixed-rate		—		26,024
Other		3,185		15
	$	2,385,048	$	3,325,249

15

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

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

	September 30, 2007		December 31, 2006
	(in thousands)
Securities purchased under agreements to resell	$	11,599,613	$	22,559,194
Securities borrowed		541,352		3,460,703
Federal funds sold		2,750,000		1,250,000
	$	14,890,965	$	27,269,897

        As of September 30, 2007, the Company had accepted collateral related to securities purchased under agreements to resell and securities borrowed with a fair value of $19.1 billion that it had the contractual ability to sell or re-pledge, including $6.0 billion related to amounts offset by securities sold under agreements to repurchase under master netting arrangements. As of September 30, 2007, the Company had re-pledged $17.8 billion of such collateral for financing purposes.

        As of December 31, 2006, the Company had accepted collateral related to securities purchased under agreements to resell and securities borrowed with a fair value of $56.0 billion that it had the contractual ability to sell or re-pledge, including $30.0 billion related to amounts offset by securities sold under agreements to repurchase under master netting arrangements. As of December 31, 2006, the Company had re-pledged $51.5 billion of such collateral for financing purposes.

16

Note 9—Loans Held for Investment, Net

        Loans held for investment include the following:

			September 30, 2007			December 31, 2006
			(in thousands)
Mortgage loans:
	Banking Operations:
		Prime	$	46,980,635		$	51,762,137
		Prime home equity		32,431,662			20,036,126
		Nonprime		46,664			—
		Commercial real estate		385,238			19,413
				79,844,199			71,817,676
	Mortgage Banking:
		Nonprime		1,061,326			115,054
		Prime		669,782			252,731
		Prime home equity		262,410			57,518
				1,993,518			425,303
	Capital Markets—commercial real estate			20,000			53,000
		Total mortgage loans		81,857,717			72,295,979
Defaulted FHA-insured and VA-guaranteed loans repurchased from securities				2,141,774			1,761,170
Warehouse lending advances secured by mortgage loans				567,743			3,185,248
				84,567,234			77,242,397
Premium and discounts and deferred loan origination fees and costs, net				210,905			1,104,414
Allowance for loan losses				(1,219,963	)		(261,054	)
		Loans held for investment, net	$	83,558,176		$	78,085,757

        During the nine months ended September 30, 2007, the Company transferred prime, prime home equity and nonprime mortgage loans with an unpaid principal balance of $3.9 billion, $9.8 billion and $1.0 billion, respectively, and a carrying value after recognition of impairment upon transfer of the loans of $3.8 billion, $9.4 billion and $0.8 billion, respectively, from mortgage loans held for sale to loans held for investment, as the Company decided to hold those loans for the foreseeable future. The impairment in the amount of $0.7 billion is recorded as a component of gain on sale of loans and securities.

        Mortgage loans totaling $62.4 billion and $57.5 billion were pledged to secure FHLB advances and to enable additional borrowings from the FHLB at September 30, 2007 and December 31, 2006, respectively.

        Mortgage loans held for investment totaling $4.0 billion and $2.9 billion were pledged to secure an unused borrowing facility at September 30, 2007 and December 31, 2006, respectively.

17

        Defaulted FHA-insured and VA-guaranteed loans repurchased from securities totaling $1.2 billion and $0.5 billion were pledged to secure securities sold under agreements to repurchase at September 30, 2007 and December 31, 2006, respectively.

        As of September 30, 2007 and December 31, 2006, the Company had accepted mortgage loan collateral of $0.6 billion and $3.5 billion, respectively, that it had the contractual ability to re-pledge. The collateral secures warehouse lending advances. Of this collateral, $0.01 billion and $1.6 billion, respectively, has been re-pledged to secure borrowings under a secured revolving line of credit as of September 30, 2007 and December 31, 2006.

        Changes in the allowance for loan losses are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(in thousands)
Balance, beginning of period	$	512,904		$	183,581		$	261,054		$	189,201
Provision for loan losses		934,268			37,996			1,379,154			163,032
Net charge-offs		(227,209	)		(13,912	)		(420,245	)		(139,093	)
Reclassification of allowance for unfunded commitments and other		—			322			—			(5,153	)
Balance, end of period	$	1,219,963		$	207,987		$	1,219,963		$	207,987

        The Company has recorded a liability for losses on unfunded loan commitments in accounts payable and accrued liabilities totaling $20.6 million and $8.1 million at September 30, 2007 and December 31, 2006, respectively. The provision for these losses is recorded in other expenses. The following is a summary of changes in the liability:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007		2006
			(in thousands)
Balance, beginning of period	$	18,222	$	6,324		$	8,104	$	9,391
Provision for losses on unfunded loan commitments		2,418		(118	)		12,536		982
Reclassification of allowance for unfunded loan commitments		—		—			—		(4,167	)
Balance, end of period	$	20,640	$	6,206		$	20,640	$	6,206

18

Note 10—Investments in Other Financial Instruments, at Fair Value

        Investments in other financial instruments include the following:

				September 30, 2007		December 31, 2006
				(in thousands)
Securities accounted for as available-for-sale:
	Mortgage-backed securities			$	19,699,030	$	7,007,786
	Municipal bonds				411,491		412,886
	Obligations of U.S. Government-sponsored enterprises				347,466		776,717
	U.S. Treasury securities				97,567		168,313
	Other				72,916		2,858
		Subtotal			20,628,470		8,368,560
	Interests retained in securitization:
		Prime interest-only and principal-only securities			258,167		279,375
		Prime residual securities			9,101		1,435
		Prime home equity retained interests			96,133		185,112
		Prime home equity interest-only securities			9,594		7,021
		Nonprime residuals and other related securities			15,437		152,745
		Nonprime interest-only securities			14,719		3,757
		Prepayment penalty bonds			12,920		52,697
		Subordinated mortgage-backed pass-through securities			459		1,382
			Total interests retained in securitization		416,530		683,524
	Total securities accounted for as available-for-sale				21,045,000		9,052,084
Securities accounted for as trading:
	Interests retained in securitization:
		Mortgage-backed pass-through securities			125,140		—
		Prime interest-only and principal-only securities			785,531		549,635
		Prime residual securities			14,042		11,321
		Prime home equity retained interests			493,376		1,291,509
		Prime home equity interest-only securities			—		22,467
		Nonprime residuals and other related securities			254,731		388,963
		Prepayment penalty bonds			89,854		90,666
		Subordinated mortgage-backed pass-through securities			281,195		—
		Interest rate swaps			3,129		2,490
			Total interests retained in securitization		2,046,998		2,357,051
	Servicing hedge principal-only securities				884,181		—
	Other				64,173		—
	Total securities accounted for as trading				2,995,352		2,357,051
Hedging and mortgage pipeline derivatives:
	Mortgage loans held for sale and pipeline related				287,887		78,066
	Mortgage servicing related				1,968,643		837,908
	Notes payable related				822,275		444,342
		Total investments in other financial instruments		$	27,119,157	$	12,769,451

19

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

				September 30, 2007
						Credit Rating
				Total		AAA		AA		A		<A		Not Rated(1)
								(in thousands)
Securities accounted for as available-for-sale:
	Mortgage-backed securities			$	19,699,030	$	19,483,216	$	116,672	$	53,985	$	45,157	$	—
	Municipal bonds				411,491		265,393		120,593		18,681		6,824		—
	Obligations of U.S. Government-sponsored enterprises				347,466		347,466		—		—		—		—
	U.S. Treasury securities				97,567		97,567		—		—		—		—
	Other				72,916		72,851		—		50		—		15
		Subtotal			20,628,470		20,266,493		237,265		72,716		51,981		15
	Interests retained in securitization:
		Prime interest-only and principal-only securities			258,167		223,681		—		—		—		34,486
		Prime residual securities			9,101		—		—		—		—		9,101
		Prime home equity retained interests			96,133		—		—		—		—		96,133
		Prime home equity interest-only securities			9,594		—		—		—		—		9,594
		Nonprime residuals and other related securities			15,437		—		—		—		—		15,437
		Nonprime interest-only securities			14,719		3,883		—		—		—		10,836
		Prepayment penalty bonds			12,920		1,090		—		—		—		11,830
		Subordinated mortgage-backed pass-through securities			459		—		—		—		459		—
			Total interests retained in securitization		416,530		228,654		—		—		459		187,417
	Total securities accounted for as available-for-sale				21,045,000		20,495,147		237,265		72,716		52,440		187,432
Securities accounted for as trading:
	Interests retained in securitization:
		Mortgage-backed pass-through securities			125,140		125,140		—		—		—		—
		Prime interest-only and principal-only securities			785,531		770,168		—		—		—		15,363
		Prime residual securities			14,042		—		—		—		—		14,042
		Prime home equity retained interests			493,376		—		—		—		—		493,376
		Nonprime residuals and other related securities			254,731		—		—		—		—		254,731
		Prepayment penalty bonds			89,854		—		—		—		—		89,854
		Subordinated mortgage-backed pass-through securities			281,195		—		147,604		55,065		76,025		2,501
		Interest rate swaps			3,129		—		—		—		—		3,129
			Total interests retained in securitization		2,046,998		895,308		147,604		55,065		76,025		872,996
	Servicing hedge principal-only securities				884,181		884,181		—		—		—		—
	Other				64,173		3,462		14,573		31,155		14,277		706
	Total securities accounted for as trading				2,995,352		1,782,951		162,177		86,220		90,302		873,702
Total				$	24,040,352	$	22,278,098	$	399,442	$	158,936	$	142,742	$	1,061,134

(1)

These securities are generally not rated due to their illiquidity and the absence of significant trading activity. Derivative financial instruments are not included in this table as derivatives are contracts between Countrywide and a counterparty. Countrywide manages its derivatives counterparty risk by entering into derivatives only with creditworthy counterparties and limiting its exposure to individual counterparties.

20

        At September 30, 2007, the Company had pledged $0.08 billion of MBS to secure securities sold under agreements to repurchase, which the counterparty had the contractual right to re-pledge, $0.03 billion of MBS to secure margin calls on derivative instruments and $0.05 billion of MBS to secure an unused borrowing facility.

        At December 31, 2006, the Company had pledged $0.1 billion of MBS to secure securities sold under agreements to repurchase, which the counterparty had the contractual right to re-pledge and $0.1 billion of MBS to secure an unused borrowing facility.

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

	September 30, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Mortgage-backed securities	$	19,944,820	$	9,301	$	(255,091	)	$	19,699,030
Municipal bonds		411,281		2,157		(1,947	)		411,491
Obligations of U.S. Government-sponsored enterprises		344,115		3,351		—			347,466
U.S. Treasury securities		95,428		2,201		(62	)		97,567
Interests retained in securitization		293,920		140,138		(17,528	)		416,530
Other		72,561		423		(68	)		72,916
	$	21,162,125	$	157,571	$	(274,696	)	$	21,045,000

	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Mortgage-backed securities	$	7,111,045	$	4,091	$	(107,350	)	$	7,007,786
Municipal bonds		414,249		1,649		(3,012	)		412,886
Obligations of U.S. Government-sponsored enterprises		781,329		1,280		(5,892	)		776,717
U.S. Treasury securities		167,724		1,414		(825	)		168,313
Interests retained in securitization		589,501		111,722		(17,699	)		683,524
Other		2,860		—		(2	)		2,858
	$	9,066,708	$	120,156	$	(134,780	)	$	9,052,084

21

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

	September 30, 2007
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in thousands)
Mortgage-backed securities	$	12,870,498	$	(140,124	)	$	4,216,304	$	(114,967	)	$	17,086,802	$	(255,091	)
Municipal bonds		32,501		(197	)		196,927		(1,750	)		229,428		(1,947	)
Obligations of U.S. Government-sponsored enterprises		—		—			—		—			—		—
U.S. Treasury securities		—		—			17,402		(62	)		17,402		(62	)
Interests retained in securitization		3,930		(57	)		116,653		(17,471	)		120,583		(17,528	)
Other		27,122		(68	)		50		—			27,172		(68	)
Total impaired securities	$	12,934,051	$	(140,446	)	$	4,547,336	$	(134,250	)	$	17,481,387	$	(274,696	)

	December 31, 2006
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in thousands)
Mortgage-backed securities	$	1,482,240	$	(4,580	)	$	5,106,195	$	(102,770	)	$	6,588,435	$	(107,350	)
Municipal bonds		58,106		(317	)		212,973		(2,695	)		271,079		(3,012	)
Obligations of U.S. Government-sponsored enterprises		87,472		(163	)		484,186		(5,729	)		571,658		(5,892	)
U.S. Treasury securities		6,477		(22	)		103,018		(803	)		109,495		(825	)
Interests retained in securitization		42,854		(4,114	)		84,978		(13,585	)		127,832		(17,699	)
Other		—		—			48		(2	)		48		(2	)
Total impaired securities	$	1,677,149	$	(9,196	)	$	5,991,398	$	(125,584	)	$	7,668,547	$	(134,780	)

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

22

        During the nine months ended September 30, 2007, ALCO determined that the Company no longer intends to hold certain obligations of U.S. Government-sponsored enterprises and mortgage-backed securities until the impairment can be recovered. Such securities had a carrying value of $587.2 million and unrealized losses recorded in accumulated other comprehensive income totaling $25.8 million at the time this determination was made. Accordingly, the Company transferred the impairment losses relating to these securities from accumulated other comprehensive income to earnings during the nine months ended September 30, 2007. No other-than-temporary impairment was recorded during the nine months ended September 30, 2006.

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

			Nine Months Ended September 30,
			2007			2006
			(in thousands)
Mortgage-backed securities:
	Gross realized gains		$	11		$	—
	Gross realized losses			—			—
		Net		11			—
Municipal bonds:
	Gross realized gains			75			64
	Gross realized losses			(885	)		(162	)
		Net		(810	)		(98	)
Obligations of U.S. Government-sponsored enterprises:
	Gross realized gains			1,015			6
	Gross realized losses			(16	)		(51	)
		Net		999			(45	)
U.S. Treasuries:
	Gross realized gains			1,152			—
	Gross realized losses			—			—
		Net		1,152			—
Interests retained in securitization:
	Gross realized gains			1,615			6,956
	Gross realized losses			(12	)		—
		Net		1,603			6,956
Total gains and losses on available-for-sale securities:
	Gross realized gains			3,868			7,026
	Gross realized losses			(913	)		(213	)
		Net	$	2,955		$	6,813

23

Note 11—Mortgage Servicing Rights, at Fair Value

        The activity in MSRs is as follows:

				Nine Months Ended September 30,
				2007			2006
				(in thousands)
Balance at beginning of period				$	16,172,064		$	12,610,839
	Remeasurement to fair value upon adoption of SFAS 156				—			109,916
Fair value at beginning of period					16,172,064			12,720,755
	Additions:
		Servicing resulting from transfers of financial assets			5,653,354			4,082,935
		Purchases of servicing assets			195,522			48,817
			Total additions		5,848,876			4,131,752
	Change in fair value:
		Due to changes in valuation inputs or assumptions used in valuation model(1)			400,581			314,391
		Other changes in fair value(2)			(2,353,368	)		(2,148,483	)
Balance at end of period				$	20,068,153		$	15,018,415

(1)

Principally reflects changes in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.

(2)

Represents changes due to realization of expected cash flows.

24

Note 12—Other Assets

        Other assets include the following:

	September 30, 2007		December 31, 2006
	(in thousands)
Reimbursable servicing advances, net	$	2,883,215	$	2,170,891
Investments in FRB and FHLB stock		2,324,862		1,433,070
Interest receivable		889,594		997,854
Margin accounts		843,058		118,254
Real estate acquired in settlement of loans		676,122		251,163
Securities broker-dealer receivables		538,962		1,605,502
Prepaid expenses		419,666		320,597
Capitalized software, net		378,935		367,055
Receivables from custodial accounts		327,087		719,048
Cash surrender value of assets held in trust for deferred compensation plans		317,068		372,877
Cash surrender value of Company-owned life insurance		226,872		5,894
Restricted cash		200,389		238,930
Mortgage guaranty insurance tax and loss bonds		165,066		128,293
Receivables from sale of securities		100,042		284,177
Other		1,111,945		828,185
	$	11,402,883	$	9,841,790

        The Company had pledged $0.5 billion and $1.2 billion of securities broker-dealer receivables to secure securities sold under agreements to repurchase at September 30, 2007 and December 31, 2006, respectively.

25

Note 13—Deposit Liabilities

        Deposit liabilities include the following:

			September 30, 2007			December 31, 2006
			(in thousands)
Non-interest-bearing checking accounts			$	510,619		$	113,045
Retail savings and money market accounts				7,183,965			5,943,927
Commercial money market accounts				4,158,084			3,583,763
Time deposits:
	Retail			18,492,386			17,973,792
	Brokered			7,943,767			11,612,674
	Commercial
		Premier business banking		496,281			635,927
		Other		392,537			—
				888,818			635,927
				27,324,971			30,222,393
Company-controlled custodial deposit accounts(1)				15,579,791			15,737,632
				54,757,430			55,600,760
Basis adjustment through application of hedge accounting				(8,041	)		(22,078	)
			$	54,749,389		$	55,578,682

(1)

These accounts represent the portion of the investor custodial accounts controlled by Countrywide that have been placed on deposit with Countrywide Bank, FSB ("Countrywide Bank" or the "Bank").

26

        Substantially all of the time deposits outstanding were interest-bearing. The contractual maturities of those deposits as of September 30, 2007, are shown in the following table:

		Time Deposit Maturities			Weighted Average Rate
		(dollar amounts in thousands)
Quarter ending:
	December 31, 2007	$	5,728,125		5.17	%
	March 31, 2008		5,783,561		5.22	%
	June 30, 2008		4,085,751		5.19	%
	September 30, 2008		6,106,722		5.32	%
Total twelve months ending September 30, 2008			21,704,159		5.23	%
Twelve months ending September 30,
	2009		2,500,294		4.58	%
	2010		740,678		4.66	%
	2011		430,640		5.04	%
	2012		342,601		5.09	%
	Thereafter		1,606,599		5.62	%
			27,324,971		5.17	%
	Basis adjustment through application of hedge accounting		(8,041	)
		$	27,316,930

Note 14—Securities Sold Under Agreements to Repurchase

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

        At September 30, 2007, repurchase agreements were secured by $0.2 billion of mortgage loans held for sale, $11.4 billion of trading securities, $17.8 billion of securities purchased under agreements to resell and securities borrowed, $1.2 billion in loans held for investment, $0.08 billion in investments in other financial instruments and $0.5 billion of other assets. At September 30, 2007, $6.0 billion of the pledged securities purchased under agreements to resell and securities borrowed related to amounts offset against securities sold under agreements to repurchase pursuant to master netting agreements.

        At December 31, 2006, repurchase agreements were secured by $0.03 billion of mortgage loans held for sale, $19.5 billion of trading securities, $51.5 billion of securities purchased under agreements to resell and securities borrowed, $0.5 billion in loans held for investment, $0.1 billion in investments in other financial instruments and $1.2 billion of other assets. At December 31, 2006, $30.0 billion of the pledged securities purchased under agreements to resell and securities borrowed related to amounts offset against securities sold under agreements to repurchase pursuant to master netting agreements.

27

Note 15—Notes Payable

        The following table summarizes notes payable:

		September 30, 2007		December 31, 2006
		(in thousands)
Asset-backed commercial paper		$	170,171	$	7,721,278
Unsecured commercial paper			907,006		6,717,794
Secured revolving lines of credit			2,496,232		2,174,171
Unsecured revolving lines of credit			11,480,000		—
Secured overnight bank loans			—		105,049
Asset-backed secured financings			10,200,732		241,211
Unsecured bank loans			—		130,000
Federal Home Loan Bank advances			51,050,000		28,150,000
Medium-term notes:
	Floating-rate		13,124,375		13,155,231
	Fixed-rate		9,126,439		9,783,881
			22,250,814		22,939,112
Convertible debentures			4,000,000		—
Junior subordinated debentures			2,175,822		2,232,334
Subordinated debt			1,025,964		1,027,797
Other			37,551		48,838
		$	105,794,292	$	71,487,584

Asset-Backed Commercial Paper

        The Company has formed two special purpose entities (Park Granada and Park Sienna) to finance certain of its mortgage loans held for sale using commercial paper. These entities issue commercial paper in the form of extendible short-term secured liquidity notes ("SLNs"). SLNs are issued with initial maturities of up to 180 days; under certain conditions, the issuer can extend the maturity dates of the SLNs for an additional period of up to 180 days. The SLNs bear interest at prevailing money market rates approximating LIBOR. While these facilities remain contractually available, given the lack of liquidity in the extendible SLN segment of the commercial paper market, borrowings under these facilities are not available at this time.

        For the nine months ended September 30, 2007, the average borrowings under these facilities totaled $13.5 billion and the weighted-average interest rate of the SLNs was 5.36%. At September 30, 2007, the weighted-average interest rate of the SLNs was 5.36% and the Company had pledged $0.3 billion in mortgage loans held for sale and $0.1 billion of loans held for investment to secure the SLNs.

        For the nine months ended September 30, 2006, the average borrowings under these facilities totaled $18.9 billion and the weighted-average interest rate of the SLNs was 5.01%. At September 30, 2006, the weighted-average interest rate of the SLNs was 5.44% and the Company had pledged $6.9 billion in mortgage loan inventory to secure the SLNs.

28

Unsecured Commercial Paper and Unsecured Revolving Lines of Credit

        For the nine months ended September 30, 2007, the average unsecured commercial paper outstanding totaled $6.4 billion and the weighted-average interest rate was 5.36%. At September 30, 2007, the weighted-average interest rate was 5.32%.

        For the nine months ended September 30, 2006, the average unsecured commercial paper outstanding totaled $6.7 billion and the weighted-average interest rate was 5.02%. At September 30, 2006, the weighted-average interest rate was 5.40%.

        As of September 30, 2007, the Company had unsecured credit agreements (revolving credit facilities) with a group of commercial banks permitting the Company to borrow a maximum total amount of $11.5 billion. In August 2007, the Company borrowed $11.5 billion from these revolving credit facilities, which represents the maximum permitted under the agreements. For the nine months ended September 30, 2007, the average outstanding borrowings under these revolving credit facilities totaled $1.9 billion and the weighted-average interest rate was 5.37%. At September 30, 2007, the weighted-average interest rate was 5.56%. No amount was outstanding under this facility at December 31, 2006.

Secured Revolving Lines of Credit

        The Company has formed a special purpose entity (Park Monaco) to finance inventory with funding provided by a group of bank-sponsored conduits that are financed through the issuance of asset-backed commercial paper. The entity incurs interest based on prevailing money market rates approximating the cost of asset-backed commercial paper. At September 30, 2007, the entity had aggregate commitments from the bank-sponsored conduits totaling $10.4 billion and had $2.5 billion of outstanding borrowings, secured by $2.3 billion of mortgage loans held for sale and $0.7 billion of mortgage loans held for investment. For the nine months ended September 30, 2007, the average borrowings under this facility totaled $1.3 billion and the weighted-average interest rate was 5.64%. At September 30, 2007, the weighted-average interest rate was 5.93%.

        For the nine months ended September 30, 2006, the average borrowings under this facility totaled $1.2 billion and the weighted-average interest rate was 4.68%. At September 30, 2006, the weighted-average interest rate was 5.32%.

        The Company entered into a $4.0 billion master trust facility on June 2, 2006, to finance Countrywide Warehouse Lending ("CWL") receivables backed by mortgage loans. A multi-asset conduit finance company funds the purchase of notes backed by CWL receivables which are financed by issuing extendible maturity asset-backed commercial paper. At September 30, 2007, the Company had pledged $0.01 billion in loans held for investment to secure this facility. For the nine months ended September 30, 2007, the average borrowings under this facility totaled $0.9 billion and the weighted-average interest rate was 5.40%. There were no borrowings under this facility at September 30, 2007. On October 10, 2007, the Company elected to terminate this facility.

        For the nine months ended September 30, 2006, the average borrowing under this facility totaled $0.4 billion. During the nine month ended September 30, 2006, the weighted average interest rate was 5.44%.

        In April 2007, the Company entered into a secured master note purchase agreement to finance commercial real estate mortgage loan inventory. For the nine months ended September 30, 2007, the

29

average borrowings under this facility totaled $0.9 billion and the weighted-average interest rate was 5.44%. This facility was terminated in August 2007 and there were no borrowings under this facility at September 30, 2007.

Asset-Backed Secured Financings

        The Company recorded certain securitization transactions as secured borrowings because they did not meet the accounting criteria for sales treatment. The amounts accounted for as secured borrowings totaled $4.1 billion and $0.2 billion at September 30, 2007 and December 31, 2006, respectively. At September 30, 2007, the Company had pledged $4.6 billion of mortgage loans held for sale to secure these borrowings.

        CSC may from time to time reacquire securities, which benefit from derivative instruments, previously sold to nonaffiliates in the Company's securitization transactions. These transactions are part of CSC's normal market-making and trading activities and as such the securities are classified as trading securities. For such reacquired securities not to cause the Company to re-recognize the securitization transaction on its balance sheet, such trading securities shall be held temporarily. If management subsequently determines that the securities will be held longer than temporarily, the related securitization transaction must be re-recognized as a secured borrowing with the securities recorded as debt at their fair value and an offsetting entry to loans held for sale ("Mortgage Loans held in SPEs") until the repurchased securities are sold.

        During the nine months ended September 30, 2007, CSC reacquired securities with embedded derivatives in its market-making and trading activities. After reacquiring those securities, the market for non-agency mortgage-backed securities was disrupted. Management concluded that certain securities it owned on September 30, 2007 no longer would be held only temporarily. As a result, a liability of $6.1 billion and related loans held for sale were recognized on the Company's balance sheet at September 30, 2007.

Federal Home Loan Bank Advances

        During the nine months ended September 30, 2007, the Company obtained $54.4 billion of advances from the FHLB, of which $20.8 billion are adjustable-rate advances, with the remainder being fixed-rate advances. Of these adjustable-rate advances, $0.9 billion are initially fixed-rate and provide the FHLB the option to convert the advances to a floating rate no later than 2010. The remaining adjustable-rate advances have rates that will not exceed the initial rate, however, the rate may decrease if the 12-Month Treasury Average Index rate increases above a specified level. At September 30, 2007, the Company had pledged $62.4 billion of mortgage loans to secure its outstanding FHLB advances and enable future advances.

        At December 31, 2006, the Company had pledged $57.5 billion of mortgage loans to secure its outstanding FHLB advances and enable future advances.

30

Medium-Term Notes

        During the nine months ended September 30, 2007, the Company issued the following medium-term notes:

	Outstanding Balance						Interest Rate				Maturity Date
	Floating-Rate		Fixed-Rate		Total		From		To		From	To
	(dollar amounts in thousands)
CFC Series B	$	1,717,000	$	2,222,935	$	3,939,935	4.90	%	5.80	%	January, 2008	June, 2012

        All of the fixed-rate medium-term notes issued by the Company during the nine months ended September 30, 2007 were effectively converted to floating-rate debt using interest rate swaps.

        During the nine months ended September 30, 2007, the Company redeemed $5.0 billion of maturing medium-term notes.

        As of September 30, 2007, $4.2 billion of foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Euros, Pounds Sterling, Australian Dollars, Canadian Dollars and Swiss Francs. These notes have been effectively converted to U.S. Dollars through currency swaps.

31

Convertible Debentures

        As detailed in a Form 8-K filed with the Securities and Exchange Commission on May 29, 2007, in May 2007, the Company issued $4.0 billion series A and B floating rate convertible debentures. The debentures bear interest at rates indexed to LIBOR and are guaranteed by one of the Company's subsidiaries, Countrywide Home Loans. The following table summarizes certain terms of the convertible debentures:

	Series A		Series B
Securities offered	$2.0 billion aggregate principal amount		$2.0 billion aggregate principal amount
Maturity date	April 15, 2037		May 15, 2037
Annual interest rate	3-month LIBOR, reset quarterly, minus 3.50%, payable quarterly. The interest rate at September 30, 2007 was 1.86%		3-month LIBOR, reset quarterly, minus 2.25%, payable quarterly. The interest rate at September 30, 2007 was 3.31%
Conversion rights	Holders may convert their debentures, in whole or in part, at any time before the close of business on the business day immediately preceding the relevant maturity date from and after the date of the following events:
	•	upon satisfaction of the common stock sale price condition;
	•	if the trading price of the debentures falls below a certain level;
	•	if the Company has called those debentures for redemption;
	•	on or after January 15, 2037, in the case of the Series A Debentures or February 15, 2037, in the case of the Series B Debentures; or
	•	upon occurrence of specified corporate transactions affecting the Company
Conversion rate	19.0734 shares of common stock for each debenture subject to adjustment in specified circumstances		17.1003 shares of common stock for each debenture subject to adjustment in specified circumstances
Redemption	The Company may redeem the Debentures, in whole or in part, at any time on or after:
	October 15, 2008		May 15, 2009
Repurchase of debentures by Countrywide at option of holder on certain dates	Holders have the right to require the Company to repurchase all or a portion of their Debentures on:
	October 15, 2008, 2009, 2010, 2012, 2017, 2022, 2027 and 2032		May 15, 2009, 2010, 2012, 2017, 2022, 2027, and 2032

32

Junior Subordinated Debentures

        As more fully discussed in "Note 15—Notes Payable" included in the consolidated financial statements of the 2006 Annual Report, the Company has issued junior subordinated debentures to non-consolidated subsidiary trusts. The trusts finance their holdings of the junior subordinated debentures by issuing Company-guaranteed capital securities.

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

			September 30, 2007		December 31, 2006
			(in thousands)
Balance Sheet:
	Junior subordinated debentures receivable		$	205,345	$	205,312
	Other assets			4,841		1,191
		Total assets	$	210,186	$	206,503
	Notes payable		$	6,174	$	6,173
	Other liabilities			4,841		1,191
	Company-obligated guaranteed redeemable capital trust pass-through securities			199,171		199,139
	Shareholder's equity			—		—
		Total liabilities and shareholder's equity	$	210,186	$	206,503

			Nine Months Ended September 30,
			2007			2006
			(in thousands)
Statement of Earnings:
	Revenues		$	12,482		$	12,482
	Expenses			(12,482	)		(12,482	)
	Provision for income taxes			—			—
		Net earnings	$	—		$	—

Subordinated Debt

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

33

Maturities of Notes Payable

        Maturities of notes payable are as follows:

			Principal, Net of Premiums and Discounts		Hedge Basis Adjustment			Total
					(in thousands)
Quarter ending:
	December 31, 2007		$	9,403,004	$	38,298		$	9,441,302
	March 31, 2008			3,251,136		73			3,251,209
	June 30, 2008			10,857,159		244,630			11,101,789
	September 30, 2008			2,550,927		35,946			2,586,873
Total twelve months ending September 30, 2008				26,062,226		318,947			26,381,173
Twelve months ending September 30,
	2009			11,297,565		117,092			11,414,657
	2010			15,574,085		689			15,574,774
	2011			27,149,878		258,735			27,408,613
	2012			7,140,318		44,705			7,185,023
	Thereafter			17,847,348		(17,296	)		17,830,052
		Total	$	105,071,420	$	722,872		$	105,794,292

Note 16—Series B Convertible Preferred Stock

        In August 2007, the Company issued 20,000 shares of Series B non-voting convertible preferred stock, par value $0.05 per share for an aggregate price of $2.0 billion. Each preferred share is entitled to receive cash dividends, payable quarterly if declared, at the annual rate of 7.25% of the liquidation preference, which initially is equal to $100,000 per share ("liquidation preference") or $1,812.50 per share per quarter. Dividends are cumulative and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year. If the dividends are not paid for six quarters, holders of the preferred stock are entitled to designate two directors to the Company's Board of Directors until dividends have been paid for two consecutive quarters.

        The preferred stock ranks senior to the Company's common stock with respect to payment of dividends and distributions upon liquidation. Holders of the preferred shares are entitled to receive, in the event that the Company is liquidated, dissolved or wound up, the liquidation preference plus all accumulated and unpaid dividends, regardless of whether they were declared.

        Each share of preferred stock is convertible, at any time, in whole or in part at the option of the holder, into shares of common stock equal to the liquidation preference divided by $18 ("conversion price"), subject to adjustments, plus cash in an amount equal to any accumulated and unpaid dividends. The holders of the preferred stock may not sell, transfer or dispose of any shares of common stock received upon conversion of the preferred stock at any time during the 18 month period following the date of conversion. The holders of the preferred stock are subject to restrictions prohibiting them from, among other things, acquiring beneficial ownership of additional voting securities of the Company.

        The Company has the right, at its option, to redeem the outstanding preferred stock, if the daily closing price of the Company's common stock exceeds 150% of the conversion price for 30 consecutive

34

trading days on or after August 22, 2017, by paying the liquidation preference in cash and any accumulated and unpaid dividends on the preferred stock.

Note 17—Regulatory and Agency Capital Requirements

        On March 12, 2007, the Bank converted its charter from a national bank to a federal savings bank. As a result of this conversion, the Company became a savings and loan holding company, and is no longer a bank holding company. As a savings and loan holding company, Countrywide Financial Corporation is no longer subject to specific statutory capital requirements. Countrywide Bank's capital is calculated in compliance with the requirements of the Office of Thrift Supervision ("OTS"), which are similar to those of the Office of the Comptroller of the Currency, the Bank's former regulator. The Company is also subject to U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac and Government National Mortgage Association ("Ginnie Mae") net worth requirements, which are lower than those of the OTS. Management believes the Company is in compliance with those requirements.

        At September 30, 2007, the Bank's regulatory capital ratios and amounts and minimum required capital ratios to maintain a "well capitalized" status are as follows:

		September 30, 2007
		Minimum Required(1)		Ratio		Amount
		(dollar amounts in thousands)
Tier 1 Capital		5.0	%	7.3	%	$	8,870,010
Risk-Based Capital:
	Tier 1	6.0	%	12.2	%	$	8,870,010
	Total	10.0	%	13.5	%	$	9,777,179

(1)

Minimum required to qualify as "well capitalized."

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

        Had Countrywide Bank's capital been calculated in compliance with the OTS requirements at December 31, 2006, its regulatory capital ratios and amounts and minimum required capital ratios would have been as follows:

		December 31, 2006
		Minimum Required (1)		Ratio		Amount
		(dollar amounts in thousands) (Proforma)
Tier 1 Capital		5.0	%	7.6	%	$	7,100,439
Risk-Based Capital:
	Tier 1	6.0	%	12.4	%	$	7,100,439
	Total	10.0	%	12.8	%	$	7,337,235

(1)

Minimum required to qualify as "well capitalized."

35

        Countrywide Bank is required by OTS regulations to maintain tangible capital of at least 1.5% of assets. However, the Bank is also required to maintain a tangible equity ratio of at least 2% to avoid being classified as "critically undercapitalized." Critically undercapitalized institutions are subject to the prompt corrective action provisions of the Financial Institution Reform Recovery and Enforcement Act of 1989. The Bank's tangible capital ratio was 7.3% and 7.6% at September 30, 2007 and December 31, 2006, respectively.

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

Note 18—Supplemental Cash Flow Information

        The following table presents supplemental cash flow information:

		Nine Months Ended September 30,
		2007			2006
		(in thousands)
Cash used to pay interest		$	7,831,608		$	6,512,785
Cash (refunded) used to pay income taxes			(58,354	)		104,470
Non-cash investing activities:
	Transfer of loans from mortgage loans held for sale to loans held for investment		13,950,678			—
	Transfer of loans from held for investment to mortgage loans held for sale		—			672,809
	Servicing resulting from transfers of financial assets		5,653,354			4,082,935
	Retention of other financial instruments classified as available-for-sale in securitization transactions		2,254			44,663
	Unrealized loss on available-for-sale securities, foreign currency translation adjustments and cash flow hedges, and change in unfunded liability relating to defined benefit plans, net of tax		(38,994	)		(46,236	)
	Remeasurement of fair value of MSRs upon adoption of SFAS 156, net of tax		—			67,065
	Remeasurement of income taxes payable upon adoption of FIN 48		(12,719	)		—
Non-cash financing activities:
	Increase in Mortgage Loans Held in SPEs and asset-backed secured financings		6,058,981			—
	Issuance of common stock for conversion of convertible debt		—			1,465

36

Note 19—Net Interest Income

        The following table summarizes net interest income:

			Three Months Ended September 30,				Nine Months Ended September 30,
			2007		2006		2007		2006
			(in thousands)
Interest income:
	Loans		$	2,068,844	$	2,237,502	$	6,338,949	$	5,961,815
	Trading securities			323,191		224,704		984,075		578,728
	Securities purchased under agreements to resell, securities borrowed and federal funds sold			425,615		586,877		1,700,304		1,530,618
	Investments in other financial instruments			290,823		89,103		651,575		282,652
	Other			146,637		149,974		431,833		373,685
		Total interest income		3,255,110		3,288,160		10,106,736		8,727,498
Interest expense:
	Deposit liabilities			528,420		452,559		1,572,289		1,095,387
	Securities sold under agreements to repurchase and federal funds purchased			663,507		729,387		2,465,278		1,914,803
	Trading securities sold, not yet purchased			58,705		62,694		181,209		164,655
	Notes payable			1,197,635		1,112,459		3,371,080		3,095,995
	Other			100,534		132,091		351,638		272,779
		Total interest expense		2,548,801		2,489,190		7,941,494		6,543,619
Total net interest income			$	706,309	$	798,970	$	2,165,242	$	2,183,879

Note 20—Restructuring Charges

        During the quarter ended September 30, 2007, the Company initiated a program to reduce costs and improve operating efficiencies in response to lower mortgage market origination volumes and other market conditions. The Company presently expects that total U.S. mortgage market origination volumes will decline approximately 30% in 2008 compared to 2007 levels. As part of this plan, the Company announced workforce reductions of between 10,000 and 12,000 positions over three months, representing up to 20% of its workforce. Actual reductions could be lower should the economic environment and related mortgage market volume outlook improve. As part of this plan, the Company expects to incur lease and other contract termination costs. Management expects to record restructuring charges totaling $125 million to $150 million.

37

        The following table summarizes the restructuring liability balance, recorded in accounts payable and accrued liabilities at September 30, 2007, and related activity during the nine months ended September 30, 2007:

							Utilized
	Balance December 31, 2006												Balance September 30, 2007
			Additions		Reversals		Cash			Non-Cash
	(in thousands)
Severance and benefits	$	—	$	32,513	$	—	$	(5,935	)	$	(439	)	$	26,139
Lease termination costs		—		15,784		—		—			—			15,784
Other costs		—		8,915		—		—			(3,234	)		5,681
	$	—	$	57,212	$	—	$	(5,935	)	$	(3,673	)	$	47,604

        Specific actions taken in the quarter ended September 30, 2007, include reducing the workforce by approximately 6,000. These reductions occurred in most geographic locations and levels of the organization and expenses were recorded in the Other Operating Segment. Management expects to recognize the remaining expected pre-tax restructuring charges of approximately $68 million to $93 million, primarily in the fourth quarter of 2007.

Note 21—Pension Plans

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

        The Company's policy is to contribute the amount actuarially determined to be necessary to pay the benefits under the Pension Plan, and in no event to pay less than the amount necessary to meet the minimum funding standards of ERISA. In September 2007, the Company concluded that no contribution was necessary for the 2006 plan year to meet the minimum funding standards of ERISA. Accordingly, Countrywide did not make a contribution to the Pension Plan for the plan year 2006.

        Net periodic benefit cost for the pension plan during the three and nine months ended September 30, 2007 and 2006, includes the following components:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2007			2006			2007			2006
		(in thousands)
Service cost		$	20,739		$	21,656		$	62,218		$	63,856
Interest cost			6,168			5,331			18,505			15,719
Expected return on plan assets			(5,487	)		(4,206	)		(16,461	)		(12,402	)
Amortization of prior service cost			87			88			261			259
Recognized net actuarial loss			109			1,790			326			5,279
	Net periodic benefit cost	$	21,616		$	24,659		$	64,849		$	72,711

38

Note 22—Segments and Related Information

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

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

        The Loan Production Sector originates prime and nonprime loans for sale or securitization through a variety of channels on a national scale. The Loan Production Sector is comprised of three lending channels of Countrywide Home Loans and also includes the mortgage banking activities of Countrywide Bank. The three production channels are: the Retail Channel (Consumer Markets and Full Spectrum Lending), the Wholesale Lending Channel and the Correspondent Lending Channel. The Retail Channel sources mortgage loans primarily from consumers through the Company's retail branch network and call centers, as well as through real estate agents and homebuilders. The Wholesale Lending Channel sources mortgage loans primarily from mortgage brokers. The Correspondent Lending Channel purchases mortgage loans from other mortgage lenders, including financial institutions, commercial banks, savings and loan associations, home builders and credit unions.

        The Loan Servicing Sector includes investments in MSRs and retained interests, as well as the Company's loan servicing operations and subservicing for other domestic financial institutions. The Loan Closing Services Sector is comprised of the LandSafe companies, which provide credit reports, appraisals, title reports and flood determinations to the Company's Loan Production Sector, as well as to third parties.

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

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

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

        The Global Operations Segment includes Global Home Loans Limited, a provider of loan origination processing and loan subservicing in the United Kingdom until July 31, 2006; UKValuation Limited, a provider of property valuation services in the UK until December 6, 2006; Countrywide International Technology Holdings Limited, a licensor of loan origination processing, servicing and residential real estate value assessment technology; CFC India Private Limited, a provider of call

39

center, data processing and information technology related services; and CFC International (Processing Services), Limited, located in Costa Rica, a provider of call center and data processing services.

        Segment selection was based upon internal organizational structures, and the process by which these operations are managed and evaluated, including how resources are allocated to the operations.

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

40

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

        Financial highlights by operating segments are as follows:

		Quarter Ended September 30, 2007
		Mortgage Banking
		Loan Production			Loan Servicing			Closing Services			Total			Banking			Capital Markets			Insurance			Global Operations		Other			Total Consolidated
		(in thousands)
Revenues:
	External	$	(303,506	)	$	2,534		$	92,412		$	(208,560	)	$	(20,018	)	$	(255,979	)	$	441,174		$	9,408	$	(15,991	)	$	(49,966	)
	Intersegment		27,671			241,379			(226	)		268,824			(198,950	)		5,766			(1,838	)		23,783		(97,585	)		—
Total Revenues		$	(275,835	)	$	243,913		$	92,186		$	60,264		$	(218,968	)	$	(250,213	)	$	439,336		$	33,191	$	(113,576	)	$	(49,966	)
Pre-tax (Loss) Earnings		$	(1,314,928	)	$	(26,791	)	$	28,198		$	(1,313,521	)	$	(406,711	)	$	(344,402	)	$	150,180		$	8,060	$	(61,308	)	$	(1,967,702	)
Total Assets		$	46,521,882		$	36,506,833		$	119,175		$	83,147,890		$	106,080,355		$	28,794,994		$	3,526,551		$	239,939	$	(12,553,264	)	$	209,236,465

		Quarter Ended September 30, 2006
		Mortgage Banking
		Loan Production		Loan Servicing		Closing Services		Total		Banking			Capital Markets		Insurance			Global Operations		Other			Total Consolidated
		(in thousands)
Revenues:
	External	$	1,340,463	$	87,348	$	74,362	$	1,502,173	$	704,557		$	196,474	$	327,965		$	4,348	$	86,978		$	2,822,495
	Intersegment		37,629		254,974		—		292,603		(202,036	)		61,513		(1,117	)		11,088		(162,051	)		—
Total Revenues		$	1,378,092	$	342,322	$	74,362	$	1,794,776	$	502,521		$	257,987	$	326,848		$	15,436	$	(75,073	)	$	2,822,495
Pre-tax Earnings (Loss)		$	280,684	$	123,373	$	19,870	$	423,927	$	370,806		$	141,099	$	91,343		$	3,451	$	5,586		$	1,036,212
Total Assets		$	27,533,250	$	23,990,637	$	70,388	$	51,594,275	$	91,920,690		$	48,369,185	$	2,491,999		$	178,205	$	(1,359,782	)	$	193,194,572

        Included in the columns above labeled "Other" are the holding company activities and certain reclassifications to conform management reporting to the consolidated financial statements.

41

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

		Nine Months Ended September 30, 2007
		Mortgage Banking
		Loan Production			Loan Servicing			Closing Services			Total			Banking			Capital Markets			Insurance			Global Operations		Other			Total Consolidated
														(in thousands)
Revenues:
	External	$	2,294,867		$	(261,541	)	$	267,285		$	2,300,611		$	1,090,170		$	195,556		$	1,203,082		$	20,451	$	94,337		$	4,904,207
	Intersegment		44,568			749,764			(364	)		793,968			(592,106	)		59,644			(5,213	)		62,088		(318,381	)		—
Total Revenues		$	2,339,435		$	488,223		$	266,921		$	3,094,579		$	498,064		$	255,200		$	1,197,869		$	82,539	$	(224,044	)	$	4,904,207
Pre-tax (Loss) Earnings		$	(736,788	)	$	(243,242	)	$	86,415		$	(893,615	)	$	10,293		$	(102,684	)	$	428,559		$	18,754	$	(63,516	)	$	(602,209	)
Total Assets		$	46,521,882		$	36,506,833		$	119,175		$	83,147,890		$	106,080,355		$	28,794,994		$	3,526,551		$	239,939	$	(12,553,264	)	$	209,236,465

		Nine Months Ended September 30, 2006
		Mortgage Banking
		Loan Production			Loan Servicing		Closing Services		Total		Banking			Capital Markets		Insurance			Global Operations		Other			Total Consolidated
		(in thousands)
Revenues:
	External	$	4,202,172		$	662, 660	$	224,755	$	5,089,587	$	1,913,820		$	570,740	$	944,317		$	34,835	$	105,360		$	8,658,659
	Intersegment		(37	)		650,894		—		650,857		(515,957	)		208,052		(2,372	)		30,881		(371,461	)		—
Total Revenues		$	4,202,135		$	1,313,554	$	224,755	$	5,740,444	$	1,397,863		$	778,792	$	941,945		$	65,716	$	(266,101	)	$	8,658,659
Pre-tax Earnings (Loss)		$	889,397		$	651,374	$	68,302	$	1,609,073	$	1,037,263		$	454,262	$	245,033		$	16,439	$	(12,472	)	$	3,349,598
Total Assets		$	27,533,250		$	23,990,637	$	70,388	$	51,594,275	$	91,920,690		$	48,369,185	$	2,491,999		$	178,205	$	(1,359,782	)	$	193,194,572

        Included in the columns above labeled "Other" are the holding company activities and certain reclassifications to conform management reporting to the consolidated financial statements.

42

Note 23—Summarized Financial Information

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

			September 30, 2007
			Countrywide Financial Corporation (Parent Only)		Countrywide Home Loans, Inc. (Consolidated)		Other Subsidiaries		Eliminations			Consolidated
			(in thousands)
Balance Sheets:
	Mortgage loans held for sale		$	677,791	$	19,586,705	$	10,516,765	$	76,517		$	30,857,778
	Trading securities			—		260,063		14,857,147		(179,038	)		14,938,172
	Securities purchased under agreements to resell, securities borrowed and federal funds sold			—		1,750,000		17,120,134		(3,979,169	)		14,890,965
	Loans held for investment, net			—		7,550,091		76,023,478		(15,393	)		83,558,176
	Investments in other financial instruments, at fair value			433,475		4,088,581		22,710,270		(113,169	)		27,119,157
	Mortgage servicing rights, at fair value			—		20,050,182		17,971		—			20,068,153
	Investments in subsidiaries			16,461,976		—		6,217		(16,468,193	)		—
	Other assets			32,903,180		24,929,313		12,631,434		(52,659,863	)		17,804,064
		Total assets	$	50,476,422	$	78,214,935	$	153,883,416	$	(73,338,308	)	$	209,236,465
	Deposit liabilities		$	—	$	—	$	59,740,850	$	(4,991,461	)	$	54,749,389
	Securities sold under agreements to repurchase and federal funds purchased			535,000		2,259,942		17,583,474		(3,988,805	)		16,389,611
	Notes payable			21,709,644		35,096,199		51,251,407		(2,262,958	)		105,794,292
	Other liabilities			12,979,546		37,316,902		12,410,785		(45,656,292	)		17,050,941
	Equity			15,252,232		3,541,892		12,896,900		(16,438,792	)		15,252,232
		Total liabilities and equity	$	50,476,422	$	78,214,935	$	153,883,416	$	(73,338,308	)	$	209,236,465

			Nine Months Ended September 30, 2007
			Countrywide Financial Corporation (Parent Only)			Countrywide Home Loans, Inc. (Consolidated)			Other Subsidiaries			Eliminations			Consolidated
			(in thousands)
Statements of (loss) earnings:
	Revenues		$	(56,704	)	$	3,626,601		$	2,355,344		$	(1,021,034	)	$	4,904,207
	Expenses			8,819			3,947,181			2,641,943			(1,091,527	)		5,506,416
	(Benefit) provision for income taxes			(25,266	)		(183,215	)		(141,061	)		28,977			(320,565	)
	Equity in net (loss) earnings of subsidiaries			(241,387	)		—			—			241,387			—
		Net (loss) earnings	$	(281,644	)	$	(137,365	)	$	(145,538	)	$	282,903		$	(281,644	)

43

			December 31, 2006
			Countrywide Financial Corporation (Parent Only)		Countrywide Home Loans, Inc. (Consolidated)		Other Subsidiaries		Eliminations			Consolidated
			(in thousands)
Balance Sheets:
	Mortgage loans held for sale		$	—	$	22,659,510	$	8,610,993	$	2,127		$	31,272,630
	Trading securities			—		287,206		21,381,541		(166,562	)		21,502,185
	Securities purchased under agreements to resell, securities borrowed and federal funds sold			—		—		27,738,192		(468,295	)		27,269,897
	Loans held for investment, net			—		4,563,919		73,534,762		(12,924	)		78,085,757
	Investments in other financial instruments, at fair value			191,138		1,725,235		10,853,078		—			12,769,451
	Mortgage servicing rights, at fair value			—		16,151,435		20,629		—			16,172,064
	Investments in subsidiaries			15,631,660		—		4,373		(15,636,033	)		—
	Other assets			29,405,609		15,322,522		13,424,629		(45,278,514	)		12,874,246
		Total assets	$	45,228,407	$	60,709,827	$	155,568,197	$	(61,560,201	)	$	199,946,230
	Deposit liabilities		$	—	$	—	$	55,987,128	$	(408,446	)	$	55,578,682
	Securities sold under agreements to repurchase and federal funds purchased			—		162,420		42,419,162		(468,081	)		42,113,501
	Notes payable			21,629,761		23,062,613		33,869,709		(7,074,499	)		71,487,584
	Other liabilities			9,280,800		33,307,493		11,819,403		(37,959,079	)		16,448,617
	Equity			14,317,846		4,177,301		11,472,795		(15,650,096	)		14,317,846
		Total liabilities and equity	$	45,228,407	$	60,709,827	$	155,568,197	$	(61,560,201	)	$	199,946,230

			Nine Months Ended September 30, 2006
			Countrywide Financial Corporation (Parent Only)			Countrywide Home Loans, Inc. (Consolidated)		Other Subsidiaries		Eliminations			Consolidated
			(in thousands)
Statements of Earnings:
	Revenues		$	(39,994	)	$	4,939,392	$	4,304,208	$	(544,947	)	$	8,658,659
	Expenses			9,882			3,902,601		1,934,960		(538,382	)		5,309,061
	(Benefit) provision for income taxes			(20,509	)		396,607		922,974		(2,739	)		1,296,333
	Equity in net earnings of subsidiaries			2,082,632			—		—		(2,082,632	)		—
		Net earnings	$	2,053,265		$	640,184	$	1,446,274	$	(2,086,458	)	$	2,053,265

Note 24—Borrower and Investor Custodial Accounts

        As of September 30, 2007 and December 31, 2006, the Company managed $20.8 billion and $23.3 billion, respectively, of borrower and investor custodial cash accounts. These custodial accounts relate to the Company's mortgage servicing activities. Of these amounts, $15.6 billion and $15.7 billion, respectively, were deposited at the Bank, and included in the Company's deposit liabilities as custodial deposit accounts. The remaining balances were deposited with other depository institutions and are not recorded on the Company's balance sheets.

44

Note 25—Legal Proceedings

        Countrywide and certain subsidiaries are defendants in various legal proceedings involving matters generally incidental to their 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 Countrywide, and certain of its 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. 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 1976 ("ERISA"). These cases allege, among other things, that Countrywide did not disclose complete and accurate information about its mortgage lending practices and financial condition. The shareholder derivative cases brought in federal court are brought on Countrywide's behalf and do not seek recovery of damages from the Company. A lawsuit alleging claims for derivative relief on behalf of the Company is also pending in federal district court in Delaware, and alleges, among other things, that certain Company proxy filings contain incorrect statements relating to the compensation of the Company's Chief Executive Officer.

        Although it is difficult to predict the resulting outcome of these proceedings, management currently believes that any resulting liability beyond that already recorded will not materially affect the consolidated financial position or results of operations of the Company.

Note 26—Loan Commitments

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

	September 30, 2007		December 31, 2006
	(in thousands)
Undisbursed home equity lines of credit	$	8,945,236	$	9,516,713
Undisbursed construction loans		1,692,706		1,460,757
Commitments to fund mortgage loans		29,011,662		33,506,166
Commitments to fund commercial real estate loans		1,323,096		1,991,204
Commitments to buy mortgage loans		19,481,064		21,291,923
Commitments to sell mortgage loans		28,042,413		39,664,918

Note 27—Subsequent Events

        On October 26, 2007, the Company announced that its Board of Directors declared dividends of $785.42 per share on its Series B preferred stock and $0.15 per common share. The preferred stock dividend is payable on November 15, 2007 and the common stock dividend is payable on November 30, 2007, to shareholders of record on November 13, 2007.

        Subsequent to September 30, 2007, the Company enhanced its liquidity position as follows:

•

Renewed its $10.4 billion secured revolving line of credit facility (Park Monaco) through October 3, 2008



•

Entered into a $5.0 billion one-year committed repurchase facility.

45

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 28—Recently Issued Accounting Pronouncements

        In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, ("SFAS 157"). SFAS 157 provides a framework for measuring fair value when such measurements are used for accounting purposes. The framework focuses on an exit price in the principal (or, alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants. SFAS 157 establishes a three-tiered fair value hierarchy with Level 1 representing quoted prices for identical assets or liabilities in an active market and Level 3 representing estimated values based on unobservable inputs. Under SFAS 157, related disclosures are segregated for assets and liabilities measured at fair value based on the level used within the hierarchy to determine their fair values. The Company has determined that it will adopt SFAS 157 on its effective date of January 1, 2008 and the financial impact, if any, upon adoption has not yet been determined.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115, ("SFAS 159"). SFAS 159 permits fair value accounting to be irrevocably elected for certain financial assets and liabilities on an individual contract basis at the time of acquisition or at a remeasurement event date. Upon adoption of SFAS 159, fair value accounting may also be elected for existing financial assets and liabilities. For those instruments for which fair value accounting is elected, changes in fair value will be recognized in earnings and fees and costs associated with origination or acquisition will be recognized as incurred rather than deferred. SFAS 159 is effective January 1, 2008, with early adoption permitted as of January 1, 2007. The Company has determined that it will adopt SFAS 159 concurrent with the adoption of SFAS 157 on January 1, 2008, but has not yet determined the financial impact, if any, upon adoption.

        In April 2007, the FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39, ("FSP FIN 39-1"). FSP FIN 39-1 amends certain paragraphs of FASB Interpretation Number 39, Offsetting of Amounts Related to Certain Contracts,—an interpretation of APB Opinion No. 10 and FASB Statement No. 105 ("FIN 39") to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early application permitted. Upon application, the Company shall be permitted to change its accounting policy to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements. The Company has determined that it will adopt FSP FIN 39-1 on its effective date of January 1, 2008, but has not yet determined the financial impact, if any, upon adoption.

        In November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109 (SAB 109). SAB 109 supersedes Staff Accounting Bulletin No. 105 (SAB 105), "Application of Accounting Principles to Loan Commitments." It clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. However, it retains the guidance in SAB 105 that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment. The guidance is effective on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. In conjunction with the adoption of SFAS 157 and SFAS 159, this guidance generally would result in higher fair values being recorded upon initial recognition of derivative loan commitments. The estimated financial impact upon adoption has not yet been determined.

46

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

        As used in this Report, references to "we," "our," "the Company" or "Countrywide" refer to Countrywide Financial Corporation and its consolidated subsidiaries unless otherwise indicated. This discussion includes forward-looking statements concerning future events and performance of the Company, which are subject to certain risks and uncertainties as discussed under Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Our Future Results.

Overview

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

Results of Operations

        We recorded a net loss of $1.2 billion for the quarter ended September 30, 2007. Following is a summary of our key performance measures for the quarters ended September 30, 2007 and 2006:

	September 30,
						% Change
	2007			2006
	(dollar amounts in thousands, except per share data)
Consolidated Company
Revenues	$	(49,966	)	$	2,822,495	N/M
Net (loss) earnings	$	(1,200,693	)	$	647,564	N/M
Diluted (loss) earnings per share(1)	$	(2.85	)	$	1.03	N/M
Total assets at period end	$	209,236,465		$	193,194,572	8	%
Key Segment Pre-tax (Loss) Earnings
Mortgage Banking	$	(1,313,521	)	$	423,927	N/M
Banking	$	(406,711	)	$	370,806	N/M
Capital Markets	$	(344,402	)	$	141,099	N/M
Insurance	$	150,180		$	91,343	64	%
Key Operating Statistics
Total loan fundings	$	96,433,000		$	117,902,000	(18	%)
Mortgage Banking loan sales	$	84,845,613		$	107,118,824	(21	%)
Loan servicing portfolio at period end	$	1,459,136,000		$	1,244,311,000	17	%
Assets of Banking Operations at period end	$	105,176,751		$	88,103,857	19	%
Nonperforming Assets(2)	$	2,481,060		$	1,727,423	44	%

(1)

When the conversion price of a convertible preferred security is less than the market price at the time of issuance, the aggregate difference is treated as a preferred dividend in the numerator for the EPS calculation. This increased our loss per fully diluted share by $0.73 from ($2.12) to ($2.85).

(2)

Excludes $1,624.1 million and $956.7 million, at September 30, 2007 and 2006, respectively, of loans that we have the option (but not the obligation) to repurchase and we have not exercised such option. These loans are required to be included in our balance sheet. Also excluded are

47

nonaccrual loans that are carried on the consolidated balance sheet at the lower of cost or estimated fair value and government-guaranteed loans held for investment, as shown below:

	September 30,
	2007		2006
	(in thousands)
Loans held for sale	$	443,365	$	738,012
Government guaranteed loans, held for investment		326,849		418,518
	$	770,214	$	1,156,530

        During the quarter ended September 30, 2007, our results were affected by significant disruptions in the U.S. mortgage market and the global capital 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 and participants in the debt markets substantially curtailed 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 mortgage loans held for investment and retained interests created in our loan sales activities. Because of these developments, we recognized inventory valuation adjustments and credit related costs as explained below.

Inventory Valuation Adjustments

        During the quarter, disruption in the capital markets caused a severe lack of liquidity for non-agency loans held for sale and mortgage-backed securities, which resulted in losses on the sale or write-downs of such loans and securities that aggregated to approximately $1.0 billion in the third quarter of 2007. Approximately $12.3 billion of these non-agency loans were moved to the Company's held-for-investment (HFI) portfolio after their write-down.

Credit-Related Costs

        Increased estimates of inherent losses in our portfolio of loans held for investment and increased charge-offs resulted in significant increases to credit costs during the third quarter of 2007. Higher estimates of inherent losses were attributable to continued deterioration in housing market conditions, worsening delinquency trends, and the significant tightening of available credit which occurred during the third quarter and which is expected to further adversely impact credit performance. The revised expectations relative to credit losses impacted third quarter results as follows:

•

Increased provision for loan loss on our portfolio of loans held for investment of $934.3 million, compared to $38.0 million in the third quarter of 2006. The increase in provision during the quarter primarily relates to additional valuation allowances provided for the home equity and pay-option loans held in Banking Operations.



•

Impairment of credit-sensitive residuals of $689.8 million, compared to recovery of $26.4 million in the third quarter of 2006. Third quarter 2007 impairment includes $540.6 million for prime home equity residuals and $156.2 million for nonprime and related residuals, offset by a recovery of $7.0 million on prime residual securities.



•

Increased provision for representations and warranties in the amount of $291.5 million, compared to $41.0 million in the third quarter of 2006. This increase relates primarily to

48

increased expectations of future representation and warranty claims on loans sold or securitized resulting from higher levels of expected future defaults. It is our intention to defend our positions vigorously.

        The current quarter's results of operations included the following charges:

	Quarter Ended September 30, 2007
	Mortgage Banking
	Loan Production		Loan Servicing		Banking		Capital Markets		Other		Total
					(in thousands)
Inventory Valuation Charges:
Inventory and pipeline write-downs(1)	$	690,538	$	—	$	21,042	$	144,910	$	—	$	856,490
Inventory write-down on loans economically sold(2)		—		—		—		150,282		—		150,282
		690,538		—		21,042		295,192		—		1,006,772
Credit-Related Charges:
Residual valuation adjustments		—		689,776		—		—		—		689,776
Residential held for investment portfolio provision		—		151,136		785,550		—		—		936,686
Representation and warranties reserve provision		275,724		—		—		15,763		—		291,487
		275,724		840,912		785,550		15,763		—		1,917,949
Restructuring charges		—		—		—		—		57,212		57,212
	$	966,262	$	840,912	$	806,592	$	310,955	$	57,212	$	2,981,933

(1)

Includes losses on sales of certain loans and securities and other than temporary impairment of investment securities.

(2)

Represents a valuation adjustment on loans that had been economically sold in securitizations. However, the transactions did not qualify for sale accounting under SFAS 140 and are accounted for as secured borrowings. A gain will be recognized when the securitizations qualify as sales under SFAS 140.

Credit

        We are exposed to credit risk primarily in our mortgage banking activities and our Banking Operations. With respect to our mortgage banking activities, a primary source of credit risk stems from investments and obligations that we retain from sales and securitizations of loans in the form of credit-enhancing subordinated interests, representations and warranties and corporate guarantees. Estimated credit losses over the expected lifetime of the security are considered in the valuation of these investments and obligations. In general, the entire carrying value of our retained interests is at risk because the related cash flows are available to absorb credit losses in the loan pools underlying such subordinated interests. We held $892.4 million of credit-sensitive subordinated interests at September 30, 2007, a decrease of 57% from December 31, 2006.

        Our liability for representations and warranties and corporate guarantees was $747.6 million at September 30, 2007 and $435.5 million at December 31, 2006. The contractual limit of our corporate guarantees exceeded the liabilities recorded by $487.5 million and $490.5 million at September 30, 2007 and December 31, 2006, respectively.

        We held $83.6 billion of mortgage loans for investment, primarily in our Banking Operations, at September 30, 2007. Our allowance for credit losses, which includes our allowance for loan losses and a liability for losses relating to unfunded commitments, was $1,240.6 million at September 30, 2007, an

49

increase of 361% from December 31, 2006. The increase reflects higher estimated losses stemming from higher delinquencies combined with higher estimates of default rates and loss severities, and the seasoning of Banking Operations' investment loan portfolio. To help moderate our credit risk, we carry supplemental mortgage insurance. As of September 30, 2007, $23.1 billion of the residential lending portfolio was covered by such insurance, an increase of 153% from December 31, 2006.

Liquidity and Capital

        As discussed under the section Liquidity and Capital Resources, during the quarter ended September 30, 2007, we were affected by illiquidity in both the secondary mortgage market and in the debt markets that we have historically relied upon to meet our short-term financing needs. We regularly plan for contingencies that include disruptions in the marketplace and we place major emphasis on the adequacy, reliability and diversity of our funding sources. However, the dislocations in the secondary and debt markets that occurred during the quarter ended September 30, 2007, were historically unusual, requiring us to take significant additional steps to maintain our access to financing during the period of disruption.

        During the quarter ended September 30, 2007, each of the three major credit rating agencies downgraded our credit ratings. Notwithstanding the downgrades, we maintain "investment grade" credit ratings, with long-term ratings of A-, Baa3 and BBB+ by Standard & Poor's, Moody's Investors Service and Fitch, respectively. Subsequent to September 30, 2007 Standard & Poor's further downgraded our long-term rating to BBB+.

        At September 30, 2007, the Bank exceeded the OTS regulatory capital requirements to be classified as "well capitalized," with a Tier 1 capital ratio of 7.3% and a total risk-based ratio of 13.5%.

Outlook

        We expect continued weakness in the housing markets in the near-term and we anticipate lower mortgage market origination volumes for the remainder of 2007 and in 2008. We also expect our credit costs to remain at elevated levels through 2008. The value of our inventories of non-conforming loans held for sale, as well as other mortgage-related assets, have continued to fluctuate after September 30, 2007 but credit spreads have generally widened. We expect that the values of these assets will continue to fluctuate in the foreseeable future.

        We believe that over the longer-term changes that we have made during the quarter ended September 30, 2007 enhance the stability of the Company and lessen the risks from further marketplace disruptions. We also believe that many opportunities will present themselves to the Company as a result of the market transition taking place, and that Countrywide is well positioned to capitalize on these opportunities. For additional information regarding current conditions and our expectation of future trends, please see the section in this Report entitled Management's Discussion and Analysis of Financial Condition and Results of Operations—Prospective Trends.

Critical Accounting Policies

        The accounting policies with the greatest impact on our financial condition and results of operations that require the most judgment, and which are most likely to result in materially different amounts being recorded under different conditions or using different assumptions, relate to our mortgage securitization activities; our investments in MSRs and retained interests; our measurement of valuation allowances and liabilities associated with credit risk inherent in our operations and our use of derivatives to manage interest rate risk. A discussion of the critical accounting policies related to these activities is included in our 2006 Annual Report.

50

        As discussed throughout this Report, during the quarter ended September 30, 2007, the market for mortgage loans other than agency-eligible loans experienced varying degrees of illiquidity and price declines. We generally estimate the fair value of loans held for sale based on quoted market prices for securities backed by similar types of loans. If quoted market prices are not available, fair value is estimated based on other relevant factors, including dealer price quotations, prices available for similar instruments, and valuation models intended to approximate the amounts that would be received from a third party. We regularly compare the values developed from our valuation models to executed trades to assure that the valuations are reflective of actual sale prices. However, due to the illiquidity of the mortgage marketplace prevalent at September 30, 2007, it was necessary to look for alternative sources of fair 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 because of a lack of executed trades that could be used to assure that the valuations are reflective of fair value. These loans included $12.3 billion of loans transferred to held for investment during the quarter ended September 30, 2007 and approximately 60% of mortgage loans originated or purchased for resale excluding commercial real estate at September 30, 2007.

Results of Operations Comparison—Quarters Ended September 30, 2007 and 2006

Consolidated Earnings Performance

        Our consolidated net loss for the third quarter of 2007 was $1,200.7 million, a decrease of $1,848.3 million from 2006's third quarter net earnings of $647.6 million. Our diluted loss per share was $2.85, as compared to diluted earnings per share of $1.03 for the year-ago period. Our results of operations were largely affected by both marketplace concerns about the credit performance of securitized mortgage loans and the worsening credit performance of our loans as follows:

•

Marketplace concerns about mortgage loan performance also contributed to widening credit spreads and illiquidity in the secondary mortgage market and debt markets, which negatively affected the salability and value of our mortgage loan pipeline and inventory of loans and securities. As a result, we recognized $1.0 billion of impairment of these assets during the quarter;



•

Worsening mortgage loan performance affected credit costs, including the company's provision for loan losses, valuation of credit-sensitive residual securities and provision for claims under representations and warranties. We recorded $1.9 billion of credit-related charges to earnings relating to these items;



•

We expect the mortgage market to continue its decline in volume through 2008 and began the process of reducing the scale of our operations in response to this decline. We recognized $57.2 million in restructuring expenses relating to this effort and we expect to record another $68 million to $93 million in restructuring expenses, primarily in the fourth quarter of 2007.

        The Mortgage Banking Segment generated a pre-tax loss of $1,313.5 million, a reduction in results of operations of $1,737.4 million from the year-ago quarter. This decrease was largely due to inventory and interest rate lock commitments (IRLCs) write-downs and provisions for representation and warranty claims totaling $690.5 million and $275.7 million, respectively, in our Loan Production Sector and $689.8 million in impairment of credit-sensitive residuals and a provision for loan losses of $151.1 million in the Loan Servicing Sector.

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        The Banking Segment was also adversely impacted by increased credit-related costs, and produced a pre-tax loss of $406.7 million, a $777.5 million decline from the year-ago quarter.

        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 a pre-tax loss of $344.4 million during the quarter.

Operating Segment Results

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

			Quarters Ended September 30,
			2007			2006
			(in thousands)
Mortgage Banking:
	Loan Production		$	(1,314,928	)	$	280,684
	Loan Servicing			(26,791	)		123,373
	Loan Closing Services			28,198			19,870
		Total Mortgage Banking		(1,313,521	)		423,927
Banking				(406,711	)		370,806
Capital Markets				(344,402	)		141,099
Insurance				150,180			91,343
Global Operations				8,060			3,451
Other(1)				(61,308	)		5,586
	Total		$	(1,967,702	)	$	1,036,212

(1)

Includes restructuring charges of $57.2 million during the quarter ended September 30, 2007.

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

52

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

			Quarters Ended September 30,
			2007		2006
			(in millions)
Segment:
	Mortgage Banking		$	90,351	$	106,252
	Banking Operations			3,856		5,982
	Capital Markets—conduit acquisitions(1)			424		4,322
		Total Mortgage Loan Fundings		94,631		116,556
	Commercial Real Estate			1,802		1,346
			$	96,433	$	117,902
Product:
	Prime Mortgage		$	82,565	$	94,571
	Prime Home Equity			8,740		11,851
	Nonprime Mortgage			3,326		10,134
	Commercial Real Estate			1,802		1,346
			$	96,433	$	117,902

(1)

Acquisitions from third parties.

        During the quarter ended September 30, 2007 there was a substantial decline in loan production volume to $96.4 billion compared to $133.1 billion in the quarter ended June 30, 2007 and $117.9 billion in the quarter ended September 30, 2006. This decline in production reflects a smaller origination market in the latter part of the quarter, which is largely attributable to the tightening of underwriting and loan program guidelines 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 reduction in the maximum loan-to-value or combined loan-to-value ratio. The impact of these changes was most significant to Nonprime Mortgage, Prime Home Equity and non-conforming prime mortgage loans.

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

		Quarters Ended September 30,
		2007		2006
		(in millions)
Purpose:
	Non-purchase	$	50,002	$	62,523
	Purchase		46,431		55,379
		$	96,433	$	117,902
Interest Rate Type:
	Fixed	$	72,625	$	64,447
	Adjustable		23,808		53,455
		$	96,433	$	117,902

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Mortgage Banking Segment

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

Loan Production Sector

        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 quarter, we decided to fund a larger percentage of our loan production through the Bank, which had greater access to sources of liquidity. During the quarter ended September 30, 2007, 70% of the loans funded in the Mortgage Banking Segment were funded through the Bank compared to 32% in the year-ago period. In September 2007, 89% of the Mortgage Banking loan production was funded through the Bank. We expect to continue funding almost all of our loan production through the Bank.

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

				Quarters Ended September 30,(1)
				2007		2006
				(in millions)
Channel:
	Originated:
		Retail:
			Consumer Markets	$	25,856	$	29,003
			Full Spectrum Lending		7,200		9,217
					33,056		38,220
		Wholesale Lending			14,960		22,762
			Total originated		48,016		60,982
	Purchased—Correspondent Lending				42,335		45,270
				$	90,351	$	106,252
Mortgage Loan Type:
	Prime Mortgage			$	80,766	$	87,713
	Prime Home Equity				6,408		9,203
	Nonprime Mortgage				3,177		9,336
				$	90,351	$	106,252
Purpose:
	Non-purchase			$	46,643	$	56,302
	Purchase				43,708		49,950
				$	90,351	$	106,252
Interest Rate Type:
	Fixed			$	68,805	$	62,378
	Adjustable				21,546		43,874
				$	90,351	$	106,252

(1)

$63.5 billion and $33.7 billion of Mortgage Banking loan production were funded by Countrywide Bank during the quarters ended September 30, 2007 and 2006, respectively.

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

			Quarters Ended September 30,
			2007					2006
			Amount			Percentage of Loan Production Volume		Amount		Percentage of Loan Production Volume
			(dollar amounts in thousands)
Revenues:
	Prime Mortgage		$	342,390				$	965,148
	Nonprime Mortgage			(143,940	)				180,374
	Prime Home Equity			(474,285	)				232,570
		Total revenues		(275,835	)	(0.31	%)		1,378,092	1.30	%
Expenses:
	Compensation			545,175		0.60	%		589,210	0.56	%
	Other operating			367,775		0.41	%		355,376	0.33	%
	Allocated corporate			126,143		0.14	%		152,822	0.15	%
		Total expenses		1,039,093		1.15	%		1,097,408	1.04	%
Pre-tax (loss) earnings			$	(1,314,928	)	(1.46	%)	$	280,684	0.26	%
Total Mortgage Banking loan production			$	90,351,000				$	106,252,000

        The Loan Production sector incurred a pre-tax loss of $1.3 billion compared to pre-tax earnings of $280.7 million in the year-ago quarter. The third quarter loss resulted primarily from the disruption in the secondary markets during the quarter 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 of $690.5 million, including write-downs on loans transferred to held for investment, during the quarter ended September 30, 2007 and the volume of loans sold declined to $84.8 billion in the current quarter compared to $107.1 billion in the year-ago quarter, causing revenues to decline.

        Although expenses decreased from the year-ago period driven primarily by a reduction in variable compensation expenses that resulted from the decline in the volume of loans produced, they increased 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 quarter, which was largely attributable to the tightening of underwriting and loan program guidelines as well as economic conditions including a weakening housing market. We are adjusting our infrastructure and staffing levels as appropriate for a smaller origination market. However, we do not expect the benefits of such expense reductions to be realized until the first quarter of 2008. These reductions notwithstanding, we continue to invest in expanding the loan sales force in our Consumer Markets Division as we shift our emphasis toward originated rather than purchased production and in support of our long-term strategy of increasing our share of the mortgage market.

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

			September 30,
			2007			2006
				Facilities			Facilities
			Sales Force	Branches	Call Centers	Sales Force	Branches	Call Centers
Channel:
	Retail:
		Consumer Markets	9,571	754	5	8,904	772	4
		Full Spectrum Lending	4,462	167	8	5,874	224	8
			14,033	921	13	14,778	996	12
	Wholesale Lending		948	52	—	1,478	52	—
	Correspondent Lending		123	—	—	190	—	—
			15,104	973	13	16,446	1,048	12

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

		September 30,
		2007	2006
Sales		15,104	16,446
Operations:
	Regular employees	9,371	10,342
	Temporary staff	640	1,453
		10,011	11,795
Administration and support		3,207	3,772
	Total Loan Production Sector workforce	28,322	32,013

Loan Servicing Sector

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

        Our servicing portfolio grew to $1.5 trillion at September 30, 2007, a 17% increase from September 30, 2006. At the same time, the overall weighted-average note rate of loans in our servicing portfolio increased to 6.6% from 6.4% at September 30, 2006.

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        The following table summarizes the results for the Loan Servicing Sector:

		Quarters Ended September 30,
		2007					2006
		Amount			Percentage of Average Servicing Portfolio(1)		Amount			Percentage of Average Servicing Portfolio(1)
		(dollar amounts in thousands)
Servicing fees, net of guarantee fees		$	1,185,822		0.331	%	$	940,831		0.311	%
Escrow balance income			232,206		0.065	%		238,082		0.079	%
Miscellaneous fees			161,830		0.045	%		167,719		0.055	%
Income from retained interests			122,424		0.034	%		123,816		0.041	%
Realization of expected cash flows from mortgage servicing rights			(696,361	)	(0.194	%)		(749,155	)	(0.248	%)
	Operating revenues		1,005,921		0.281	%		721,293		0.238	%
Direct expenses			222,867		0.062	%		181,799		0.060	%
Allocated corporate expenses			19,475		0.006	%		21,291		0.007	%
	Total expenses		242,342		0.068	%		203,090		0.067	%
Operating earnings			763,579		0.213	%		518,203		0.171	%
Interest expense			(426,323	)	(0.119	%)		(164,049	)	(0.054	%)
Change in fair value of mortgage servicing rights			(830,932	)	(0.232	%)		(1,124,750	)	(0.372	%)
Impairment of non credit-sensitive retained interests			(26,882	)	(0.008	%)		(166,805	)	(0.055	%)
Servicing hedge gains(2)			1,201,143		0.336	%		1,034,353		0.342	%
	Valuation changes, net of Servicing Hedge		343,329		0.096	%		(257,202	)	(0.085	%)
Pre-tax earnings before credit-sensitive retained interests			680,585		0.190	%		96,952		0.032	%
(Impairment) recovery of credit-sensitive retained interests			(689,776	)	(0.193	%)		26,421		0.009	%
Allocated hedge(2)			(17,600	)	(0.004	%)		—		—
	Credit-sensitive valuation changes		(707,376	)	(0.197	%)		26,421		0.009	%
Pre-tax (loss) earnings		$	(26,791	)	(0.007	%)	$	123,373		0.041	%
Average servicing portfolio		$	1,431,813,000				$	1,209,255,000

(1)

Annualized

(2)

The Servicing Hedge gain was not allocated between MSRs and credit-sensitive retained interests for the quarter ended September 30, 2006.

        Before the impact of valuation adjustments to credit-sensitive retained interests, Loan Servicing sector pre-tax earnings were $680.6 million for the quarter ended September 30, 2007 compared to $97.0 million in the year-ago quarter. The improvement is due primarily to the benefit of slower prepayment speeds during the current quarter which were largely driven by the same factors that negatively impacted the Loan Production sector. These factors include lower levels of housing turnover

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and lesser refinance activity due to weakening housing market conditions, reduced secondary market liquidity and tighter underwriting guidelines. Slower prepayments resulted in lower realization of expected cash flows from MSRs that, combined with a larger servicing portfolio, contributed to an improvement in operating earnings for the sector of $245.4 million from the year-ago quarter. In addition, the MSR valuation was positively impacted by an expectation of slower future prepayment speeds and as a result the valuation change of MSRs and non credit-sensitive retained interests, net of the Servicing Hedge, was a gain $343.3 million in the quarter despite a decline in interest rates during the quarter. In the year-ago quarter valuation changes of MSRs and non credit-sensitive retained interests, net of the Servicing Hedge, was a loss of $257.2 million. These positive factors were partially offset by an increase in interest expense resulting from higher servicing assets and an increase in the provision for loan losses of $151.1 million related to Mortgage Banking loans held for investment.

        Offsetting improved operating earnings and MSR asset performance, Loan Servicing sector results were negatively impacted by impairment losses of $689.8 million related to credit-sensitive residual securities, largely related to subordinated interests backed by prime home equity loans and to a lesser extent, nonprime residual securities. These charges resulted from increases in estimates of future credit losses on the underlying loans as well as increased discount rates reflecting higher market yield requirements on these investments. The aggregate carrying value of the Company's investments in credit-sensitive residuals at September 30, 2007 was $892.4 million compared to $2.1 billion at September 30, 2006.

Loan Closing Services Sector

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

        The LandSafe companies produced $28.2 million in pre-tax earnings in the quarter ended September 30, 2007, representing an increase of 42% from the year-ago period. The increase in LandSafe's pre-tax earnings was primarily due to the increase in its title and default and appraisal businesses due to increased foreclosure activity.

Banking Segment

        The Banking Segment includes Banking Operations—primarily the investment and fee-based activities of Countrywide Bank—along with the activities of Countrywide Warehouse Lending ("CWL"). Banking Operations invests in mortgage loans sourced from the Loan Production Sector, as well as loans and mortgage-backed securities purchased from nonaffiliates. CWL provides other mortgage

58

lenders with temporary financing secured by mortgage loans. Following is a summary of Banking Operations' loan acquisitions by source:

	Quarters Ended September 30,
	2007		2006
	(in millions)
Consumer Markets	$	1,769	$	1,215
Correspondent Lending		1,139		1,472
Purchases from non-affiliates		454		2,849
Wholesale Lending		307		446
Full Spectrum Lending		187		—
		3,856		5,982
Transfer of mortgage loans from held for sale to held for investment		12,315		—
	$	16,171	$	5,982

        As a result of the market disruption, a significant portion of non-conforming Adjustable-Rate Mortgage ("ARM") and Prime Home Equity loans held for sale were written down and then transferred from the Mortgage Banking Segment to Banking Operations' investment portfolio during the quarter ended September 30, 2007. These loans were transferred at the lower of cost or fair value.

        The Banking Segment incurred a pre-tax loss of $406.7 million during the quarter ended September 30, 2007, compared to pre-tax earnings of $370.8 million for the year-ago period. Following is the composition of pre-tax (loss) earnings:

		Quarters Ended September 30,
		2007			2006
		(in thousands)
Banking Operations		$	(388,630	)	$	378,455
CWL			(288	)		11,619
Allocated corporate expenses			(17,793	)		(19,268	)
	Total Banking Segment pre-tax (loss) earnings	$	(406,711	)	$	370,806

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

		Quarters Ended September 30,
		2007			2006
		(dollar amounts in thousands)
Interest income		$	1,557,635		$	1,422,514
Interest expense			(1,027,687	)		(946,172	)
	Net interest income		529,948			476,342
Provision for credit losses(1)			(784,370	)		(27,754	)
	Net interest (expense) income after provision for credit losses		(254,422	)		448,588
Non-interest income			27,247			36,447
Non-interest expense:
	Mortgage insurance expense		(25,883	)		(8,706	)
	Other non-interest expense		(135,572	)		(97,874	)
	Pre-tax (loss) earnings	$	(388,630	)	$	378,455
Efficiency ratio(2)			29	%		21	%
After-tax return on average assets			(1.12	%)		1.08	%

(1)

Includes provision for loan losses plus provision for losses on unfunded loan commitments.

(2)

Non-interest expense, including mortgage insurance expense, divided by the sum of net interest income plus non-interest income. Banking Operations' efficiency ratio reflects the expense structure resulting from its relationship with Countrywide Home Loans but does not include allocated corporate expenses. If Banking Operations were a stand-alone entity, the nature and amount of its expenses would differ from those reported. For example, the fulfillment fees paid by Countrywide Bank to the Loan Production Sector for origination costs incurred on investment mortgage loans funded by Countrywide Bank are generally determined on an incremental cost basis which is less than would be incurred in an arms-length transaction.

        Banking Operations recorded a pre-tax loss of $388.6 million for the quarter ended September 30, 2007, a decrease in results of operations of $767.1 million from the year-ago period, primarily driven by a higher provision for credit losses. The Banking Operations' provision for credit losses increased to $784.4 million during the quarter ended September 30, 2007 from $27.8 million during the quarter ended September 30, 2006. The increase in the provision for credit losses was primarily due to higher losses inherent in the portfolio driven by the impact of the weakening housing market and significant tightening of available credit on delinquency and default trends during the current quarter as well as portfolio seasoning. The provision for credit losses and the related allowance for credit losses is affected by many factors, including economic conditions (for example, housing prices, interest rates and unemployment rates), borrower credit profiles, delinquency, and loan seasoning and prepayments.

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

			Quarters Ended September 30,
			2007							2006
			Average Balance			Interest Income/ Expense		Annualized Yield/ Rate		Average Balance			Interest Income/ Expense		Annualized Yield/ Rate
			(dollar amounts in thousands)
Interest-earning assets:
	Loans(1)		$	69,857,800		$	1,247,601	7.13	%	$	76,505,502		$	1,323,810	6.91	%
	Securities available for sale(2)			18,637,920			259,905	5.58	%		5,681,819			66,882	4.71	%
	Short-term investments			1,676,701			23,282	5.51	%		819,472			10,874	5.26	%
	FHLB securities and FRB stock			1,775,564			26,847	6.00	%		1,537,435			20,948	5.41	%
		Total earning assets		91,947,985			1,557,635	6.77	%		84,544,228			1,422,514	6.72	%
	Allowance for loan losses			(499,663	)						(165,173	)
	Other assets			1,957,064							1,159,232
		Total assets	$	93,405,386						$	85,538,287
Interest-bearing liabilities:
	Money market deposits and savings accounts		$	15,530,928			198,920	5.08	%	$	7,452,742			96,021	5.11	%
	Company-controlled custodial deposits(3)			16,101,203			211,249	5.21	%		16,591,425			213,147	5.10	%
	Time deposits			26,129,050			332,877	5.05	%		29,550,865			359,323	4.82	%
		Total interest-bearing deposits		57,761,181			743,046	5.10	%		53,595,032			668,491	4.95	%
	Borrowings			25,278,928			284,641	4.47	%		24,078,234			277,681	4.58	%
		Total interest-bearing liabilities		83,040,109			1,027,687	4.91	%		77,673,266			946,172	4.83	%
Non interest-bearing liabilities and equity:
	Non interest-bearing checking accounts			4,305,706							1,153,866
	Other liabilities			447,067							1,127,999
	Shareholder's equity			5,612,504							5,583,156
		Total non interest-bearing liabilities and equity		10,365,277							7,865,021
		Total liabilities and shareholder's equity	$	93,405,386						$	85,538,287
Net interest income						$	529,948						$	476,342
Net interest spread(4)								1.86	%						1.89	%
Net interest margin(5)								2.33	%						2.28	%

(1)

Average balances include nonaccrual loans.

(2)

Average balances and yields for securities available for sale are based on average amortized cost computed on the settlement date basis.

(3)

Represents an intercompany rate paid to the Loan Servicing Sector.

(4)

Calculated as yield on total average interest-earning assets less rate on total average interest-bearing liabilities.

(5)

Calculated as net interest income divided by total average interest-earning assets.

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

			Quarter Ended September 30, 2007 vs. September 30, 2006
			Increase (Decrease) Due to
									Total Changes
			Volume			Rate
			(in thousands)
Interest-earning assets:
	Loans		$	(119,014	)	$	42,805		$	(76,209	)
	Securities available for sale			178,562			14,461			193,023
	Short-term investments			11,882			526			12,408
	FHLB securities and FRB stock			5,538			361			5,899
		Total interest income	$	76,968		$	58,153		$	135,121
Interest-bearing liabilities:
	Money market deposits and savings accounts		$	103,468		$	(569	)	$	102,899
	Company-controlled custodial deposits			(6,376	)		4,478			(1,898	)
	Time deposits			(43,015	)		16,569			(26,446	)
		Total deposits		54,077			20,478			74,555
	Borrowings			13,626			(6,666	)		6,960
		Total interest expense		67,703			13,812			81,515
		Net interest income	$	9,265		$	44,341		$	53,606

        The increase in net interest income was primarily due to a 5 basis point increase in net interest margin combined with a $7.4 billion, or 9%, increase in average interest-earning assets. The increase in the net interest margin was primarily a result of a smaller rate lag impact as the spread between the 12-Month Treasury Average index, which is the index to which most of the Bank's assets are priced, and LIBOR, which is the index to which most of the Bank's liabilities are priced, tightened. In addition, the reduced impact of introductory rates earned on recently funded pay-option loans contributed to the increase in net interest margin as fewer such loans were originated in the quarter ended September 30, 2007 compared to the quarter ended September 30, 2006. These positive factors were partially offset by a shift in asset mix to include a larger portion of lower-yielding high-credit quality mortgage-backed securities.

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        Banking Operations balance sheets are as follows:

		September 30, 2007				December 31, 2006
		Amount		Rate		Amount		Rate
		(dollar amounts in thousands)
Assets
Short-term investments		$	1,872,761	5.67	%	$	50,974	5.14	%
Loans, net of allowance for loan losses of $1,106,300 and $228,692, respectively			79,313,048	7.66	%		73,481,762	7.39	%
Securities available for sale			18,273,012	5.60	%		6,208,477	4.63	%
FHLB securities and FRB stock			2,322,558	6.00	%		1,431,403	5.91	%
	Total interest-earning assets		101,781,379	7.22	%		81,172,616	7.16	%
Other assets			3,395,372				1,601,952
	Total assets	$	105,176,751			$	82,774,568
Liabilities and Equity
Deposits:(1)
	Customer	$	43,567,071	4.66	%	$	39,904,633	5.08	%
	Company-controlled escrow deposit accounts		13,319,709	5.24	%		14,609,269	5.28	%
Borrowings			38,229,471	4.97	%		18,997,967	4.35	%
	Total interest-bearing liabilities		95,116,251	4.87	%		73,511,869	4.93	%
Non-interest bearing deposits:
	Company-controlled escrow deposit accounts		2,260,082				1,128,363
	Other		594,076				344,951
Other liabilities			831,167				1,451,003
Shareholder's equity			6,375,175				6,338,382
	Total liabilities and equity	$	105,176,751			$	82,774,568
Primary spread(2)				2.35	%			2.23	%
Nonaccrual loans		$	1,432,501			$	519,083

(1)

Includes inter-company deposits.

(2)

Calculated as the yield on total interest-earning assets less the cost of total interest-bearing liabilities.

        Interest-earning assets growth came from the acquisition of high-credit quality mortgage-backed securities from non-affiliates and additions of $16.2 billion of loans to the loans held for investment portfolio, including $12.3 billion of loans transferred to the Banking Operations' investment portfolio during the quarter ended September 30, 2007.

        The Banking Segment also includes the operations of CWL. CWL's pre-tax results of operations decreased by $11.9 million during the quarter ended September 30, 2007 in comparison to the year-ago period. This decline primarily was due to a 71% decrease in average mortgage warehouse advances, which resulted primarily from a decrease in overall market funding. Warehouse lending advances were $0.6 billion at September 30, 2007, and had an average yield of 6.6% during the quarter ended September 30, 2007.

Capital Markets Segment

        Our Capital Markets Segment recorded pre-tax losses of $344.4 million for the quarter ended September 30, 2007, a decrease of $485.5 million from pre-tax earnings of $141.1 million for the

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year-ago quarter. This decrease was caused by a decline in revenues and recognition of losses on loans and securities held at period end as the business adjusted to weakening market conditions, partially offset by a $22.7 million, or 19% decrease in expenses, primarily variable revenue-related compensation.

        The market dislocation experienced during the third quarter caused significant disruption to the activities of our Capital Markets Segment. Specifically, the markets in which our Capital Markets Segment operates became less liquid and financing for certain of the segment's activities was severely curtailed. As a result, it was necessary to curtail certain of our business activities, to sell a significant portion of our trading assets at depressed prices, and to write down inventory of mortgage loans held for sale which resulted in losses of approximately $295.2 million, net of a $161.9 million gain from credit default swaps.

        The inventory write-downs consisted of a $22.1 million write-down of loans held in inventory managed in the Capital Markets Segment on behalf of CHL, and a valuation allowance of $150.3 million on loans that have been economically sold in securitizations. However, the transactions did not qualify for sales accounting under SFAS 140 and are accounted for as secured borrowings. A gain will be recognized when the securitizations qualify as sales under SFAS 140.

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

			Quarters Ended September 30,
			2007			2006
			(in thousands)
Revenues:
	Commercial real estate		$	48,074		$	26,166
	Brokering			13,421			10,293
	Conduit			(239,355	)		121,126
	Underwriting			(32,211	)		71,727
	Securities trading			(17,289	)		23,039
	Other			(22,853	)		5,636
		Total revenues		(250,213	)		257,987
Expenses:
	Operating expenses			88,674			106,953
	Allocated corporate expenses			5,515			9,935
		Total expenses		94,189			116,888
Pre-tax (loss) earnings			$	(344,402	)	$	141,099

        During the current reporting period, the commercial real estate finance activities of the Capital Markets Segment generated revenues totaling $48.1 million primarily from sales of commercial real estate loans compared to $26.2 million in the year-ago period. The increase in revenue was primarily due to the performance of certain financial hedges which are a component of the gain on sale.

        During the quarter ended September 30, 2007, the Capital Markets Segment recorded net losses totaling $239.4 million from its conduit activities, primarily managing the acquisition and sale or securitization of loans on behalf of CHL. These revenues, primarily as they relate to nonprime loans, were adversely impacted by a decline in the volume of loans sold of $10.1 billion, or 67%, combined with write-downs of our inventory. Underwriting revenues were also negatively impacted by the reduced volume of conduit securitizations and a decline in nonprime and prime home equity securitization activity on behalf of the Mortgage Banking Segment.

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

		Quarters Ended September 30,
		2007		2006
		(in millions)
Mortgage-backed securities		$	604,249	$	539,165
Asset-backed securities			7,224		63,650
Other			29,598		29,687
	Subtotal(1)		641,071		632,502
U.S. Treasury securities			415,570		300,408
	Total securities trading volume	$	1,056,641	$	932,910

(1)

Approximately 10% and 16% of the segment's non-U.S. Treasury securities trading volume was with Countrywide Home Loans during the quarters ended September 30, 2007 and 2006, respectively.

Insurance Segment

        The Insurance Segment's pre-tax earnings increased by $58.8 million over the year-ago period, to $150.2 million during the quarter ended September 30, 2007. The following table shows pre-tax earnings by component:

		Quarters Ended September 30,
		2007			2006
		(in thousands)
Balboa Reinsurance Company		$	68,206		$	60,003
Balboa Life & Casualty(1)			89,027			42,563
Allocated corporate expenses			(7,053	)		(11,223	)
	Total Insurance Segment pre-tax earnings	$	150,180		$	91,343

(1)

Includes the Balboa Life and Casualty Group and the Countrywide Insurance Services Group.

        The following table shows net insurance premiums earned:

		Quarters Ended September 30,
		2007		2006
		(in thousands)
Balboa Reinsurance Company		$	74,013	$	56,676
Balboa Life & Casualty			315,908		244,098
	Total net insurance premiums earned	$	389,921	$	300,774

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        The following table shows insurance claim expenses:

		Quarters Ended September 30,
		2007				2006
		Amount		As Percentage of Net Earned Premiums		Amount		As Percentage of Net Earned Premiums
		(dollar amounts in thousands)
Balboa Reinsurance Company		$	15,882	21	%	$	3,558	6	%
Balboa Life & Casualty			129,254	41	%		98,393	40	%
	Total insurance claim expenses	$	145,136			$	101,951

        Our mortgage reinsurance business produced $68.2 million in pre-tax earnings, an increase of 14% over the year-ago quarter, driven primarily by growth of 11% in the mortgage loans included in our loan servicing portfolio that are covered by reinsurance contracts. Our insurance claim expense increased as a percentage of net earned premiums in 2007 compared to 2006 due to a reversal of loss reserves related to the 2002 reinsurance book of business in 2006.

        Our Life and Casualty insurance business produced pre-tax earnings of $89.0 million, an increase of $46.5 million, or 109%, from the year-ago quarter. The increase in earnings was primarily driven by a $71.8 million, or 29%, increase in net earned premiums during the quarter ended September 30, 2007 in comparison to the year-ago quarter. The increase in net earned premiums was primarily attributable to growth in lender-placed property and auto insurance. Insurance claim expenses increased by $30.9 million driven by growth in premiums, however these expenses as a percentage of net earned premiums were comparable with the year-ago quarter. During October of 2007, our Life & Casualty business incurred losses estimated between $19.5 million and $27.5 million relating to the California wildfires.

        Our Life and Casualty operations seek to earn profits by capitalizing on Countrywide's customer base and institutional relationships, as well as through operating efficiencies and sound underwriting. Insurance risk is managed through the use of reinsurance.

Global Operations Segment

        Global Operation's pre-tax earnings totaled $8.1 million during the quarter ended September 30, 2007, an increase of $4.6 million from the year-ago period. The increase in earnings was primarily due to an increase in revenue recognized from the licensing of software and offshore services provided for other segments of the Company.

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Detailed Line Item Discussion of Consolidated Revenue and Expense Items

(Loss) Gain on Sale of Loans and Securities

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

			Quarters Ended September 30,
			2007							2006
					(Loss) Gain on Sale							Gain on Sale
			Loans Sold		Amount			Margin(2)		Loans Sold		Amount			Margin(2)
			(dollar amounts in thousands)
Mortgage Banking:
	Prime Mortgage Loans		$	82,579,732	$	223,519		0.27	%	$	84,656,067	$	847,427		1.00	%
	Nonprime Mortgage Loans			673,626		(158,586	)	N/M			10,584,928		143,607		1.36	%
	Prime Home Equity Loans:
		Initial Sales		586,183		(518,230	)	N/M			10,855,628		137,523		1.27	%
		Subsequent draws		1,006,072		15,155		1.51	%		1,022,201		37,159		3.64	%
				1,592,255		(503,075	)	N/M			11,877,829		174,682		1.47	%
	Total Production Sector			84,845,613		(438,142	)	(0.52	%)		107,118,824		1,165,716		1.09	%
Reperforming loans				—		—		0.00	%		—		(26	)	0.00	%
			$	84,845,613		(438,142	)	(0.52	%)	$	107,118,824		1,165,690		1.09	%
Capital Markets:
	Conduit activities(1)		$	4,907,018		(241,941	)	(4.93	%)	$	15,036,425		102,517		0.68	%
	Underwriting			N/A		(37,284	)	N/A			N/A		65,556		N/A
	Commercial real estate		$	1,319,293		36,006		2.73	%	$	1,219,279		19,357		1.59	%
	Securities trading and other			N/A		(56,983	)	N/A			N/A		(6,334	)	N/A
						(300,202	)						181,096
Other				N/A		19,724		N/A			N/A		27,115		N/A
					$	(718,620	)					$	1,373,901

(1)

Includes loans sourced from the Mortgage Banking Segment.

(2)

(Loss) gain on sale as a percentage of loans sold.

        The third quarter of 2007 loss on sale resulted primarily from the disruption in the secondary market during the quarter for non-agency loans and related securities, including prime non-conforming, prime home equity and nonprime mortgage loans. The illiquidity and credit spread widening caused by the market disruption negatively impacted the value of such loans and securities and the amount of loans and securities that were sold. As a result, we recorded write-downs and losses on sales of loans and securities in the amount of $985.7 million as a component of (loss) gain on sale of loans and securities during the quarter ended September 30, 2007. Of this amount $690.5 million was related to our Mortgage Banking Segment and $295.2 million was related to our Capital Markets Segment.

        Gain on sale of Prime Mortgage Loans decreased in the quarter ended September 30, 2007 as compared to the quarter ended September 30, 2006. Lower sales volume and decreased margins on such sales contributed to the decline in prime gain on sale. Write-downs in the amount of $129.9 million resulting from the secondary market disruption also reduced prime gain on sale. In addition, a provision of $177.3 million for prime representations and warranties is included as a

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component of prime gain on sale. This provision relates to increased expectations of future representation and warranty claims on loans sold or securitized resulting from higher levels of expected future defaults.

        During the quarter ended September 30, 2007, we incurred a loss on sale of Nonprime Mortgage Loans compared to a gain of $143.6 million in the year-ago period. The decline in revenues is due to lower sales volume and decreased margins on such sales combined with write-downs of $90.4 million resulting from the secondary market disruption. In addition, a provision of $67.1 million for nonprime representations and warranties is included as a component of nonprime loss on sale. This provision relates to increased expectations of future representation and warranty claims on loans sold or securitized resulting from higher levels of expected future defaults.

        During the quarter ended September 30, 2007, we incurred a loss on sale of Prime Home Equity Loans compared to a gain of $174.7 million in the year-ago period. The decline in revenues is due to lower sales volume and decreased margins on such sales combined with inventory write-downs of $470.2 million resulting from the secondary market disruption.

        In our Capital Market Segment, the market disruption resulted in volume decreases in each of the segment's trading operations, particularly the non-agency conduit business, and also resulted in inventory write-downs and losses from sales of securities at depressed prices. The loss on sale related to conduit activities includes a valuation adjustment of $150.3 million on loans that have been economically sold in securitizations. However, the transactions did not qualify for sales accounting under SFAS 140 and are accounted for as secured borrowings. A gain will be recognized when the securitizations qualify as sales under SFAS 140.

Net Interest (Expense) Income and Provision for Loan Losses

        Net interest (expense) income is summarized below:

				Quarters Ended September 30,
				2007			2006
				(in thousands)
Net interest (expense) income:
	Banking Segment loans and securities			$	534,266		$	490,557
	Mortgage Banking Segment:
		Loans and securities			115,653			165,178
		Loan Servicing Sector:
			Net interest income on custodial balances		232,206			238,082
			Interest expense		(307,006	)		(179,871	)
	Capital Markets Segment securities inventory				25,816			39,957
	Other				105,374			45,067
		Net interest income			706,309			798,970
	Provision for loan losses				(934,268	)		(37,996	)
		Net interest (expense) income after provision for loan losses		$	(227,959	)	$	760,974

        The increase in net interest income from the Banking Segment was attributable to both an increase in the net interest margin and growth in the amount of average interest-earning assets. Net interest margin in the Banking Segment increased to 2.31% during the quarter ended September 30, 2007, from 2.25% during the year-ago quarter. Net interest margin was positively impacted by a smaller interest rate repricing lag compared to the year-ago quarter as well as a smaller proportion of the portfolio comprising pay-option ARM loans with reduced introductory interest rates. Average interest-earning assets in the Banking Segment increased to $93.1 billion during the quarter ended

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September 30, 2007, an increase of $4.6 billion, or 5%, over the year-ago quarter. These positive factors were partially offset by a shift in asset mix to include a larger portion of lower-yielding high-credit quality mortgage-backed securities.

        The decrease in net interest income from Mortgage Banking Segment loans and securities reflects a decrease in the average earnings-assets from the year-ago quarter combined with a decrease in net interest margin, which was triggered by a shift in asset mix to include a higher proportion of short-term investments.

        Net interest income from custodial balances decreased in the current period due to a decrease of $1.3 billion in average custodial balances from the year-ago quarter partially offset by an increase in the earnings rate from 5.36% during the quarter ended September 30, 2006 to 5.52% during the quarter ended September 30, 2007. Interest income on custodial balances is reduced by the interest we are required to pass through to security holders on paid-off loans, which was $72.0 million and $75.3 million in the quarters ended September 30, 2007 and 2006, respectively.

        Interest expense allocated to the Loan Servicing Sector increased primarily due to an increase in total Servicing Sector assets.

        The decrease in net interest income from the Capital Markets Segment securities inventory is attributable to a 10% decrease in the average inventory of securities held, along with a decrease in the net interest margin from 0.29% in the quarter ended September 30, 2006 to 0.21% in the quarter ended September 30, 2007. The decrease in the net interest margin earned on the securities portfolio is primarily due to a flatter yield curve in the current period and the effects of downgrades of our credit ratings.

        The increase in the provision for loan losses was primarily due to higher expectations of losses inherent in our portfolio driven by the impact of the weakening housing market and significant tightening of available credit on delinquency and default trends as well as portfolio seasoning. The impact was most significant on prime home equity loans and pay-option loans in the held for investment portfolio of Banking Operations.

Loan Servicing Fees and Other Income from MSRs and Retained Interests

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

		Quarters Ended September 30,
		2007		2006
		(in thousands)
Servicing fees, net of guarantee fees(1)		$	1,150,056	$	940,831
Income from retained interests			123,165		123,816
Late charges			93,599		73,804
Prepayment penalties			41,297		70,495
Ancillary fees			34,162		19,595
	Total loan servicing fees and income from MSRs and retained interests	$	1,442,279	$	1,228,541

(1)

Includes contractually specified servicing fees.

        The increase in servicing fees, net of guarantee fees, was principally due to a 12% increase in the average servicing portfolio, combined with an increase in the annualized net service fee earned from 0.311% of the average portfolio balance during the quarter ended September 30, 2006 to 0.339% during the quarter ended September 30, 2007.

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        The slight decrease in income from retained interests was primarily due to a reduction in the average yield on such instruments from 20% in the year-ago quarter to 16% in the current quarter, partially offset by a 20% increase in the average investment in these assets from the quarter ended September 30, 2006 to the quarter ended September 30, 2007. Income from retained interests excludes any impairment charges or recoveries, which are included in impairment of retained interests in the consolidated statement of earnings. These investments include interest-only, principal-only and subordinated interests that arise from the securitization of mortgage loans, primarily Nonprime Mortgage and Prime Home Equity Loans.

Realization of Expected Cash Flows from Mortgage Servicing Rights

        The change in fair value of MSRs that is included in earnings for the quarters ended September 30, 2007 and 2006 consists of two primary components—a reduction in fair value due to the realization of expected cash flows from the MSRs and a change in fair value resulting from changes in interest rates and other market factors. The realization of expected cash flows from MSRs resulted in a value reduction of $696.4 million and $749.5 million during the quarters ended September 30, 2007 and 2006, respectively. The decline in realization of expected cash flows from MSRs during the current quarter was due to slower prepayment speeds.

Change in Fair Value of Mortgage Servicing Rights

        We recorded decreases in the fair value of the MSRs in the quarters ended September 30, 2007 and 2006 of $830.9 million and $1,125.1 million, respectively, primarily as a result of decreasing mortgage rates during both quarters which increased expected future prepayment speeds. In the quarter ended September 30, 2007, the impact of decreasing interest rates on expected future prepayments was mitigated by lower levels of housing turnover and lesser refinance activity due to weakening housing market conditions, reduced secondary market liquidity and significant tightening of available credit.

Impairment of Retained Interests

        Impairment of retained interests is summarized below:

		Quarters Ended September 30,
		2007					2006
		(Impairment) Recovery			Asset Balance at Period End		(Impairment) Recovery			Asset Balance at Period End
		(in thousands)
Credit-sensitive retained interests		$	(689,776	)	$	892,414	$	26,421		$	2,062,528
Non credit-sensitive retained interests			(26,882	)		1,571,114		(168,278	)		917,427
	Impairment of retained interests	$	(716,658	)	$	2,463,528	$	(141,857	)	$	2,979,955

        In the quarter ended September 30, 2007, we recognized impairment of credit-sensitive retained interests of $689.8 million, including $540.6 million related to subordinated interests on prime home equity securitizations and $156.2 million related to nonprime securitizations. The impairment charges were driven by weakening housing market conditions combined with significant tightening of available credit, which resulted in increased estimates for future losses on the loans underlying these securities, as well as higher market yield requirements. The loss estimate, as measured by gross undiscounted losses embedded in the valuation of subordinated interests as a percentage of the unpaid principal balance of the loans underlying such interests, increased from 5.7% to 9.5% from June 30, 2007 to September 30, 2007.

        In the quarters ended September 30, 2007 and 2006, we recorded decreases in value of non credit-sensitive retained interests amounting to $26.9 million and $168.3 million respectively. The decrease in

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the current quarter is due mainly to a reduction in value of prepayment penalty bonds resulting from slower prepayments. The decrease in the year-ago quarter was related primarily to interest-only securities and was the result of decreasing interest rates in the period.

Servicing Hedge Gains

        The Servicing Hedge is designed to supplement the macro hedge and to offset a portion of the change in value of MSRs and retained interests recorded in current period earnings. The values of the derivatives and securities that are the primary components of the Servicing Hedge are tied to long-term mortgage, swap and Treasury rates. These rates decreased during the quarters ended September 30, 2007 and 2006. As a result, the Servicing Hedge recognized a gain of $1,183.5 million, net of $231 million of time value decay of the options included in the Servicing Hedge (our "hedge cost"), in the quarter ended September 30, 2007 and a gain of $1,034.4 million, net of $131 million of hedge cost, in the quarter ended September 30, 2006.

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

Net Insurance Premiums Earned

        An increase in premiums earned on the lender-placed property and auto insurance lines of business, along with an increase in reinsurance premiums earned, contributed to the $89.1 million increase in net insurance premiums earned.

Other Revenue

        Other revenue consists of the following:

		Quarters Ended September 30,
		2007		2006
		(in thousands)
Appraisal fees, net		$	44,091	$	33,972
Title services			18,460		10,715
Credit report fees, net			14,946		18,313
Increase in cash surrender value of life insurance			10,944		5,435
Insurance agency commissions			7,537		7,384
Global Operations Segment processing fees			1,628		2,480
Other(1)			27,215		62,186
	Total other revenue	$	124,821	$	140,485

(1)

Includes restructuring charges of $8.9 million related to fixed assets during quarter ended September 30, 2007.

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Compensation Expenses

        Compensation expenses decreased 6%, or $65.1 million in the quarter ended September 30, 2007 as compared to the year-ago period. Details are presented below:

		Quarters Ended September 30,
		2007			2006
		(in thousands)
Base salaries		$	648,456		$	591,009
Incentive bonus and commissions			358,676			476,559
Payroll taxes and other benefits(1)			224,552			239,400
Deferral of loan origination costs			(157,930	)		(168,067	)
	Total compensation expenses	$	1,073,754		$	1,138,901

(1)

Includes restructuring charges of $32.5 million during quarter ended September 30, 2007.

        Average workforce by segment is summarized below:

		Quarters Ended September 30,
		2007	2006
Mortgage Banking		42,575	40,935
Banking		2,419	2,471
Capital Markets		1,063	846
Insurance		2,280	2,133
Global Operations		3,959	2,148
Corporate Administration		7,138	7,311
	Average workforce, including temporary staff	59,434	55,844

        Compensation expense reductions occurred in the Mortgage Banking Segment, Corporate Administration and the Capital Markets Segment as follows:

•

In the Mortgage Banking Segment, compensation expenses decreased $51.2 million, or 6% before deferral of loan origination costs. The decrease came from the Loan Production Sector, where compensation expenses decreased $76.4 million, or 10% because of a change in channel mix, partially offset by a 1% increase in average staff to support our market share growth efforts. This decrease was partially offset by an increase of $16.3 million in the Loan Servicing Sector due to continuing growth in the servicing portfolio and increasing delinquencies and an increase of $8.9 million in the Loan Closing Services Sector.



•

In Corporate Administration, compensation expense reductions of $3.5 million primarily related to reductions in stock-based compensation and pension expenses as well as to reduced staffing levels.



•

In the Capital Markets Segment, compensation expense decreased by $26.4 million due to decrease in revenue-related compensation.

        Incremental direct costs associated with the origination of loans are deferred when incurred. Subsequent treatment of these costs is based on whether the loans are held for sale or held for investment. If the loan is sold, the costs deferred are included as a component of gain on sale in the period sold; if the loan is held for investment, the deferred costs are amortized to interest income over the life of the loan.

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Occupancy and Other Office Expenses

        Occupancy and other office expenses are summarized below:

		Quarters Ended September 30,
		2007		2006
		(in thousands)
Office and equipment rentals		$	66,892	$	56,843
Depreciation			59,741		52,997
Utilities			46,416		42,424
Postage and courier service			27,457		28,339
Office supplies			20,076		20,007
Dues and subscriptions			16,358		14,607
Repairs and maintenance			13,990		18,988
Other(1)			33,544		23,703
	Total occupancy and other office expenses	$	284,474	$	257,908

(1)

Includes restructuring charges of $15.8 million during quarter ended September 30, 2007.

        Occupancy and other office expenses for the quarter ended September 30, 2007 increased by 10%, or $26.6 million, reflecting growth in facilities.

Insurance Claim Expenses

        Insurance claim expenses were $145.1 million for the quarter ended September 30, 2007 as compared to $102.0 million for the year-ago period. The increase in insurance claims expense was due to growth in our insurance book of business.

Advertising and Promotion Expenses

        Advertising and promotion expenses increased 28% from the quarter ended September 30, 2006, as a result of the increasing competition for lending business as the mortgage market volume declines.

Other Operating Expenses

        Other operating expenses are summarized below:

		Quarters Ended September 30,
		2007			2006
		(in thousands)
Legal, consulting, accounting and auditing expenses		$	52,438		$	47,367
Insurance commission expense			45,861			50,919
Travel and entertainment			26,546			26,398
Mortgage insurance			25,883			8,706
Losses on servicing-related advances			24,839			16,728
Software amortization and impairment			19,477			14,414
Insurance			19,469			6,651
Taxes and licenses			19,185			14,814
Other			125,960			60,612
Deferral of loan origination costs			(33,636	)		(28,041	)
	Total other operating expenses	$	326,022		$	218,568

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        The increase in operating expenses reflects an increase of $17.2 million in purchased mortgage insurance expense relating to the Banking Operations portfolio of loans held for investment, as well as overall growth in the Company from the quarter ended September 30, 2006 to the quarter ended September 30, 2007.

Results of Operations Comparison—Nine Months Ended September 30, 2007 and 2006

Consolidated Earnings Performance

        We recorded a net loss for the nine months ended September 30, 2007 of $281.6 million, as compared to net earnings of $2,053.3 million in the nine months ended September 30, 2006. Our diluted loss per share was $1.24 compared to diluted earnings per share of $3.29 from the year-ago period.

        The results for the nine-month period ended September 30, 2007 were influenced by the same factors that affected the quarter ended September 30, 2007—marketplace concerns about the credit performance of securitized mortgage loans and the worsening credit performance of our loans:

•

Our gain on sale of loans and securities decreased by 53% due to illiquidity in the markets for non-agency loans and securities throughout the period, beginning with nonprime loans and expanding throughout the period to include all non-agency products;



•

The values of our credit-sensitive retained interests were negatively affected by increased loss expectations on the loans that underlie these assets' values combined with increased investor yield requirements, resulting in an increase in impairment of these assets by 22 times; and



•

Our provision for loan losses increased by 746%, reflecting worsening loan portfolio performance, including increased rates of default and loss severity on defaulted loans.

        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 the first nine months of 2007.

Operating Segment Results

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

			Nine Months Ended September 30,
			2007			2006
			(in thousands)
Mortgage Banking:
	Loan Production		$	(736,788	)	$	889,397
	Loan Servicing			(243,242	)		651,374
	Loan Closing Services			86,415			68,302
		Total Mortgage Banking		(893,615	)		1,609,073
Banking				10,293			1,037,263
Capital Markets				(102,684	)		454,262
Insurance				428,559			245,033
Global Operations				18,754			16,439
Other(1)				(63,516	)		(12,472	)
	Total		$	(602,209	)	$	3,349,598

(1)

Includes restructuring charges of $57.2 million during the nine months ended September 30, 2007.

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

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

			Nine Months Ended September 30,
			2007		2006
			(in millions)
Segment:
	Mortgage Banking		$	323,986	$	303,339
	Banking Operations			10,885		22,316
	Capital Markets—Conduit acquisitions from nonaffiliates			4,887		14,942
		Total Mortgage Loan Fundings		339,758		340,597
	Commercial Real Estate			6,714		3,309
			$	346,472	$	343,906
Product:
	Prime Mortgage		$	292,955	$	272,960
	Prime Home Equity			29,875		37,092
	Nonprime Mortgage			16,928		30,545
	Commercial Real Estate			6,714		3,309
			$	346,472	$	343,906

        Our total loan production was $346.5 billion for the nine months ended September 30, 2007, as compared to $343.9 billion in the year-ago period. The increase was primarily due to an increase in our market share from 14.1% to 16.2% (based on our internal market estimates) in a mortgage market that declined approximately 13% from the year-ago period. 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:

		Nine Months Ended September 30,
		2007		2006
		(in millions)
Purpose:
	Non-purchase	$	199,139	$	184,426
	Purchase		147,333		159,480
		$	346,472	$	343,906
Interest Rate Type:
	Fixed	$	245,950	$	178,195
	Adjustable		100,522		165,711
		$	346,472	$	343,906

Mortgage Banking Segment

        The mortgage banking segment includes Loan Production, Loan Servicing and Loan Closing Services Sectors.

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Loan Production Sector

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

				Nine Months Ended September 30,(1)
				2007		2006
				(in millions)
Channel:
	Originated:
		Retail:
			Consumer Markets	$	86,177	$	88,003
			Full Spectrum Lending		26,311		25,280
					112,488		113,283
		Wholesale Lending			60,013		67,520
			Total originated		172,501		180,803
	Purchased—Correspondent Lending				151,485		122,536
				$	323,986	$	303,339
Mortgage Loan Type:
	Prime Mortgage			$	285,819	$	245,767
	Prime Home Equity				22,421		29,966
	Nonprime Mortgage				15,746		27,606
				$	323,986	$	303,339
Purpose:
	Non-purchase			$	185,610	$	161,902
	Purchase				138,376		141,437
				$	323,986	$	303,339
Interest Rate Type:
	Fixed Rate			$	232,397	$	170,233
	Adjustable Rate				91,589		133,106
				$	323,986	$	303,339

(1)

$156.1 billion and $58.0 billion of Mortgage Banking loan production was funded by Countrywide Bank during the nine months ended September 30, 2007 and 2006, respectively.

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

			Nine Months Ended September 30,
			2007					2006
			Amount			Percentage of Loan Production Volume		Amount		Percentage of Loan Production Volume
			(dollar amounts in thousands)
Revenues:
	Prime Mortgage		$	2,453,696				$	3,030,009
	Nonprime Mortgage			63,560					600,498
	Prime Home Equity			(177,821	)				571,628
		Total revenues		2,339,435		0.72	%		4,202,135	1.38	%
Expenses:
	Compensation			1,659,641		0.51	%		1,816,280	0.60	%
	Other operating			1,053,730		0.33	%		1,064,541	0.35	%
	Allocated corporate			362,852		0.11	%		431,917	0.14	%
		Total expenses		3,076,223		0.95	%		3,312,738	1.09	%
Pre-tax (loss) earnings			$	(736,788	)	(0.23	%)	$	889,397	0.29	%
Total Mortgage Banking loan production			$	323,986,000				$	303,339,000

        The Loan Production sector incurred a pre-tax loss of $736.8 million in the nine months ended September 30, 2007 compared to pre-tax earnings of $889.4 million in the year-ago period. The current period loss resulted primarily from the disruption in the secondary market during 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 during the nine months ended September 30, 2007 of $929.2 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 $26.2 billion in the current period compared to $52.8 billion in the year-ago period, causing revenues to decline.

        Expenses decreased from the year-ago period (both in dollars and as a percentage of loans produced), primarily due to a change in the production channel mix throughout most of the period towards our Correspondent Lending Channel, which has a lower cost structure than our origination channels and to cost cutting initiatives.

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Loan Servicing Sector

        The following table summarizes the results for the Loan Servicing Sector:

			Nine Months Ended September 30,
			2007					2006
			Amount			Percentage of Average Servicing Portfolio(1)		Amount			Percentage of Average Servicing Portfolio(1)
						(dollar amounts in thousands)
Servicing fees, net of guarantee fees			$	3,411,014		0.331	%	$	2,794,071		0.320	%
Escrow balance income				660,223		0.064	%		605,263		0.069	%
Miscellaneous fees				561,598		0.055	%		446,709		0.051	%
Income from retained interests				393,092		0.038	%		386,331		0.044	%
Realization of expected cash flows from mortgage servicing rights				(2,353,368	)	(0.229	%)		(2,147,325	)	(0.245	%)
		Operating revenues		2,672,559		0.259	%		2,085,049		0.239	%
Direct expenses				605,027		0.059	%		554,722		0.064	%
Allocated corporate expenses				56,365		0.005	%		65,874		0.007	%
		Total expenses		661,392		0.064	%		620,596		0.071	%
Operating earnings				2,011,167		0.195	%		1,464,453		0.168	%
Interest expense				(938,356	)	(0.091	%)		(445,658	)	(0.051	%)
Change in fair value of mortgage servicing rights				400,581		0.039	%		314,137		0.036	%
Recovery (impairment) of non credit-sensitive retained interests				58,722		0.006	%		(144,049	)	(0.017	%)
Servicing hedge loss(2)				(371,384	)	(0.036	%)		(472,591	)	(0.054	%)
		Valuation changes, net of Servicing Hedge		87,919		0.009	%		(302,503	)	(0.035	%)
Pre-tax earnings before credit-sensitive retained interests				1,160,730		0.113	%		716,292		0.082	%
Impairment of credit-sensitive retained interests				(1,472,072	)	(0.143	%)		(64,918	)	(0.007	%)
Allocated hedge(2)				68,100		0.006	%		—		0.000	%
	Credit-sensitive valuation changes			(1,403,972	)	(0.137	%)		(64,918	)	(0.007	%)
Pre-tax (loss) earnings			$	(243,242	)	(0.024	%)	$	651,374		0.075	%
Average servicing portfolio			$	1,374,064,000				$	1,163,744,000

(1)

Annualized

(2)

The Servicing Hedge loss was not allocated between MSRs and credit-sensitive retained interests in the nine months ended September 30, 2006.

        Before the impact of valuation adjustments to credit-sensitive retained interests, Loan Servicing sector pre-tax earnings were $1,160.7 million for the nine months ended September 30, 2007 compared to $716.3 million in the year-ago period. The increase is due to a larger servicing portfolio and improvement in the value of the MSRs and non credit-sensitive retained interests, net of the Servicing Hedge. These positive factors were partially offset by an increase in interest expense resulting from higher servicing assets and an increase in the provision for loan losses related to Mortgage Banking

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loans held for investment. The MSR valuation was positively impacted by an expectation of slower future prepayment speeds resulting from the market disruption in the third quarter of 2007 and as a result the valuation change of MSRs and non credit-sensitive retained interests, net of servicing hedge loss was a gain of $87.9 million in the nine months ended September 30, 2007 compared to a loss of $302.5 million in the year-ago period.

        Offsetting improved operating earnings and MSR asset performance, Loan Servicing sector results were negatively impacted by impairment losses of $1,472.1 million related to credit-sensitive residual securities, largely related to subordinated interests backed by prime home equity loans and to a lesser extent nonprime loans. These charges resulted from increases in estimates of future credit losses on the underlying loans as well as increased discount rates reflecting higher market yield requirements on these investments.

Loan Closing Services Sector

        The LandSafe companies produced $86.4 million in pre-tax earnings in the nine months ended September 30, 2007, representing an increase of 27% from the year-ago period. The increase in LandSafe's pre-tax earnings was primarily due to the increase in its title and default and appraisal businesses due to increased foreclosure activity.

Banking Segment

        Following is a summary of Banking Operations' loan acquisitions by source:

	Nine Months Ended September 30,
	2007		2006
	(in millions)
Purchases from non-affiliates	$	3,723	$	6,863
Consumer Markets		3,345		2,069
Correspondent Lending		2,734		7,262
Wholesale Lending		896		6,122
Full Spectrum Lending		187		—
		10,885		22,316
Transfer of mortgage loans held for sale to loans held for investment		12,315		—
	$	23,200	$	22,316

        The Banking Segment recorded pre-tax earnings of $10.3 million during the nine months ended September 30, 2007, compared to $1,037.3 million for the year-ago period. Following is the composition of pre-tax earnings:

		Nine Months Ended September 30,
		2007			2006
		(in thousands)
Banking Operations		$	41,753		$	1,037,928
CWL			19,268			43,151
Allocated corporate expenses			(50,728	)		(43,816	)
	Total Banking Segment pre-tax earnings	$	10,293		$	1,037,263

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

		Nine Months Ended September 30,
		2007			2006
		(dollar amounts in thousands)
Interest income		$	4,365,287		$	3,785,783
Interest expense			(2,875,260	)		(2,470,043	)
	Net interest income		1,490,027			1,315,740
Provision for credit losses(1)			(1,159,877	)		(92,286	)
	Net interest income after provision for credit losses		330,150			1,223,454
Non-interest income			117,628			109,929
Non-interest expense:
	Mortgage insurance expense		(69,215	)		(24,710	)
	Other non-interest expense		(336,810	)		(270,745	)
	Pre-tax earnings	$	41,753		$	1,037,928
Efficiency ratio(2)			26	%		21	%
After-tax return on average assets			0.04	%		1.05	%

(1)

Includes provision for loan losses plus provision for losses on unfunded commitments.

(2)

Non-interest expense, including mortgage insurance expense, divided by the sum of net interest income plus non-interest income. The Banking Operations' efficiency ratio reflects the expense structure resulting from its relationship with Countrywide Home Loans but does not include allocated corporate expenses. If Banking Operations were a stand-alone entity, the nature and amount of its expenses would differ from those reported. For example, the fulfillment fees paid by Countrywide Bank to the Loan Production Sector for origination costs incurred on investment mortgage loans funded by Countrywide Bank are generally determined on an incremental cost basis which is less than would be incurred in an arms-length transaction.

        Banking Operations recorded pre-tax earnings of $41.8 million for the nine months ended September 30, 2007, a decrease of $996.2 million, or 96%, from the year-ago period. This decrease resulted primarily from a higher provision for credit losses and an increase in non-interest expense, partially offset by an increase in net interest income. The Banking Operations' provision for credit losses increased by $1,067.6 million during the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. The increase in the provision for credit losses was primarily due to higher inherent losses in our loan portfolio driven by the impact of the weakening housing market and significant tightening of available credit on delinquency and default trends as well as portfolio seasoning. Non-interest expense increased $110.6 million reflecting Banking Operations' continuing growth, increased purchases of mortgage insurance for its portfolio of loans held for investment and a $29.0 million increase in deposit insurance expense.

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

			Nine Months Ended September 30,
			2007							2006
			Average Balance			Interest Income/ Expense		Annualized Yield/ Rate		Average Balance			Interest Income/ Expense		Annualized Yield/ Rate
			(dollar amounts in thousands)
Interest-earning assets:
	Loans(1)		$	69,407,022		$	3,703,058	7.12	%	$	71,149,750		$	3,481,152	6.53	%
	Securities available for sale(2)			13,640,874			566,988	5.54	%		5,961,981			221,003	4.94	%
	Short-term investments			697,366			28,780	5.52	%		650,984			24,315	4.99	%
	FHLB securities and FRB stock			1,488,018			66,461	5.97	%		1,435,570			59,313	5.70	%
		Total earning assets		85,233,280			4,365,287	6.83	%		79,198,285			3,785,783	6.38	%
	Allowance for loan losses			(349,643	)						(134,800	)
	Other assets			2,847,492							1,095,042
		Total assets	$	87,731,129						$	80,158,527
Interest-bearing liabilities:
	Money market deposits and savings accounts		$	13,775,608			538,044	5.22	%	$	5,837,337			208,447	4.77	%
	Company-controlled custodial deposits(3)			16,133,931			626,628	5.19	%		15,304,002			550,520	4.81	%
	Time deposits			27,451,011			1,047,909	5.10	%		26,295,083			894,126	4.55	%
		Total interest-bearing deposits		57,360,550			2,212,581	5.16	%		47,436,422			1,653,093	4.66	%
	Borrowings			20,224,250			662,679	4.38	%		25,324,145			816,950	4.31	%
		Total interest-bearing liabilities		77,584,800			2,875,260	4.95	%		72,760,567			2,470,043	4.54	%
Non interest-bearing liabilities and equity:
	Non interest-bearing checking accounts			2,812,891							1,124,577
	Other liabilities			2,066,061							864,299
	Shareholder's equity			5,267,377							5,409,084
		Total non interest-bearing liabilities and equity		10,146,329							7,397,960
		Total liabilities and shareholder's equity	$	87,731,129						$	80,158,527
Net interest income						$	1,490,027						$	1,315,740
Net interest spread(4)								1.88	%						1.84	%
Net interest margin(5)								2.32	%						2.21	%

(1)

Average balances include nonaccrual loans.

(2)

Average balances and yields for securities available for sale are based on average amortized cost computed on the settlement date basis.

(3)

Represents an intercompany rate paid to the Loan Servicing Sector.

(4)

Calculated as yield on total average interest-earning assets less rate on total average interest-bearing liabilities.

(5)

Calculated as net interest income divided by total average interest-earning assets.

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

			Nine Months Ended September 30, 2007 vs. September 30, 2006
			Increase (Decrease) Due to
			Volume			Rate		Total Changes
			(in thousands)
Interest-earning assets:
	Loans		$	(79,159	)	$	301,065	$	221,906
	Securities available for sale			316,204			29,781		345,985
	Short-term investments			1,806			2,659		4,465
	FHLB securities and FRB stock			2,789			4,359		7,148
		Total interest income	$	241,640		$	337,864	$	579,504
Interest-bearing liabilities:
	Money market deposits savings accounts		$	308,336		$	21,261	$	329,597
	Company-controlled custodial deposits			30,818			45,290		76,108
	Time deposits			40,577			113,206		153,783
		Total deposits		379,731			179,757		559,488
	Total borrowings			(166,920	)		12,649		(154,271	)
		Total interest expense		212,811			192,406		405,217
		Net interest income	$	28,829		$	145,458	$	174,287

        The increase in net interest income is primarily due to an 11 basis point increase in net interest margin and to a $6.0 billion, or 8%, increase in average interest-earning assets. The increase in the net interest margin from the year-ago period was a result of the effect of a smaller interest rate repricing lag and the reduced impact of introductory rates earned on recently funded pay-option loans as such loans comprised a smaller portion of the portfolio in the nine months ended September 30, 2007 compared to the year-ago period, partially offset by a change in asset mix to include a larger portion of lower-yielding high-credit quality mortgage-backed securities.

        The Banking Segment also includes the operations of CWL. CWL's pre-tax earnings decreased by $23.9 million during the nine months ended September 30, 2007 in comparison to the year-ago period. This decline was primarily due to a 44% decrease in average mortgage warehouse advances, which resulted primarily from a decrease in overall market funding activity and to competitive pricing pressure. Warehouse lending advances were $0.6 billion at September 30, 2007 and had an average yield of 6.5% during the nine months ended September 30, 2007.

Capital Markets Segment

        Our Capital Markets Segment recorded pre-tax losses of $102.7 million for the nine months ended September 30, 2007, a decrease of $556.9 million, or 123%, from the year-ago period caused by an overall decline in revenue and a $33.4 million, or 10% increase in expenses to support newer lines of business.

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

			Nine Months Ended September 30,
			2007			2006
			(in thousands)
Revenues:
	Commercial real estate		$	136,037		$	70,279
	Underwriting			71,629			221,897
	Securities trading			64,716			84,322
	Brokering			40,751			26,435
	Conduit			(77,887	)		347,966
	Other			19,954			27,893
		Total revenues		255,200			778,792
Expenses:
	Operating expenses			338,641			303,366
	Allocated corporate expenses			19,243			21,164
		Total expenses		357,884			324,530
Pre-tax (loss) earnings			$	(102,684	)	$	454,262

        During the current reporting period, the commercial real estate finance activities of the Capital Markets Segment generated revenues totaling $136.0 million compared to $70.3 million in the year-ago period. The increase in revenue was due primarily to an increase in the volume of loans sold. Our commercial real estate lending activities were also substantially curtailed because of the loss of available outside financing late in the period.

        Our conduit revenues declined by $425.9 million, including a $172.4 million write-down of our inventory managed in our Capital Markets Segment on behalf of CHL. The inventory write-downs consisted of a $22.1 million write-down of loans held in inventory and a valuation allowance of $150.3 million relating to loans that had been economically sold in securitizations. However, the transactions did not qualify for sales accounting under SFAS 140 and are accounted for as secured borrowings. A gain will be recognized when the securitizations qualify as sales under SFAS 140. Conduit revenues were also affected by declining sales volume and gain on sale margin and a lower net interest margin. These factors relate to credit spreads that began to widen in early 2007 with respect to to nonprime loans and by the end of the period with respect to all non-conforming products.

        Our underwriting revenues decreased primarily due to losses in our inventory of securities due to the effects of the market dislocation on the value of our holdings from previous underwritings, as well as a 42% reduction in the volume of underwritings during the period.

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

		Nine Months Ended September 30,
		2007		2006
		(in millions)
Mortgage-backed securities		$	1,848,981	$	1,638,393
Asset-backed securities			62,665		125,387
Other			106,395		116,486
	Subtotal(1)		2,018,041		1,880,266
U.S. Treasury securities			1,146,286		965,335
	Total securities trading volume	$	3,164,327	$	2,845,601

(1)

Approximately 12% and 15% of the segment's non-U.S. Treasury securities trading volume was with Countrywide Home Loans during the nine months ended September 30, 2007 and 2006, respectively.

Insurance Segment

        The Insurance Segment's pre-tax earnings increased by $183.5 million over the year-ago period, to $428.6 million during the nine months ended September 30, 2007. The following table shows pre-tax earnings by component:

		Nine Months Ended September 30,
		2007			2006
		(in thousands)
Balboa Reinsurance Company		$	255,621		$	159,161
Balboa Life & Casualty(1)			197,013			109,911
Allocated corporate expenses			(24,075	)		(24,039	)
	Total Insurance Segment pre-tax earnings	$	428,559		$	245,033

(1)

Includes the Balboa Life and Casualty Group and the Countrywide Insurance Services Group.

        The following table shows net insurance premiums earned:

		Nine Months Ended September 30,
		2007		2006
		(in thousands)
Balboa Reinsurance Company		$	202,707	$	163,627
Balboa Life & Casualty			873,775		701,166
	Total net insurance premiums earned	$	1,076,482	$	864,793

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        The following table shows insurance claim expenses:

		Nine Months Ended September 30,
		2007					2006
		Amount			As Percentage of Net Earned Premiums		Amount		As Percentage of Net Earned Premiums
		(dollar amounts in thousands)
Balboa Reinsurance Company		$	(27,990	)	N/M		$	24,293	15	%
Balboa Life & Casualty			385,200		44	%		304,509	43	%
	Total insurance claim expenses	$	357,210				$	328,802

        Our mortgage reinsurance business produced an increase in pre-tax earnings of $96.5 million, or 61%, over the year-ago period, resulting primarily from a $74.0 million reversal of loss reserves related to the 2003 book of business, on which negligible remaining loss exposure was deemed to exist in the first nine months of 2007. Also contributing to the increase in pre-tax earnings was growth of 11% in the mortgage loans included in our loan servicing portfolio that are covered by reinsurance contracts.

        Our Life and Casualty insurance business produced pre-tax earnings of $197.0 million, an increase of $87.1 million, or 79%, from the year-ago period. The increase in earnings was primarily driven by a $172.6 million, or 25%, increase in net earned premiums during the nine months ended September 30, 2007 in comparison to the year-ago period. The increase in net earned premiums was primarily attributable to growth in lender-placed insurance and voluntary auto insurance. Insurance claim expenses increased by $80.7 million driven by growth in premiums, however these expenses as a percentage of net earned premiums were comparable with the year-ago period.

Global Operations Segment

        Global Operation's pre-tax earnings totaled $18.8 million during the nine months ended September 30, 2007, an increase of $2.3 million from the year-ago period. The increase in earnings was primarily due to an increase in revenue recognized from the licensing of software and offshore services provided for other segments of the Company, partially offset by the termination of the joint venture with Barclays Bank, PLC in 2006.

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Detailed Line Item Discussion of Consolidated Revenue and Expense Items

Gain on Sale of Loans and Securities

        Gain on sale of loans and securities is summarized below:

			Nine Months Ended September 30,
			2007							2006
					Gain on Sale							Gain on Sale
			Loans Sold		Amount			Margin(2)		Loans Sold		Amount		Margin(2)
			(dollar amounts in thousands)
Mortgage Banking:
	Prime Mortgage Loans		$	284,884,449	$	2,161,076		0.76	%	$	240,007,756	$	2,717,250	1.13	%
	Nonprime Mortgage Loans			13,727,749		(9,330	)	(0.07	%)		29,570,762		493,047	1.67	%
	Prime Home Equity Loans:
		Initial Sales		9,371,417		(329,617	)	(3.52	%)		20,000,572		307,251	1.54	%
		Subsequent draws		3,091,565		65,593		2.12	%		3,195,861		116,863	3.66	%
				12,462,982		(264,024	)	(2.12	%)		23,196,433		424,114	1.83	%
	Total Production Sector			311,075,180		1,887,722		0.61	%		292,774,951		3,634,411	1.24	%
Reperforming loans				—		—		0.00	%		247,162		2,635	1.07	%
			$	311,075,180		1,887,722		0.61	%	$	293,022,113		3,637,046	1.24	%
Capital Markets:
	Conduit activities(1)		$	20,189,865		(101,946	)	(0.50	%)	$	50,891,454		312,614	0.61	%
	Underwriting			N/A		59,744		N/A			N/A		202,163	N/A
	Commercial real estate		$	5,547,532		102,221		1.84	%	$	3,177,349		50,586	1.59	%
	Securities trading and other			N/A		10,217		N/A			N/A		10,886	N/A
						70,236							576,249
Other				N/A		50,984		N/A			N/A		49,234	N/A
					$	2,008,942						$	4,262,529

(1)

Includes loans purchased from the Mortgage Banking Segment.

(2)

Gain on sale as a percentage of loans sold.

        The disruption in the secondary markets during the third quarter of 2007 for non-agency loans and related securities, including prime non-conforming, prime home equity and nonprime mortgage loans, reduced gain on sale realized in the nine months ended September 30, 2007. The illiquidity and credit spread widening caused by the market disruption negatively impacted the value of such loans and securities and the amount of loans and securities that were sold.

        Gain on sale of Prime Mortgage Loans decreased in the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006, due primarily to lower margins partially offset by higher sales volume. The decline in margins was due to increased price competition, change in product mix to lower-margin products and a shift in channel mix towards our Correspondent Lending Channel, which has lower margins than our origination channels. Also contributing to the decline in

86

prime gain on sale were write-downs of inventory and pipeline in the amount of $175.5 million resulting primarily from the secondary market disruption in the latter part of the period and an increase in the provision for prime representations and warranties. This provision relates to increased expectations of future representation and warranty claims on loans sold or securitized resulting from higher levels of expected future defaults.

        During the nine months ended September 30, 2007, we incurred a loss on sale of Nonprime Mortgage Loans compared to a gain of $493.0 million in the year-ago period. The decline in revenues is due to lower sales volume and decreased margins on such sales. Also contributing to the decline were write-downs of $329.4 million primarily resulting from the secondary market disruption in the third quarter of 2007 and the transfer of Nonprime Mortgage Loans held for sale to loans held for investment in the first quarter of 2007. The loans transferred to loans held for investment had declined in value as a result of deteriorating market conditions—specifically higher investor yield requirements as well as increased loss assumptions—during the first quarter of 2007. The negative effect of this write-down was partially offset by a $104.2 million gain in credit default swaps, used to moderate credit spread risk.

        During the nine months ended September 30, 2007, we incurred a loss on sale of Prime Home Equity Loans of $264.0 million compared to a gain of $424.1 million in the year-ago period. The decline in revenues is due to lower sales volume and decreased margins on such sales combined with write-downs of $528.8 million resulting primarily from the secondary market disruption in the third quarter of 2007.

        In our Capital Market Segment, the market disruption in the third quarter resulted in volume decreases in each of the segment's trading operations, but particularly the non-agency conduit business; and also resulted in inventory write-downs and loss from sales at depressed prices. The loss on sale related to conduit activities includes a $150.3 million valuation adjustment on loans included in securities that had been economically sold in securitizations. However, the transactions did not qualify for sales accounting under SFAS 140 and are accounted for as secured borrowings. A gain will be recognized when the securitizations qualify as sales under SFAS 140.

Net Interest Income and Provision for Loan Losses

        Net interest income is summarized below:

				Nine Months Ended September 30,
				2007			2006
				(in thousands)
Net interest income (expense):
	Banking Segment loans and securities			$	1,521,276		$	1,365,012
	Mortgage Banking Segment:
		Loans and securities			373,683			447,409
		Loan Servicing Sector:
			Net interest income on custodial balances		660,223			605,263
			Interest expense		(785,000	)		(491,530	)
	Capital Markets Segment securities inventory				70,211			90,122
	Other				324,849			167,603
		Net interest income			2,165,242			2,183,879
	Provision for loan losses				(1,379,154	)		(163,032	)
		Net interest income after provision for loan losses		$	786,088		$	2,020,847

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        The increase in net interest income from the Banking Segment was attributable to both an increase in the net interest margin and growth in the amount of average interest-earning assets. Net interest margin increased to 2.30% during the nine months ended September 30, 2007, from 2.18% during the year-ago period primarily as a result of a smaller interest rate repricing lag compared to the prior period as well as the segment's portfolio containing a smaller proportion of pay-option ARM loans with reduced introductory interest rates. Average interest-earning assets in the Banking Segment increased to $87.6 billion during the nine months ended September 30, 2007, an increase of $4.2 billion, or 5%, over the year-ago period. These positive factors were partially offset by a shift in asset mix to include a larger portion of lower-yielding high-credit quality mortgage-backed securities.

        The decrease in net interest income from the Mortgage Banking Segment loans and securities reflects a decrease in net interest margin from the year-ago period, partially offset by a higher balance of average earning-assets. The Mortgage Banking Segment loan and securities inventory is primarily financed with borrowings tied to short-term indices. During the current period the difference between long-term and short-term interest rates was smaller than in the year-ago period, causing the decrease in net interest margin.

        Net interest income from custodial balances increased in the current period due to an increase in the earnings rate from 4.97% during the nine months ended September 30, 2006 to 5.42% during the nine months ended September 30, 2007, and by an increase of $746.5 million in average custodial balances from the year-ago period. Interest income on custodial balances is reduced by the interest we are required to pass through to security holders on paid-off loans, which was $274.9 million and $224.7 million in the nine months ended September 30, 2007 and 2006, respectively.

        Interest expense allocated to the Loan Servicing Sector increased primarily due to an increase in total Loan Servicing Sector assets.

        The decrease in net interest income from the Capital Markets securities inventory is attributable to a decrease in the net interest margin from 0.23% in the nine months ended September 30, 2006 to 0.15% in the nine months ended September 30, 2007, partially offset by a 24% increase in the average inventory of securities held. During the current period the difference between long-term and short-term interest rates was smaller than in the year-ago period, causing the difference in net interest margin.

        The increase in the provision for loan losses was primarily due to higher losses inherent in our portfolio of loans held for investment driven by the impact of the weakening housing market and significant tightening of available credit on delinquency and default trends as well as portfolio seasoning. The impact was most significant on prime home equity loans and pay-option loans held in investment portfolio in Banking Operations.

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Loan Servicing Fees and Other Income from MSRs and Retained Interests

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

		Nine Months Ended September 30,
		2007		2006
		(in thousands)
Servicing fees, net of guarantee fees(1)		$	3,291,406	$	2,794,071
Income from retained interests			395,428		386,331
Late charges			274,009		203,068
Prepayment penalties			190,111		182,429
Global Operations Segment subservicing fees			—		12,034
Ancillary fees			99,869		57,654
	Total loan servicing fees and income from MSRs and retained interests	$	4,250,823	$	3,635,587

(1)

Includes contractually specified servicing fees.

        The increase in servicing fees, net of guarantee fees, was principally due to an 11% increase in the average servicing portfolio, combined with an increase in the overall annualized net service fee earned from 0.320% of the average portfolio balance during the nine months ended September 30, 2006 to 0.338% during the nine months ended September 30, 2007.

        The increase in income from retained interests was due primarily to a 27% increase in the average investment in these assets from the nine months ended September 30, 2006 to the nine months ended September 30, 2007, partially offset by a reduction in the average yield on such instruments from 21% in the nine months ended September 30, 2006 to 17% in the nine months ended September 30, 2007. Income from retained interests excludes any impairment charges or recoveries, which are included in impairment of retained interests in the consolidated statement of earnings. These investments include interest-only, principal-only and residual securities that arise from the securitization of mortgage loans, primarily Nonprime Mortgage and Prime Home Equity Loans.

Realization of Expected Cash Flows from Mortgage Servicing Rights

        The change in fair value of MSRs that is included in earnings for the nine months ended September 30, 2007 and 2006 consists of two primary components—a reduction in fair value due to the realization of expected cash flows from the MSRs and a change in fair value resulting from changes in interest rates and other market factors. The realization of expected cash flows from MSRs resulted in a value reduction of $2,353.4 million and $2,148.5 million during the nine months ended September 30, 2007 and 2006, respectively.

Change in Fair Value of Mortgage Servicing Rights

        We recorded an increase in the fair value of MSRs in the nine months ended September 30, 2007 of $400.6 million, primarily due to increased mortgage rates during the period which lowered expected future prepayment speeds. In the latter part of the period lower levels of housing turnover and lesser refinance activity due to weakening housing market conditions and significant tightening of available credit also contributed to lower expected prepayment speeds. Mortgage rates also increased in the nine months ended September 30, 2006 and as a result we recorded an increase in the fair value of the MSRs of $314.4 million.

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Impairment of Retained Interests

        Impairment of retained interests is summarized below:

		Nine Months Ended September 30,
		2007					2006
		(Impairment) Recovery			Asset Balance at Period End		(Impairment) Recovery			Asset Balance at Period End
		(in thousands)
Credit-sensitive retained interests		$	(1,472,072	)	$	892,414	$	(64,918	)	$	2,062,528
Non credit-sensitive retained interests			57,696			1,571,114		(146,095	)		917,427
	Impairment of retained interests	$	(1,414,376	)	$	2,463,528	$	(211,013	)	$	2,979,955

        In the nine months ended September 30, 2007, we recognized impairment of credit-sensitive retained interests of $1,472.1 million, including $1,061.6 million related to subordinated interests on prime home equity securitizations and $412.1 million related to nonprime and related residual interests. These impairment charges were the result of the effect of weakening housing market conditions combined with significant tightening of available credit on increased estimates for future losses on the loans underlying these securities. In addition, increased market yield requirements for these securities contributed to the decline in their value.

        In the nine months ended September 30, 2006, we recognized impairment of credit-sensitive retained interests of $64.9 million. This impairment was primarily the result of a decline in the value of certain nonprime securities due to compression of the interest rate spread on the residuals we hold because the interest on the collateral is fixed-rate while the pass-through rate is floating.

        In the nine months ended September 30, 2007, we recognized increases in values of the non credit-sensitive retained interests, consisting primarily of interest-only and principal-only retained interests as compared to a decrease in the nine months ended September 30, 2006.

Servicing Hedge Losses

        The Servicing Hedge is designed to supplement the macro hedge and to offset a portion of the change in value of MSRs and retained interests recorded in current period earnings. The values of the derivatives and securities that are the primary components of the Servicing Hedge are tied to long-term mortgage, swap and Treasury rates. Overall, these rates increased slightly during the nine months ended September 30, 2007. In addition, we used credit default swaps to moderate a negative impact on earnings caused by credit spread-driven declines in fair value during the early part of the period. During this period, credit spreads widened, resulting in a gain related to the credit default swaps. The Servicing Hedge incurred a loss of $303.3 million, including $470 million of hedge cost and a $57.2 million gain related to the credit default swaps.

        In the nine months ended September 30, 2006, long-term mortgage, swap and Treasury rates increased. As a result, the Servicing Hedge incurred a loss of $472.6 million, including $376 million of hedge cost.

Net Insurance Premiums Earned

        An increase in premiums earned on the lender-placed and voluntary auto insurance lines of business, along with an increase in reinsurance premiums earned, contributed to the $211.7 million increase in net insurance premiums earned.

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Other Revenue

        Other revenue consists of the following:

		Nine Months Ended September 30,
		2007		2006
		(in thousands)
Appraisal fees, net		$	125,900	$	100,057
Credit report fees, net			51,248		57,270
Title services			48,586		30,796
Increase in cash surrender value of life insurance			30,631		9,533
Insurance agency commissions			21,590		22,480
Global Operations Segment processing fees			5,003		15,424
Other(1)			169,361		157,039
	Total other revenue	$	452,319	$	392,599

(1)

Includes restructuring charges of $8.9 million related to fixed assets during the nine months ended September 30, 2007.

Compensation Expenses

        Compensation expenses decreased $99.2 million, or 3%, during the nine months ended September 30, 2007 as compared to the year-ago period as summarized below:

		Nine Months Ended September 30,
		2007			2006
		(in thousands)
Base salaries		$	1,846,942		$	1,732,268
Incentive bonus and commissions			1,281,560			1,442,081
Payroll taxes and benefits(1)			643,741			691,010
Deferral of loan origination costs			(514,065	)		(507,933	)
	Total compensation expenses	$	3,258,178		$	3,357,426

(1)

Includes restructuring charges of $32.5 million during the nine months ended September 30, 2007.

        Average workforce by segment is summarized below:

		Nine Months Ended September 30,
		2007	2006
Mortgage Banking		41,722	40,873
Banking		2,198	2,355
Capital Markets		1,006	778
Insurance		2,167	2,127
Global Operations		3,445	2,200
Corporate Administration		6,992	7,164
	Average workforce, including temporary staff	57,530	55,497

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        Compensation expense reductions in the Mortgage Banking Segment and in Corporate Administration were partially offset by increases in the Capital Markets Segment.

•

In the Mortgage Banking Segment, compensation expenses decreased $94.1 million, or 4%, before deferral of loan origination costs. The decrease came from the Loan Production Sector, where compensation expenses decreased $141.5 million, or 6%, because of a change in channel mix, which reduced production-related compensation costs, partially offset by a 1% increase in average staff to support our capacity growth efforts. This decrease was partially offset by an increase of $26.0 million in the Loan Servicing Sector due to continuing growth in the servicing portfolio and rising delinquencies and an increase of $21.4 million in the Loan Closing Services Sector.



•

In Corporate Administration, compensation expense reductions primarily related to reductions in stock-based compensation and pension expenses as well as to reduced staffing levels.



•

In the Capital Markets Segment, compensation expense increased by $12.4 million due to an increase in the average headcount relating to new lines of business, offset by decrease in incentive compensation.

        Incremental direct costs associated with the origination of loans are deferred when incurred. Subsequent treatment of these costs is based on whether the loans are held for sale or held for investment. If the loan is sold, the costs deferred are included as a component of gain on sale in the period sold; if the loan is held for investment, the deferred costs are amortized to interest income over the life of the loan. Deferral of loan origination costs increased due to an increase in the volume of loans produced.

Occupancy and Other Office Expenses

        Occupancy and other office expenses are summarized below:

		Nine Months Ended September 30,
		2007		2006
		(in thousands)
Office and equipment rentals		$	198,511	$	165,214
Depreciation			176,229		150,595
Utilities			128,263		120,757
Postage and courier service			80,176		84,599
Office supplies			61,988		65,456
Dues and subscriptions			46,546		48,241
Repairs and maintenance			44,840		56,757
Other(1)			81,151		72,700
	Total occupancy and other office expenses	$	817,704	$	764,319

(1)

Includes restructuring charges of $15.8 million during nine months ended September 30, 2007.

        Occupancy and other office expenses for the nine months ended September 30, 2007, increased by 7%, or $53.4 million, reflecting growth in facilities.

Insurance Claim Expenses

        Insurance claim expenses were $357.2 million for the nine months ended September 30, 2007 as compared to $328.8 million for the year-ago period. The increase in insurance claim expenses was driven by growth in earned premiums. The increase was partially offset by a $74.0 million reversal of loss reserves related to the 2003 reinsurance book of business, on which negligible remaining loss exposure was deemed to exist in the current period compared to a reversal of $20.8 million of loss reserves related to the 2002 reinsurance books of business in the year-ago period.

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Advertising and Promotion Expenses

        Advertising and promotion expenses increased 22% from the nine months ended September 30, 2006, as a result of the increasing competition for lending business as mortgage market volumes decline.

Other Operating Expenses

        Other operating expenses are summarized below:

		Nine Months Ended September 30,
		2007			2006
		(in thousands)
Insurance commission expense		$	139,438		$	141,809
Legal, consulting, accounting and auditing expenses			138,224			160,870
Travel and entertainment			75,403			100,960
Mortgage insurance			69,215			24,710
Losses on servicing-related advances			57,227			41,124
Software amortization and impairment			56,277			41,485
Taxes and licenses			54,693			43,787
Insurance			54,071			19,284
Other			279,966			173,339
Deferral of loan origination costs			(89,097	)		(83,725	)
	Total other operating expenses	$	835,417		$	663,643

Quantitative and Qualitative Disclosures About Market Risk

        The primary market risk facing the Company is interest rate risk, which includes the risk that changes in interest rates will result in changes in the value of our assets or liabilities ("price risk") and the risk that net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. The overall objective of our interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates. Our Corporate Asset/Liability Management Committee, which is comprised of several of the Company's senior financial executives, is responsible for management of this risk.

        We manage price risk through the natural counterbalance of our loan production and servicing businesses. We also use various financial instruments, including derivatives, to manage price risk related specifically to the values of our IRLC, mortgage loans and MBS held pending sale ("Mortgage Loan Inventory"), MSRs and retained interests and trading securities, as well as a portion of our debt.

        We manage interest rate risk in our Banking Segment by funding the segment's interest-earning assets with liabilities of similar duration or a combination of derivative instruments and certain liabilities that create repricing characteristics that more closely reflect the repricing behaviors of those assets than do the liabilities alone.

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

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

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

        The following table summarizes the estimated change in fair value of our interest-rate-sensitive assets, liabilities and commitments as of September 30, 2007, given several hypothetical, (instantaneous) parallel shifts in the yield curve:

				Change in Fair Value
Change in Interest Rate (basis points)
				-100			-50			+50			+100
				(in millions)
MSRs and financial instruments:
	MSRs			$	(3,839	)	$	(1,777	)	$	1,417		$	2,458
	Retained interests				(151	)		(71	)		52			75
	Impact of Servicing Hedge:
		Mortgage-based			445			230			(238	)		(476	)
		Swap-based			3,222			1,313			(641	)		(752	)
		Treasury-based			351			102			36			225
			MSRs and retained interests, net		28			(203	)		626			1,530
	Interest rate lock commitments				211			155			(267	)		(602	)
	Mortgage Loan Inventory				601			395			(562	)		(1,243	)
	Impact of associated derivative instruments:
		Mortgage-based			(677	)		(447	)		631			1,382
		U.S. Treasury-based			(112	)		(85	)		257			657
		Eurodollar-based			(30	)		(19	)		29			67
			Interest rate lock commitments and Mortgage Loan Inventory, net		(7	)		(1	)		88			261
	Banking Operations:
		Securities portfolio			361			226			(299	)		(667	)
		Mortgage loans held for investment			977			510			(550	)		(1,137	)
		Deposit liabilities			(418	)		(212	)		219			443
		Federal Home Loan Bank advances			(1,121	)		(552	)		534			1,057
			Countrywide Bank, net		(201	)		(28	)		(96	)		(304	)
	Notes payable and capital securities				(768	)		(389	)		382			737
	Impact of associated derivative instruments:
		Swap-based			203			104			(108	)		(218	)
			Notes payable and capital securities, net		(565	)		(285	)		274			519
	Insurance company investment portfolios				57			30			(33	)		(67	)
Net change in fair value related to MSRs and financial instruments				$	(688	)	$	(487	)	$	859		$	1,939
Net change in fair value related to broker-dealer trading securities				$	56		$	27		$	(26	)	$	(53	)

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        The following table summarizes the estimated change in fair value of the Company's interest-rate-sensitive assets, liabilities and commitments as of December 31, 2006, given selected hypothetical (instantaneous) parallel shifts in the yield curve:

	Change in Fair Value
Change in Interest Rate (basis points)
	-100		-50			+50			+100
	(in millions)
Net change in fair value related to MSRs and financial instruments	$	205	$	(32	)	$	94		$	(21	)
Net change in fair value related to broker-dealer trading securities	$	26	$	16		$	(17	)	$	(40	)

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

Market Risk—Foreign Currency Risk

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

Credit Risk Management

        Credit risk is the potential for financial loss resulting from the failure of a borrower or an institution to honor its contractual obligations to us. Credit risk arises in many of our business activities including lending activities, mortgage banking, securities trading activities and interest rate risk management activities. We actively manage credit risk to maintain expected credit losses within levels that achieve our profitability and return on capital objectives.

Lending Activities—Sale of Loans

        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. When we sell our mortgage loans, we retain varying degrees of credit risk. As described in more detail in our 2006 Annual Report, the degree to which credit risk on the underlying loans is transferred in a loan sale depends on the terms of the sales transaction—including the structure of any securities created and retained.

        We generally retain two types of credit risk: credit risk embedded in subordinated interests that we retain and that are structured to absorb losses before the senior securities we create and sell to

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investors; and recourse arising from representations and warranties we provide in loan sale agreements or from corporate guarantees we issue.

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

Subordinated Interests

        Our exposure to credit losses related to subordinated interests is limited to the assets' carrying values. We carry subordinated interests at their estimated fair values. The carrying values of our subordinated interests are as follows:

	September 30, 2007		December 31, 2006
	(in thousands)
Prime home equity retained interests	$	599,103	$	1,506,109
Subordinated mortgage-backed pass-through securities		281,654		1,382
Nonprime residuals and other related securities		270,168		541,708
Prime residual securities		23,143		12,756
	$	1,174,068	$	2,061,955

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

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

	Nine Months Ended September 30,
	2007		2006
	(in thousands)
Prime home equity residual securities	$	374,309	$	46,994
Nonprime residuals and other related securities		229,348		76,906
Prime residual securities		6,695		—
	$	610,352	$	123,900

Representations and Warranties

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

•

our ownership of the loan



•

the validity of the lien securing the loan



•

the absence of delinquent taxes or liens against the property securing the loan



•

the effectiveness of title insurance on the property securing the loan



•

the process used in selecting the loans for inclusion in a transaction



•

the loan's compliance with any applicable loan criteria (e.g., loan balance limits, property type, delinquency status) established by the buyer



•

the loan's compliance with applicable local, state and federal laws.

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

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

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

	Nine Months Ended September 30,
	2007			2006
	(in thousands)
Balance, beginning of period	$	390,111		$	169,773
Provision for losses		380,108			209,269
Charge-offs		(81,319	)		(75,554	)
Balance, end of period	$	688,900		$	303,488

Corporate Guarantees

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

	Nine Months Ended September 30,
	2007			2006
	(in thousands)
Balance, beginning of period	$	45,425		$	27,614
Provision for losses		18,526			27,003
Charge-offs		(5,219	)		(7,329	)
Balance, end of period	$	58,732		$	47,288
Corporate guarantees in excess of recorded liability, end of period	$	487,521		$	523,497

Portfolio Lending Activities

        In our Banking Segment, our portfolio of loans held for investment generally includes mortgage loans originated or purchased for investment purposes and mortgage loan warehouse lending advances.

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As a result of the market disruption in the third quarter of 2007, $12.3 billion of non-conforming ARM and home equity loans held for sale were transferred from the Mortgage Banking Segment to the Banking Operations Segment held for investment loan portfolio. These loans were transferred at the lower of cost or estimated fair value. In our Mortgage Banking Segment, loans held for investment include mortgage loans repurchased due to violations of representations and warranties; government-guaranteed or insured loans repurchased from Ginnie Mae securitizations in place of continuing to advance delinquent principal and interest installments to security holders; and loans transferred from loans held for sale at the lower of cost or estimated fair value.

Mortgage Loans Held for Investment in Banking Operations

        Our portfolio of mortgage loans held in our Banking Operations consists primarily of Prime Mortgage and Prime Home Equity Loans, and had unpaid principal balances that amounted to $79.8 billion at September 30, 2007.

        Our primary credit risk management tool for our portfolio loans is the origination and purchase of loans underwritten to achieve high credit quality and collateral support. We assess a loan's quality by considering the borrower's credit profile and the value of collateral securing the loan. Where a proposed first mortgage loan's loan-to-value ratio is higher than a specified level, which is usually 80% for conventional loans, we generally require the borrower to supplement the collateral with primary mortgage insurance. When we originate such loans without mortgage insurance, we generally increase the interest rate as compared to a loan with mortgage insurance to compensate for the increased credit risk.

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

        We have taken steps in recent years to reduce the credit risk in our investment loan portfolio by acquiring supplemental mortgage insurance coverage. As of September 30, 2007, $23.1 billion of Banking Operations' residential loan portfolio was covered by supplemental mortgage insurance purchased by the Bank on specified pools of loans, of which $15.7 billion represents first loss coverage. The maximum loss coverage available under these policies on a combined basis is $1.5 billion. While these policies generally provide for first loss coverage, some policies require premium adjustments if claims exceed specified levels. Furthermore, coverage limits vary by policy, with some policies having limits at the pool level, and others at the loan level.

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        Following is a summary of our Banking Operations' residential mortgage loans, together with applicable mortgage insurance, by original combined loan-to-value ratio at September 30, 2007:

	September 30, 2007
Original Combined Loan-to-Value:(1)	Unpaid Principal Balance ("UPB")		UPB with Lender Purchased Mortgage Insurance(2)		UPB with Borrower Purchased Mortgage Insurance
	(in thousands)
< 50%	$	3,532,591	$	320,515	$	—
50.01 - 60.00%		3,141,437		673,664		—
60.01 - 70.00%		7,931,630		2,311,670		—
70.01 - 80.00%		22,489,369		8,242,680		—
80.01 - 90.00%		23,839,840		7,842,356		2,110,414
90.01 - 100.00%		18,389,482		3,654,855		1,238,151
>100.00%		134,612		8,434		11,520
	$	79,458,961	$	23,054,174	$	3,360,085

(1)

Excludes commercial real estate loans.

(2)

These amounts may include loans with borrower paid mortgage insurance.

        We purchase credit enhancement from those mortgage insurance providers that have an AA- rating or equivalent from the credit rating agencies. This requirement is consistent with the eligibility requirements of the government-sponsored enterprises for mortgage insurers. While the mortgage insurance industry has experienced recent adverse financial results with the likelihood of further deterioration over the near term, we continue to monitor the respective capital positions of our mortgage insurance providers to assess their claims paying ability.

        Banking Operations holds a substantial investment in pay-option ARM and payment advantage ARM loans (together referred to as "Pay-option loans").

•

Pay-option ARM loans—have interest rates that adjust monthly and minimum required payments that adjust annually (subject to recast of the loan if minimum payments are made and deferred interest limits are reached). Annual payment adjustments are subject to a 7¹/2% change. To ensure that contractual loan payments are adequate to repay a loan, the fully amortizing loan payment amount is re-established after either five or ten years and again every five years thereafter. These payment adjustments are not subject to the 7¹/2% payment limit and may be substantial due to changes in interest rates and the addition of unpaid interest to the loans' balances



•

Payment advantage ARM loans—have interest rates that are fixed for an initial period of five years (subject to recast of the loan if minimum payments are made and deferred interest limits are reached). If interest deferrals cause the loan's principal balance to reach a certain maximum level prior to ten years for these loans, the payment is reset to the interest-only payment; then at 10-year point, the fully amortizing payment is required.

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

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        Assuming today's interest rates remain unchanged, most borrowers who consistently make the minimum required payment will have the contractual right to make less than the full interest payment for three to four years from the date of funding, at which time the loan balance limit will be reached and a new monthly payment amount will be required. Our borrowers' ability to defer portions of the interest accruing on their loans may expose us to increased credit risk. This is because when the required monthly payments for these loans eventually increase, borrowers may be less able to pay the increased amounts and more likely to default than a borrower with a loan whose initial payment provides for full amortization. Our exposure to this higher credit risk is increased by the amount of negative amortization that has been added to the principal balance.

        We supplement our credit risk management practices relating to negatively amortizing ARM loans through a variety of methods, including active borrower communications both before and after funding, through our underwriting standards and through the purchase of mortgage insurance. Our underwriting standards conform to those required to make the negatively amortizing ARM loans salable into the secondary market at the date of funding, including a requirement that the borrower meet secondary market debt-service ratio tests based on the borrower making the fully amortizing loan payment and assuming the loan's interest rate is fully indexed. (A fully indexed note rate equals the sum of the current index rate plus the margin applicable to the loan.) However, secondary market standards also allow for stated or limited income documentation. We have tightened our underwriting standards during 2007 to reduce the availability of reduced documentation loans and loans on investor-owned properties and reduction in the maximum loan-to-value or combined loan-to-value ratio.

        Following is a summary of negatively amortizing ARM loans held for investment by Banking Operations:

			September 30, 2007			December 31, 2006
			(in thousands)
Total Pay-Option loan portfolio			$	28,257,903		$	32,732,581
	Total principal balance of Pay-Option loans with accumulated negative amortization		$	24,804,257		$	28,958,718
		Accumulated negative amortization (from original loan balance)	$	1,068,122		$	653,974
Unpaid principal balance of Pay-Option loans with supplemental mortgage insurance coverage			$	19,165,901		$	5,729,532
Average original loan-to-value ratio(1)				76	%		75	%
Average original combined loan-to-value ratio(2)				79	%		78	%
Average original FICO score(3)				716			718
Loans with low or no stated income documentation				82	%		81	%
Loans delinquent 90 days or more(4)				3.17	%		0.63	%

(1)

The ratio of the lower of the amount of the loan that is secured by the property to the original appraised value or purchase price of the property.

(2)

The ratio of the lower of the amount of all loans secured by the property to the original appraised value or purchase price of the property.

(3)

A FICO score is a measure of borrower creditworthiness determined using a statistical model. FICO scores range from approximately 300 to 850, with a higher score indicating an individual with a more favorable credit profile.

(4)

Based upon unpaid principal balance.

        During the nine months ended September 30, 2007, 76% of borrowers elected to make less than full interest payments, an increase from 66% during the nine months ended September 30, 2006.

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        The Company routinely forecasts its exposure to payment recast on negatively amortizing loans. The following assumptions were used to forecast this exposure as of September 30, 2007:

1)

18% Constant Prepayment Rate;

2)

Use of forward interest rate curves to estimate interest rates in future periods; and

3)

Loans that do not pay off completely are assumed to negatively amortize 100% of the time.

        Using these assumptions as of September 30, 2007, Pay-Option loans that are expected to reset are shown in the following table:

Twelve months ended September 30,	Projected Balance at Recast or Payoff
	(in thousands)
2008	$	72,868
2009		3,476,248
2010		6,460,241
Thereafter		3,907,146
Loans expected to repay before recast		11,004,139
		24,920,642
Loans serviced by others(1)		3,945,874
	$	28,866,516

(1)

We do not maintain the loan level detail necessary to project payoff dates and balances for loans serviced by others.

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

        Banking Operations' nonperforming assets (comprised of nonaccrual loans and foreclosed assets) and the allowance for loan losses related to mortgage loans originated or purchased for investment at period end are summarized as follows:

		September 30, 2007				December 31, 2006
		Amount		% of Banking Operations Assets		Amount		% of Banking Operations Assets
		(dollar amounts in thousands)
Nonaccrual loans:
	Residential:
	With third party credit enhancements(1)	$	627,165	0.60	%	$	109,218	0.13	%
	Without third party credit enhancements		805,336	0.76	%		409,865	0.50	%
	Total residential		1,432,501	1.36	%		519,083	0.63	%
Foreclosed real estate:
	Residential		304,386	0.29	%		27,416	0.03	%
	Total nonperforming assets	$	1,736,887	1.65	%	$	546,499	0.66	%

			Amount		% of Nonaccrual Loans		Amount		% of Nonaccrual Loans
Allowances for credit losses:
	Allowance for loan losses:
		Residential	$	1,106,300	77.23	%	$	228,692	44.06	%
	Liability for unfunded loan commitments			20,640				8,104
Total allowances for credit losses			$	1,126,940	78.67	%	$	236,796	45.62	%

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		Nine Months Ended September 30, 2007				Nine Months Ended September 30, 2006
		Amount		Annualized Net Charge-offs as % Average Investment Loans		Amount		Annualized Net Charge-offs as % Average Investment Loans
Net charge-offs:
	Banking Operations	$	268,620	0.52	%	$	20,133	0.04	%

(1)

Third party credit enhancements include borrower-paid mortgage insurance and pool insurance acquired by Banking Operations.

        The following table shows Banking Operations charge-offs by product:

		Nine Months Ended September 30,
		2007		2006
		(in thousands)
Prime Home Equity		$	202,674	$	15,613
Prime Mortgage:
	Pay-option		48,260		1,596
	Other		17,686		2,924
	Total charge-offs	$	268,620	$	20,133

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

Mortgage Warehouse Lending Advances

        We hold a portfolio of commercial loans made to other mortgage lenders to finance their inventories pending sale to Countrywide and other lenders. Our portfolio of mortgage loan warehouse advances totaled $0.6 billion and the average loan balance was $6.0 million at September 30, 2007. These loans are underwritten by assessing the creditworthiness of the warehouse lending borrowers. This includes reviewing both borrower-provided financial information and publicly available credit rating information and press coverage, as well as understanding the borrowers' operational controls and product risk and assessments of collateral.

        We monitor the length of time that advances are outstanding against specific residential loans and may require the borrower to pay off aged advances. We also monitor the fair value of our collateral to ensure that the level of collateral posted is adequate to repay our advance in the event of default by our borrower and we require our warehouse lending borrowers to post specified levels of cash collateral to supplement the mortgage loan collateral. We also regularly review updated financial information of borrowers, including pipeline and hedging positions. We incurred $1.0 million of credit losses related to this activity during the nine months ended September 30, 2007 and no credit losses in nine months ended September 30, 2006.

Other Mortgage Loans Held for Investment

        Other loans held for investment are in our Mortgage Banking Segment and include loans we have repurchased—either to remedy a violation of a representation or warranty made in a loan sale, to minimize the cost of servicing a severely delinquent loan insured or partially guaranteed by the FHA or VA or in connection with a clean-up call (a clean-up call represents the repurchase of mortgage loans

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when the remaining outstanding balance of the mortgage loans falls to a level where the cost of servicing the loans becomes burdensome in relation to the benefits of servicing.) As discussed in the preceding section—Lending Activities—Sale of Loans—Representations and Warranties—we make provisions for losses that may arise from breaches of representations and warranties when we record the sale of these loans and we adjust our estimates for losses on these loans quarterly. We record repurchased loans at fair value when they are repurchased and any resulting loss is charged against the liability.

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

        Our non-Banking Operations' nonperforming assets, including mortgage warehouse lending advances and loans held for investment (other than those originated or purchased for investment in our Banking Operations), and foreclosed assets, and the related allowance for loan losses are summarized as follows:

				September 30, 2007				December 31, 2006
				Amount				Amount
				(dollar amounts in thousands)
Nonaccrual loans(1)(2):
	Residential
		Loans held for investment—credit risk retained by Countrywide(3)		$	371,582			$	158,802
	Commercial				855				—
		Total nonaccrual loans			372,437				158,802
Foreclosed real estate:
	Other
		Residential			371,736				223,747
		Commercial			—				—
			Total foreclosed real estate		371,736				223,747
Total nonperforming assets				$	744,173			$	382,549
				Amount		% of Nonaccrual Loans		Amount		% of Nonaccrual Loans
Allowances for loan losses(4):
	Residential			$	99,359	26.74	%	$	19,524	12.29	%
	Commercial				14,304	N/M			12,838	N/M
				$	113,663	30.52	%	$	32,362	20.38	%

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		Nine Months Ended September 30, 2007				Nine Months Ended September 30, 2006
		Amount		Annualized Net Charge-offs as % Average Investment Loans		Amount		Annualized Net Charge-offs as % Average Investment Loans
Net charge-offs:
	Mortgage Banking & Other	$	151,625	3.61	%	$	118,960	3.53	%

(1)

Excludes $1,624.1 million and $1,254.9 million, at September 30, 2007 and at December 31, 2006, respectively, of loans that we have the option (but not the obligation) to repurchase and we have not exercised such option. These loans are required to be included in our balance sheet.

(2)

Excludes government-guaranteed mortgage loans held for investment totaling $326.8 million and $334.5 million at September 30, 2007 and December 30, 2006, respectively.

(3)

Generally these loans have been repurchased and recorded at fair value or transferred to held for investment at lower of cost or estimated fair value. Fair values incorporate the impaired status at the date of repurchase of the loans. Losses related to subsequent deterioration in the credit quality of the loans are recorded in the allowance for loan losses.

(4)

The allowance for loan losses excludes any reduction to the cost basis of loans recorded to reflect estimated fair value at repurchase or transfer to held for investment.

        The increase in the allowance for loan losses from December 31, 2006 is due to higher expectations of losses inherent in our portfolio driven by the impact of the weakening housing market and significant tightening of available credit on delinquencies and default trends as well as portfolio seasoning.

Allowance for Loan Losses

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

	Nine Months Ended September 30, 2007
	Banking Operations
	Mortgage Lending			Commercial Real Estate			Warehouse Lending			Mortgage Banking			Total
	(in thousands)
Balance, beginning of period	$	228,647		$	45		$	12,838		$	19,524		$	261,054
Provision for loan losses		1,146,869			472			1,323			230,490			1,379,154
Net charge-offs		(268,620	)		—			(970	)		(150,655	)		(420,245	)
Reclassifications and other		(1,113	)		—			1,113			—			—
Balance, end of period	$	1,105,783		$	517		$	14,304		$	99,359		$	1,219,963
Allowance as a percentage of loans receivable		1.4	%		0.1	%		2.5	%		5.0	%		1.5	%

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	Nine Months Ended September 30, 2006
	Banking Operations
	Mortgage Lending			Commercial Real Estate			Warehouse Lending			Mortgage Banking			Total
	(in thousands)
Balance, beginning of period	$	102,680		$	—		$	12,838		$	73,683		$	189,201
Provision for loan losses		91,305			—			—			71,727			163,032
Net charge-offs		(20,133	)		—			—			(118,960	)		(139,093	)
Reclassifications and other		5,684			—			—			(10,837	)		(5,153	)
Balance, end of period	$	179,536		$	—		$	12,838		$	15,613		$	207,987
Allowance as a percentage of loans receivable		0.2	%		0.0	%		0.4	%		8.4	%		0.3	%

        Charge-offs increased due to increasing rates of default and loss severity, along with acceleration in the timing of chargeoff recognition as a result of recent trends in delinquency and foreclosures.

Mortgage Loans Held for Sale

        At September 30, 2007, mortgage loans held for sale amounted to $30.9 billion. While the loans are in inventory, we bear credit risk after taking into consideration primary mortgage insurance (which is generally required for conventional first mortgage loans with a loan-to-value ratio greater than 80%), FHA insurance or VA guarantees except for $6.1 billion of mortgage loans held in SPEs which have been securitized where the beneficial holder bears the credit risk.

        Loans held for sale that have been placed on nonaccrual status include distressed loans that are generally purchased at a discount as part of the conduit activities of the Capital Markets Segment and loans whose credit quality has deteriorated during the time that they have been held for sale. Nonaccrual loans totaled $443.6 million and $566.6 million at September 30, 2007 and December 31, 2006, respectively. Mortgage loans held for sale are carried at the lower of cost or fair value in the aggregate, which incorporates a reduction in value for impaired loans.

Mortgage Reinsurance

        We provide mortgage reinsurance on certain mortgage loans included in our servicing portfolio through contracts with several primary mortgage insurance companies. Under these contracts, we provide aggregate excess loss coverage in a mezzanine layer in exchange for a portion of the pool's mortgage insurance premium. As of September 30, 2007, approximately $109.5 billion of mortgage loans in our servicing portfolio are covered by such mortgage reinsurance contracts. The reinsurance contracts place limits on our maximum exposure to losses. At September 30, 2007, the maximum aggregate losses under the reinsurance contracts were limited to $1,018.8 million. We are required to pledge securities to cover this potential liability. The accumulated liability recorded for estimated reinsurance totaled $128.2 million and $156.2 million at September 30, 2007 and December 31, 2006, respectively. For the nine months ended September 30, 2007, we did not experience any losses under our reinsurance contracts.

Securities Trading and Derivatives Counterparty Credit Risk

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

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        The aggregate amount of counterparty credit exposure after consideration of relevant netting agreements at September 30, 2007, before and after collateral held by us, is as follows:

	September 30, 2007			December 31, 2006
	(in millions)
Aggregate credit exposure before collateral held	$	4,350		$	1,777
Less: collateral held		(2,399	)		(1,223	)
Net aggregate unsecured credit exposure	$	1,951		$	554

        For the nine months ended September 30, 2007 and 2006, we incurred no credit losses due to non-performance of any of our counterparties.

Loan Servicing

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

		Nine Months Ended September 30,
		2007			2006
		(in millions)
Beginning owned servicing portfolio		$	1,280,119		$	1,081,189
Add: Residential loan production(1)			337,685			336,000
Purchased MSRs (bulk acquisitions)			21,662			3,115
Less: Principal repayments			(203,251	)		(196,545	)
Ending owned servicing portfolio			1,436,215			1,223,759
Subservicing portfolio			22,921			20,552
	Total servicing portfolio	$	1,459,136		$	1,244,311
MSR portfolio		$	1,331,530		$	1,118,117
Mortgage loans owned			104,685			105,642
Subservicing portfolio			22,921			20,552
	Total servicing portfolio	$	1,459,136		$	1,244,311

(1)

Excludes purchases from third parties in which servicing rights were not acquired.

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			September 30,
			2007			2006
			(dollar amounts in millions)
Composition of owned servicing portfolio at period end:
	Conventional mortgage		$	1,212,751		$	1,010,606
	Nonprime Mortgage			118,364			111,625
	FHA-insured mortgage			46,097			38,109
	Prime Home Equity			42,870			49,731
	VA-guaranteed mortgage			16,133			13,688
		Total owned portfolio	$	1,436,215		$	1,223,759
Delinquent mortgage loans(1):
	30 days			3.12	%		2.62	%
	60 days			1.19	%		0.85	%
	90 days or more			1.56	%		1.03	%
		Total delinquent mortgage loans		5.87	%		4.50	%
Loans pending foreclosure(1)				0.92	%		0.52	%
Delinquent mortgage loans(1):
	Conventional			3.27	%		2.50	%
	Nonprime Mortgage			23.94	%		16.93	%
	Prime Home Equity			4.62	%		2.10	%
	Government			13.37	%		13.41	%
		Total delinquent mortgage loans		5.87	%		4.50	%
Loans pending foreclosure(1):
	Conventional			0.53	%		0.22	%
	Nonprime Mortgage			4.91	%		2.86	%
	Prime Home Equity			0.13	%		0.10	%
	Government			1.24	%		1.17	%
Total loans pending foreclosure				0.92	%		0.52	%

(1)

Expressed as a percentage of the total number of loans serviced, excluding subserviced loans and loans purchased at a discount due to their collection status.

        We attribute the overall increase in delinquencies in our servicing portfolio from September 30, 2006 to September 30, 2007 to weakening in housing market conditions, increased production of loans in recent years with higher loan-to value ratios and reduced documentation requirements, changing economic conditions and to portfolio seasoning. Changing borrower profiles and trends toward higher initial combined loan-to-value ratios have also contributed to the increased nonprime delinquency. We believe the delinquency rates in our servicing portfolio are consistent with rates for similar mortgage loan portfolios in the industry.

Liquidity and Capital Resources

        Our primary sources of debt have been deposits taken by our Bank, FHLB advances, repurchase agreements, and the public corporate debt markets. We also rely on the secondary mortgage market to purchase most of the mortgage loans we originate. During the quarter ended September 30, 2007, the non-agency segments of the secondary mortgage market were severely restricted by illiquidity driven by widening credit spreads. As a result, the commercial paper and repurchase agreement segments of the public corporate debt markets for mortgage companies and other financial institutions were severely restricted.

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        The illiquidity in the secondary market for non-conforming loan originations that comprised 48% our loan production during the first six months of 2007 removed the expected outlet for these loans in the Mortgage Banking segment of our mortgage banking operations' loans. This caused illiquidity in the commercial paper and repurchase agreement markets that made short-term debt that we normally relied upon to finance substantial portions of our mortgage loan inventory unavailable or prohibitively expensive. The sudden development and convergence of these factors during the third quarter challenged our ability to finance our loan origination operations without incurring significant daily refinancing risk. In response to market conditions and constrained liquidity, Countrywide's debt ratings were downgraded by the major credit agencies.

        In response, we modified our funding structure by reducing our reliance on the public debt and non-agency secondary mortgage markets. Specifically we took the following actions:

•

we accelerated the integration of our mortgage banking activities into our bank subsidiary which has more stable funding and more access to highly reliable sources of funds which are less dependent on the capital markets during periods of market stress;



•

we significantly changed our underwriting standards, focusing the bulk of our current loan production on loans that are available for direct sale to or securitization into programs sponsored by the government-sponsored agencies (Fannie Mae, Freddie Mac and Ginnie Mae);



•

we procured other sources of financing, including:



•

drawing the full $11.5 billion amount of our committed revolving credit facilities established to provide liquidity in the event of a disruption in the commercial paper market;



•

making a private issuance of $2.0 billion of 7.25% convertible cumulative preferred stock;



•

negotiating $7.5 billion of committed repurchase facilities, which included renewals of $2.5 billion of existing uncommitted repurchase facilities;



•

negotiating an increase of $5.5 billion of an uncommitted but highly reliable repurchase facilities with a government-sponsored enterprise; and



•

implementing an aggressive campaign to attract and retain bank deposits, including significant expansion of our network of financial centers.

        As previously discussed, the public debt markets are no longer a practical source of short-term inventory financing owing to the current illiquidity in that market, our current short-term credit ratings and our recent operational liquidity challenges. While we have procured other, more stable sources of funding, future access to the public corporate debt markets remains an important potential source of financing to us when market conditions permit.

        To retain access to the public debt markets it is critical for us to maintain investment-grade credit ratings. Among other things, 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 and committed lines of credit provided by highly rated banks. We must also maintain adequate capital that exceeds current rating agency requirements. While we retain our investment grade ratings, all three rating agencies have placed our ratings on some form of negative outlook.

        In the event our credit ratings were to drop below "investment grade," our access to the public corporate debt markets could be severely limited. The cutoff for investment grade is generally considered a long-term rating of "BBB–" (or Baa3 Moody's Investors Service), which is equal to our lowest current rating. Furthermore, we expect that renegotiation or replacement of our existing financing arrangements beyond their current maturity dates will involve more restrictive terms and higher relative rates than those presently in place.

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        Our ability to place custodial deposit accounts on deposit with our bank subsidiary could be affected if our credit ratings were reduced below investment grade. As of September 30, 2007, up to $5.5 billion of our custodial deposits may be subject to placement with another bank if our credit ratings were reduced below investment grade. We also expect that a reduction in our ratings below investment grade would have a negative effect on our ability to retain our commercial deposits. In addition, our broker-dealer may experience difficulty in conducting its trading operations if its parent is unable to maintain its investment grade credit ratings. We have responded to these risks by procuring additional sources of liquidity as shown in the summary of highly reliable liquidity sources on the following page, including $9.2 billion of cash and cash equivalents in the Bank as of September 30, 2007.

        Ratings as of November 7, 2007 are as follows:

	Countrywide Financial Corporation			Countrywide Home Loans			Countrywide Bank
	Short- Term	Long-Term	Rating Outlook	Short-Term	Long-Term	Rating Outlook	Short- Term	Long-Term	Rating Outlook
Rating Agency
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	Review Down	P3	Baa3	Review Down	P2	Baa1	Review Down
Fitch	F2	BBB+	Negative	F2	BBB+	Negative	F2	BBB+	Negative

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        The following table summarizes our highly reliable liquidity sources:

		September 30, 2007
Facility(1)		Reliability(2)	Maximum Borrowing Capacity		Outstanding		Amount Undrawn on Facility		Excess Borrowing Capacity(3)
		(in billions)
Countrywide Financial Corporation
Unsecured commercial paper		Market Disrupted	$	—	$	0.9	$	—	$	—
Committed bank lines		High		11.5		11.5		—		—
Cash and cash equivalents(4)		High		—		—		—		0.6
Countrywide Home Loans
Multi-seller Gestation Conduit		High		5.0		1.8		3.2		—
Multi-seller Park Monaco		High		3.4		2.5		0.9		—
Total extendible ABCP (3rd party support)		Market Disrupted		—		0.2		—		—
Committed whole-loan repo		High		1.5		1.5		—		—
Agency repo		High		8.0		4.4		3.6		—
Cash and cash equivalents(4)		High		—		—		—		4.9
	Total Countrywide Financial Corporation and Countrywide Home Loans			29.4		22.8		7.7		5.5
Countrywide Bank
FHLB advances		High		54.5		51.1		3.4		3.4
Whole-loan collateral pledged to highly reliable counterparty		High		3.0		—		3.0		3.0
Committed whole-loan repo		High		1.0		—		1.0		0.7
Committed AAA securities repo		High		2.5		—		2.5		2.5
Park Monaco		High		7.0		—		7.0		5.9
Cash and cash equivalents(4)		High		—		—		—		9.2
	Total Countrywide Bank	High		68.0		51.1		16.9		24.7
Countrywide Securities Corporation
Unsecured treasury and agency collateral financing agreements		High		57.1		14.8		42.3		—
Committed AAA securities repo		High		2.5		—		2.5		2.5
Cash and cash equivalents(4)		High		—		—		—		0.8
	Total Countrywide Securities Corporation			59.6		14.8		44.8		3.3
Total highly reliable short-term liquidity			$	157.0	$	88.7	$	69.4	$	33.5

(1)

The information in this table is subject to the risks and uncertainties discussed in the section, "Factors That May Affect Our Future Results" following.

(2)

We identify facilities' reliability as high when the facility is provided by a government-sponsored enterprise or which is contractually committed to us and we have paid a commitment fee in exchange for the commitment.

(3)

Excess borrowing capacity based upon availability of eligible collateral at September 30, 2007.

(4)

Cash equivalents includes federal funds sold and other short-term investments.

        Following September 30, 2007, we have renewed one of the asset-backed commercial paper facilities inventory financing facilities (Park Monaco) that we use to finance our mortgage loan inventory at the full amount ($10.4 billion) and have obtained a new, committed $5 billion repurchase facility.

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        On March 12, 2007, the Bank converted its charter from a national bank to a federal savings bank. As a result of this conversion, the Company became a savings and loan holding company, and is no longer a bank holding company. As a savings and loan holding company, Countrywide Financial Corporation is no longer subject to specific capital requirements. Countrywide Bank's capital is calculated in compliance with the requirements of the Office of Thrift Supervision ("OTS"), which are similar to those of the Office of the Comptroller of the Currency, the Bank's former regulator. At September 30, 2007, the Bank's regulatory capital ratios and amounts and minimum required capital ratios for the Bank to maintain a "well capitalized" status are as follows:

			Countrywide Bank
		Minimum Required(1)
			Ratio	Amount
		(dollar amounts in thousands)
Tier 1 Capital		5.0%	7.3%	$	8,870,010
Risk-Based Capital:
	Tier 1	6.0%	12.2%	$	8,870,010
	Total	10.0%	13.5%	$	9,777,179

(1)

Minimum required to qualify as "well capitalized."

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

        Had Countrywide Bank's capital been calculated in compliance with the OTS requirements at December 31, 2006, its regulatory capital ratios and amounts and minimum required capital ratios would have been as follows:

			Countrywide Bank
		Minimum Required(1)
			Ratio	Amount
		(dollar amounts in thousands) (Proforma)
Tier 1 Capital		5.0%	7.6%	$	7,100,439
Risk-Based Capital:
	Tier 1	6.0%	12.4%	$	7,100,439
	Total	10.0%	12.8%	$	7,337,235

(1)

Minimum required to qualify as "well capitalized."

        Countrywide Bank is required by OTS regulations to maintain tangible capital of at least 1.5% of assets. However, the Bank is also required to maintain a tangible equity ratio of at least 2% to avoid being classified as "critically undercapitalized." Critically undercapitalized institutions are subject to the prompt corrective action provisions of the Financial Institution Reform Recovery and Enforcement Act of 1989. The Bank's tangible capital ratio was 7.3% and 7.6% at September 30, 2007 and December 31, 2006, respectively.

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

Cash Flows

        Cash used by operating activities was $5.1 billion for the nine months ended September 30, 2007, compared to cash provided by operating activities of $3.1 billion for the nine months ended September 30, 2006. Cash used by operating activities includes the cash used for the origination and purchase of mortgage loans held for sale and the proceeds from the sales and principal repayments of such mortgages. We generally retain servicing rights and may retain other interests when these loans

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are sold. The recognition of the amounts retained is a non-cash investing activity. See Note 18—Supplemental Cash Flow Information in the financial statement section of this report. In the nine months ended September 30, 2007, funds used to originate and purchase mortgage loans exceeded proceeds from the sales of mortgage loans by $10.8 billion, which resulted in cash used by operating activities. In the nine months ended September 30, 2006, proceeds from the sales and principal repayments of mortgage loans exceeded funds used to originate and purchase mortgage loans by $8.7 billion.

        Net cash provided by investing activities was $5.9 billion for the nine months ended September 30, 2007, compared to cash used by investing activities of $13.9 billion for the nine months ended September 30, 2006. The increase in net cash provided by investing activities was attributable to a $19.0 billion increase in net repayment of loans held for investment, combined with a $14.2 billion decrease in securities purchased under agreements to resell, securities borrowed and federal funds sold, partially offset by a $13.4 billion increase in net additions to investments in other financial instruments.

        Net cash provided by financing activities for the nine months ended September 30, 2007 totaled $2.5 billion, compared to $11.3 billion for the nine months ended September 30, 2006. The $2.5 billion included drawing the full $11.5 billion of available backup credit lines we obtained to provide liquidity in the event of disruptions in the commercial paper markets. In the nine months ended September 30, 2007, deposit liabilities decreased $0.8 billion, compared to an increase of $16.4 billion in the year-ago period. In the nine months ended September 30, 2007, there was a $28.2 billion decrease in cash provided by short-term borrowings, including securities sold under agreements to repurchase. Partially offsetting these decreases, long-term debt increased $35.5 billion compared to a decrease in long-term debt of $0.1 billion in the nine months ended September 30, 2006, and during the nine months ended September 30, 2007, $2 billion of preferred stock was issued.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

        In the ordinary course of our business we engage in financial transactions that are not reflected on our balance sheet. (See Note 2—Summary of Significant Accounting Policies in our 2006 Annual Report for a description of our consolidation policy.) Such transactions are structured to manage our interest rate, credit or liquidity risks, to diversify funding sources or to optimize our capital.

        Most of our off-balance sheet arrangements relate to the securitization of mortgage loans. Our mortgage loan securitizations are normally structured as sales in accordance with Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 140"), and involve the transfer of mortgage loans to qualifying special-purpose entities that are not subject to consolidation. In a securitization, an entity transferring the assets is able to sell those assets for cash. Special-purpose entities used in such securitizations obtain cash by issuing securities representing beneficial interests in the transferred assets to investors. In a securitization, we customarily provide representations and warranties with respect to, and we generally retain the right to service, the transferred mortgage loans.

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

        Our Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity and Nonprime Loans generally are securitized with limited recourse for credit losses. During the nine months ended September 30, 2007, we securitized $23.0 billion in Nonprime Mortgage and Prime Home Equity Loans with limited recourse for credit losses. Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees less the recorded liability for such guarantees. For a further discussion of our exposure to credit risk, see the section in

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this Report entitled Management's Discussion and Analysis of Financial Condition and Results of Operations—Credit Risk Management.

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

        Our material contractual obligations were summarized and included in our 2006 Annual Report. There have been no material changes outside the ordinary course of our business in the contractual obligations as summarized in our 2006 Annual Report during the nine months ended September 30, 2007.

Prospective Trends

Outlook

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

•

Continued pressure on housing values and mortgage origination volumes



•

Increasing delinquencies and foreclosures



•

Continued disruptions in the secondary mortgage and debt capital markets and



•

More restrictive legislative and regulatory environments.

        As a result of these conditions, Countrywide and other lenders may be experiencing, among other things, the following:

•

Lower loan production volumes



•

Lower margins on loans produced



•

Higher credit losses on delinquent loans and subordinated interests



•

Reduced access to secondary mortgage and debt capital markets and



•

Increased cost of debt.

        In response to the current environment, Countrywide has made changes to tighten the underwriting guidelines for loan products offered and has adjusted loan pricing to reflect market conditions. The tightening of underwriting guidelines included reductions in the availability of reduced documentation loans and loans on investor-owned properties and in the maximum loan-to-value or combined loan-to-value ratio. The impact of these changes was most significant to Nonprime Mortgage, Prime Home Equity and non-conforming prime loans. Further reductions in the Company's funding volume could result. Additionally, we expect to retain more loans in our portfolio of loans held for investment or to hold additional loan or security inventory until market conditions improve. We have also increased our loss mitigation efforts through proactive outreach to borrowers, partnering with non-profit home ownership counseling groups and increasing our staff dedicated to working with our borrowers to prevent or cure loan defaults. In an effort to ensure the adequacy of our funding liquidity, we continue to transition to more reliable funding sources, which may be more costly. We are also optimizing our organizational structure through, among other things, the planned integration of Countrywide Bank and Countrywide Home Loans.

        As a result of these conditions we expect our earnings and returns through 2008 to be below our long-term target levels. However, we believe that the challenges facing the industry should ultimately benefit Countrywide as the mortgage lending industry continues to consolidate.

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

United States Mortgage Market

        In the short term, the U.S. housing market is undergoing a significant contraction and lenders and investors are tightening their credit standards. Therefore, mortgage origination volumes are likely to continue decreasing and growth in total mortgage indebtedness is likely to slow in the short term. Over the long term, we believe that continued population growth, ongoing developments in the mortgage market and the prospect of relatively low interest rates will support growth in the market.

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

•

The continuing evolution of the secondary mortgage market and demand by borrowers has resulted in a proliferation of mortgage products



•

Greater regulation imposed on the industry has resulted in increased costs and the need for higher levels of specialization



•

Interest rate volatility has increased in recent years. At the same time, homeowners' propensity to refinance their mortgages has increased as the refinance process has become more efficient and cost effective. The combined result has been large swings in the volume of mortgage loans originated from year to year. These volume swings have placed significant operational and financial pressures on mortgage lenders.

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

        Today, large and sophisticated financial institutions dominate the residential mortgage industry. These industry leaders are primarily commercial banks operating through their mortgage banking subsidiaries. According to the trade publication Inside Mortgage Finance, the top five originators produced 52% of all loans originated during the first nine months of the calendar year 2007, as compared to 48% during the nine months ended December 31, 2006. (Reprinted with the permission of IMF Copyrighted. All rights reserved by IMF.)

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

Institution		Nine Months Ended September 30, 2007		Nine Months Ended December 31, 2006
		(in billions)
Countrywide		$	340	$	359
Wells Fargo Home Mortgage			216		307
CitiMortgage			161		148
Chase Home Finance			160		133
Washington Mutual(1)			—		143
Bank of America Mortgage(1)			144		—
	Total for Top Five	$	1,021	$	1,090

(1)

Comparative data not included for quarter in which the institution was not in the top five originators.

        We believe the consolidation trend in the mortgage industry will continue, as the aforementioned market forces will continue to drive out weak competitors. We believe Countrywide will benefit from consolidation over the long term through increased market share and enhanced ability to recruit talented personnel.

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

Housing Values

        Housing values affect us in several ways. Declines in housing values affect us by negatively impacting the demand for mortgage financing, increasing risk of default by mortgagors and increasing risk of loss on defaulted loans. These factors are somewhat offset by reduced prepayments in our loan servicing portfolio. Conversely, rising housing values point to healthy demand for purchase-money mortgage financing and increased average loan balances and a reduction in the risk of loss on sale of foreclosed real estate in the event a loan defaults. However, as housing values appreciate, prepayments of existing mortgages tend to increase as borrowers look to monetize the additional equity in their homes.

        Recently, we have seen broad-based declines in housing values. We expect housing values to decrease during the near term which will affect our credit loss experience and has affected our willingness to offer certain mortgage loan products, both of which could impact our earnings, particularly in the short term. Over the long term, we expect that housing appreciation will be positively correlated with both consumer price inflation and growth in personal income.

Secondary Mortgage Market Investor Demand

        Changes in investor demand for mortgage loans can have a significant impact on our ability to access the secondary mortgage market as a competitive outlet. In 2007, we have seen an increase in investor required yields, first for nonprime loans or securities followed by prime home equity loans and then non-conforming loans, together with a lessening in the liquidity of such loans and securities caused by reduced investor demand. In the third quarter the secondary mortgage market for nonagency eligible loans became largely illiquid. In addition, certain credit rating agencies have downgraded their securitization ratings of large numbers of mortgage-backed securities. These factors have combined to

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severely impact demand for and profitability of a large portion of the products we have historically produced. In response to these developments we have tightened our underwriting and program guidelines, significantly limiting our production of non-agency eligible loans. We expect these changes to impact gain on sale margin in the short term.

Impact of Declines in Credit Performance

        With the current contraction in the U.S. housing market and the resulting declining housing prices, along with worsening economic conditions, we expect elevated credit losses in the near term. In 2007, we have observed a marked decline in credit performance (as adjusted for age) for recent vintages, especially those loans with higher risk characteristics, including reduced documentation, higher loan-to-value ratios or weak credit scores. Deterioration in the credit performance of these loans has resulted in increased credit losses and impairment of our related credit-subordinated interests and higher claims under our representations and warranties. Credit markets are rapidly changing and evolving and we expect these changes to impact the housing market, demand for our mortgage-backed securities, our future credit losses and the availability of credit enhancements for the loans and securities we sell and invest in, which may impact future earnings.

Funding Liquidity

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

        Starting in the second quarter, funding liquidity in the financial services sector was constrained primarily due to changes in secondary mortgage market investor demand. During the third quarter, this condition worsened and expanded to include the debt markets we have traditionally relied upon to meet our short-term funding needs.

        As discussed in the preceding section under Liquidity and Capital Resources, we have adjusted our operations and financing sources to adapt to the current market conditions, including accessing other pre-existing funding liquidity sources, procuring new sources and accelerating the integration of our mortgage company with the Bank. As a result of this accelerated integration, a significantly higher percentage of our mortgage banking fundings are occurring in the Bank sooner than originally planned. The Bank has significant liquidity sources available to fund our mortgage banking operations. While we believe we have adequate funding liquidity, the effect of future developments on the Company may require us to make additional operational adjustments and/or procure additional sources of financing.

Regulatory Trends

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

        On June 29, 2007, the federal financial regulatory agencies issued a Statement on Subprime Mortgage Lending (the "Statement") to address issues relating to certain subprime mortgage products and lending practices, especially as they relate to certain adjustable-rate mortgage products. This statement requires mortgage lenders to:

•

Qualify borrowers based on fully-indexed interest rates with fully-amortizing payments



•

Obtain adequate documentation of borrower income and assets



•

Limit prepayment penalties to the initial payment reset period

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•

Provide adequate information for the borrower to understand the loan's terms and features.

        Recent changes in the nonprime mortgage market have had an effect similar to the changes contemplated by the Statement on product offerings and underwriting of nonprime loans. Therefore, we do not expect the Statement to have a significant short-term impact on our ability to make nonprime loans. However, over the longer term, these guidelines will influence the terms and underwriting of products that will be offered to nonprime loan applicants and are therefore likely to limit growth of nonprime lending.

        Furthermore, proposed local, state and federal legislation targeted at predatory lending could have the unintended consequence of raising the cost or otherwise reducing the availability of mortgage credit for those potential borrowers with less than prime-quality credit histories. In addition, there may be future local, state and federal legislation that restricts our ability to communicate with and solicit business from current and prospective customers in such a way that we are not able to originate new loans or sell other products at current profit margins.

New Accounting Standards

        In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements,("SFAS 157"). SFAS 157 provides a framework for measuring fair value when such measurements are used for accounting purposes. The framework focuses on an exit price in the principal (or, alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants. SFAS 157 establishes a three-tiered fair value hierarchy with Level 1 representing quoted prices for identical assets or liabilities in an active market and Level 3 representing estimated values based on unobservable inputs. Under SFAS 157, related disclosures are segregated for assets and liabilities measured at fair value based on the level used within the hierarchy to determine their fair values. The Company has determined that it will adopt SFAS 157 on its effective date of January 1, 2008 and the financial impact, if any, upon adoption has not yet been determined.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115, ("SFAS 159"). SFAS 159 permits fair value accounting to be irrevocably elected for certain financial assets and liabilities on an individual contract basis at the time of acquisition or at a remeasurement event date. Upon adoption of SFAS 159, fair value accounting may also be elected for existing financial assets and liabilities. For those instruments for which fair value accounting is elected, changes in fair value will be recognized in earnings and fees and costs associated with origination or acquisition will be recognized as incurred rather than deferred. SFAS 159 is effective January 1, 2008, with early adoption permitted as of January 1, 2007. The Company has determined that it will adopt SFAS 159 concurrent with the adoption of SFAS 157 on January 1, 2008, but has not yet determined the financial impact, if any, upon adoption.

        In April 2007, the FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39, ("FSP FIN 39-1"). FSP FIN 39-1 amends certain paragraphs of FASB Interpretation Number 39, Offsetting of Amounts Related to Certain Contracts,—an interpretation of APB Opinion No. 10 and FASB Statement No. 105 ("FIN 39"), to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early application permitted. Upon application, the Company shall be permitted to change its accounting policy to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements. The Company has determined that it will adopt FSP FIN 39-1 on its effective date of January 1, 2008, but has not yet determined the financial impact, if any, upon adoption.

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        In November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109 (SAB 109). SAB 109 supersedes Staff Accounting Bulletin No. 105 (SAB 105), "Application of Accounting Principles to Loan Commitments." It clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. However, it retains the guidance in SAB 105 that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment. The guidance is effective on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. In conjunction with the adoption of SFAS 157 and SFAS 159, this guidance generally would result in higher fair values being recorded upon initial recognition of derivative loan commitments. The estimated financial impact upon adoption has not yet been determined.

Factors That May Affect Our Future Results

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

•

Projections of our revenues, income, earnings per share, capital structure or other financial items



•

Descriptions of our plans or objectives for future operations, products or services



•

Forecasts of our future economic performance, interest rates, profit margins and our share of future markets



•

Descriptions of assumptions underlying or relating to any of the foregoing.

        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.

        Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to the following:

•

Changes in general business, economic, market and political conditions from those expected



•

Continued increases in credit exposure resulting from our decision to retain more loans in our portfolio of loans held for investment than we have historically



•

The level and volatility of interest rates as well as the shape of the yield curve



•

Continued general decline in U.S. housing prices or in activity in the U.S. housing market



•

Continued increases in delinquency rates of borrowers



•

Continued reduction in the availability of secondary markets for our mortgage loan products



•

The fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates and to exercise judgement about matters that are inherently uncertain, such as the value of our assets

118

•

The level of competition in each of our business segments



•

Negative public opinion that could damage our reputation



•

Changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which the Company operates



•

Incomplete or inaccurate information provided by customers and counterparties, or adverse changes in the financial condition of our customers and counterparties



•

Operational risks



•

Failure to attract and retain a highly skilled workforce



•

New lines of business or new products and services that may subject us to additional risks



•

Continued increases in the cost of debt or loss of access to corporate debt markets or other sources of liquidity, which may be caused by, for example, a loss of investment-grade credit ratings



•

Unforeseen cash or capital requirements



•

A reduction in government support of homeownership



•

A change in our relationship with the housing-related government agencies and government sponsored enterprises ("GSEs")



•

Changes in regulations or the occurrence of other events that impact the business, operation or prospects of GSEs



•

The ability of management to effectively implement the Company's strategies and business plans



•

The occurrence of natural disasters or other events or circumstances that could impact our operations or could impact the level of claims in the Insurance Segment.

        Other risk factors are described elsewhere herein, such as Part II, Item 1A—Risk Factors as well as in other reports and documents that we file with or furnish to the SEC including the 2006 Annual Report. 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.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.    Controls and Procedures

Disclosure Controls and Procedures

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

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Internal Control over Financial Reporting

Changes to Internal Control over Financial Reporting

        During the quarter ended September 30, 2007, we revised our method used to estimate the fair value of certain mortgage loan assets due to a reduction in the level of or the absence of trades in the markets that have traditionally served as the primary basis for the Company's valuations. In the past, management has looked to the asset and mortgage-backed securities markets to estimate the fair value of our mortgage loan assets. Because of the lack of trading in the markets for certain loan products, it was necessary to look for alternative sources of value, including the whole loan purchase market, and to apply more judgment to the valuations of our non-conforming prime, home equity and nonprime loans because of lack of executed trades that could be used to assure that the valuations are reflective of fair value. Management believes that the revised approach to valuing mortgage loan assets, implemented during the quarter ended September 30, 2007, was supported by effective internal controls over financial reporting.

        There has been no change in our internal control over financial reporting, other than discussed above, during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        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. 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 1976 ("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. A lawsuit alleging claims for derivative relief on behalf of the Company is also pending in federal district court in Delaware, and alleges, among other things, that certain of our proxy filings contain incorrect statements relating to the compensation of our Chief Executive Officer.

        Although it is difficult to predict the resulting outcome of these proceedings, our management currently believes that any resulting liability beyond that already recorded will not materially affect our consolidated financial position and results of operations.

Item 1A.    Risk Factors

        Item 1A of our 2006 Annual Report presents risk factors that may impact the Company's future results. In light of recent developments in the mortgage, housing and secondary markets, those risk factors are supplemented by the following risk factor:

Debt and secondary mortgage market conditions could have a material adverse impact on our earnings and financial condition

        We have significant financing needs that we meet 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, particularly in the short term.

        Current conditions in the debt markets include reduced liquidity and increased credit risk premiums for certain market participants. These conditions, which increase the cost and reduce the availability of debt, may continue or worsen in the future. The Company attempts to mitigate the impact of debt market disruptions by obtaining adequate committed and uncommitted facilities from a variety of reliable sources. There can be no assurance, however, that the Company will be successful in these efforts, that such facilities will be adequate or that the cost of debt will allow us to operate at profitable levels. The Company's cost of debt is also dependent on its maintaining investment-grade credit ratings. Since the Company is highly dependent on the availability of credit to finance its operations, disruptions in the debt markets or a reduction in our credit ratings, could have an adverse impact on our earnings and financial condition, particularly in the short term.

        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. In light of current conditions, we expect to retain a larger portion of mortgage loans and mortgage-backed securities than we would in other environments. While we believe our capital and liquidity positions are currently adequate and we have sufficient capacity to hold additional mortgage loans and mortgage backed securities until investor demand improves and yield requirements moderate, our capacity to retain mortgage loans and mortgage backed securities is not unlimited. As a

121

result, a prolonged period of secondary market illiquidity may continue to reduce our loan production volumes and could have an adverse impact on our future earnings and financial condition.

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

        The following table shows repurchases by the Company of its common stock for each calendar month during the quarter ended September 30, 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)
July		545	$	32.99	n/a		n/a
August		1,606	$	27.34	n/a		n/a
September		329	$	19.87	n/a		n/a
	Total	2,480	$	27.59	n/a	$	0.1 billion

(1)

This column includes the withholding of a portion of restricted shares and stock appreciation rights to cover taxes on vested restricted shares and exercised stock appreciation rights.

(2)

In November 2006, the Board of Directors authorized a share repurchase program of up to $2.5 billion. In connection with this program, the Company repurchased 60,143,388 shares of its common stock for $2.4 billion.

Item 6.    Exhibits

(a)

Exhibits

        See Index of Exhibits on page 124.

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SIGNATURES

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

	COUNTRYWIDE FINANCIAL CORPORATION (Registrant)
Dated: November 9, 2007	By:	/s/  DAVID SAMBOL David Sambol President, Chief Operating Officer and Director
Dated: November 9, 2007	By:	/s/  ERIC P. SIERACKI Eric P. Sieracki Executive Managing Director and Chief Financial Officer

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COUNTRYWIDE FINANCIAL CORPORATION

FORM 10-Q
September 30, 2007

INDEX OF EXHIBITS

Exhibit No.	Description
3.4	Restated Certificate of Incorporation of Countrywide Financial Corporation (the "Company"), as amended.
4.57*	Registration Rights Agreement, dated as of August 22, 2007, by and between Bank of America, N.A. and the Company (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the SEC on August 28, 2007).
4.58*	Third Amendment to Amended and Restated Rights Agreement, dated as of August 22, 2007, by and between the Company and American Stock Transfer & Trust Company, as rights agent (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the SEC on August 28, 2007).
10.146*	364-Day Credit Agreement, dated as of May 9, 2007, among the Company, Countrywide Home Loans, Inc. ("CHL"), JPMorgan Chase Bank, N.A., as managing administrative agent, Bank of America, N.A., as administrative agent, ABN AMRO Bank N.V., as syndication agent, Citibank, N.A. and Deutsche Bank AG New York Branch, as documentation agents, and the lenders party thereto (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, filed with the SEC on August 16, 2007).
10.147*	First Amendment to the Five-Year Credit Agreement, dated as of May 9, 2007, by and among the Company, CHL, the lenders party thereto, Bank of America, N.A., as administrative agent for the lenders party thereto, and JPMorgan Chase Bank, N.A., as managing administrative agent for the lenders party thereto (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the SEC on August 16, 2007).
+10.151	First Amendment to the Countrywide Bank, N.A. Non-Employee Directors' Fee Plan, dated July 26, 2007.
10.152*	Investment Agreement, dated as of August 22, 2007, by and between the Company and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on August 28, 2007).
12.1	Computation of the Ratio of Earnings to Fixed Charges.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

*

Incorporated by reference

+

Constitutes a management contract or compensatory plan or arrangement

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COUNTRYWIDE FINANCIAL CORPORATION FORM 10-Q September 30, 2007 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits

SIGNATURES
COUNTRYWIDE FINANCIAL CORPORATION FORM 10-Q September 30, 2007 INDEX OF EXHIBITS

EX-3.4

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Exhibit 3.4

RESTATED CERTIFICATE OF INCORPORATION

OF

COUNTRYWIDE CREDIT INDUSTRIES, INC.
(Pursuant to Section 245)

Countrywide Credit Industries, Inc. a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

        1.     The name of the corporation is Countrywide Credit Industries, Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was December 2, 1986.

        2.     This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.

        3.     The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full:

        FIRST:    The name of the Corporation is Countrywide Credit Industries, Inc.

        SECOND:    The purposes for which the Corporation is formed are:

        To purchase, own, and hold the stock of other corporations, and to do every act and thing covered generally by the denomination "holding corporation", and especially to direct the operations of other corporations through the ownership of stock therein; to purchase, subscribe for, acquire, own, hold, sell, exchange, assign, transfer, mortgage pledge, or otherwise dispose of shares or voting trust certificates for shares of the capital stock of, or any bonds, notes, securities, or evidences of indebtedness created by, any other corporation or corporations organized under the laws of this state or any other state or district or country, nation, or government and also bonds or evidences of indebtedness of the United States or of any state, district, territory, dependency, or country or subdivision or municipality thereof; to issue in exchange therefor shares of the capital stock, bonds, notes, or other obligations of this Corporation and while the owner thereof to exercise all the rights, powers, and privileges of ownership including the right to vote any shares of stock or voting trust certificates so owned; to promote, lend money to, and guarantee the dividends, stocks, bonds, notes, evidences of indebtedness, contracts, or other obligations of and otherwise aid, in any manner which shall be lawful, any corporation or association of which any bonds, stocks, voting trust certificates, or other securities or evidences of indebtedness shall be held by or for this Corporation, or in which, or in the welfare of which, this Corporation shall have any interest, and to do any acts and things permitted by law and designed to protect, preserve, improve, or enhance the value of any such bonds, stocks, or other securities or evidences of indebtedness or the property of this Corporation.

        To acquire, and pay for in cash, stock or bonds of this Corporation or otherwise, the goodwill, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. To manufacture, purchase, or otherwise acquire, invest in, own, mortgage, pledge, sell, assign, and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description.

        To purchase, hold, lease, mortgage, pledge and otherwise acquire, dispose of, and encumber real and personal property of any and every kind and description in all of the states, territories, colonies, dependencies and districts of the United States of America and in any and all foreign countries.

        To borrow money and contract debts, when necessary for the transaction of the business of the Corporation or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation and to issue and dispose of obligations for any amount so borrowed and to

mortgage or pledge its property and franchises to secure the payment of such obligations, or of any debt contracted for such purposes, in the manner authorized by law.

        To purchase or otherwise acquire, hold, exchange, pledge, hypothecate, sell, deal in, and dispose of mortgages covering any kind of property, tax liens, and transfers of tax liens on real estate.

        To exercise all or any of the corporate powers and to carry out all or any of the purposes, enumerated herein or otherwise granted or permitted by law, while acting as agent, nominee, or attorney in fact for any persons or corporations, and to perform any service under the contract or otherwise for any corporation, joint stock company, association, partnership, firm, syndicate, individual, to other entity, and in such capacity or under such arrangement, to develop, improve, stabilize, strengthen, or extend the property and commercial interest thereof, and to aid, assist, or participate in any lawful enterprises in connection therewith or incidental to such or assistance insofar as it lawfully may under the General Corporation Law of the State of Delaware.

        To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

        The foregoing clauses shall be construed both as objects and powers, and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this Corporation.

        THIRD:    The aggregate number of shares which the Corporation shall have authority to issue is forty million (40,000,000) shares of Common Stock, of the par values of Five Cents ($.05) per share, and One Million, Five Hundred Thousand (1,500,000) shares of Preferred Stock, of the par value of Five Cents ($.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, preferences, privileges and restrictions, including without limitation, conversion rights into Common Stock, granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations of restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series.

        FOURTH:    The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801. The name of the registered agent of the Corporation at such address is The Corporation Trust Company.

        FIFTH:    No holder of any shares of any class of the Corporation shall be entitled, as such, as a matter of right, to subscribe for or purchase or receive any part of any unissued shares of any class of the Corporation, or of any shares of any class issued and thereafter acquired by the Corporation, whether now authorized or hereafter created, or of any securities of any kind convertible into or evidencing the right to subscribe for or purchase or receive any shares of any class of the Corporation, whether not authorized or hereafter created, and in each case whether issued for cash, property, services or any other consideration, but such shares or other securities may be issued or disposed of by the board of directors to such persons and on such terms as in its discretion it shall deem advisable.

        SIXTH:    The Corporation may indemnify its directors and officers to the full extent permitted by the laws of the State of Delaware.

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SEVENTH: A director of the Corporation shall have no personal liability to the Corporation or its stockholders for monetary damages for breach of his fiduciary duty as a director to the full extent permitted by the Delaware General Corporation Law as it may be amended from time to time.

        EIGHTH:    The Board of Directors of the Corporation is expressly authorized to make, alter or repeal bylaws of the Corporation. In addition to any requirements of the Delaware General Corporation Law (and notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law), the affirmative vote of the holders of at least two-thirds (66²/3%) of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, shall be required for stockholders of the Corporation to amend, alter, change, adopt or repeal any bylaws of the Corporation unless such amendment, alteration, change adoption or repeal of the bylaws is determined to be advisable by the Board of Directors by the affirmative vote of (a) two thirds of the entire Board of Directors and (b) a majority of those directors who became members of the Board of Directors prior to the time when any stockholder who then is the "beneficial owner" (as such terms defined in rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended) of 10% or more of the then outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of directors, first became the beneficial owner of 10% or more of such outstanding shares of such capital stock (the "Continuing Directors"), even if such directors do not constitute a quorum of the entire Board of Directors.

        NINTH:    Elections of directors need not be by written ballot except and to the extent provided in the bylaws of the Corporation.

        TENTH:    (a) The number of directors shall be as provided in the bylaws. The Board of Directors shall be divided into three classes, designated Class I, Class II, and Class III, such classes to be as nearly equal in number as possible. At the annual meeting of stockholders in 1987, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office subject to their earlier death, resignation or removal, until the third following annual meeting of stockholders and until the election of their respective successors.

        (b)   any director may be removed from office only for cause and only by the affirmative vote of the holders of two-thirds (66²/3%) of the voting power of the outstanding shares of Common Stock.

        (c)   any vacancy on the Board of Directors, whether arising through death, resignation or removal of a director or through the increase in the number of directors of any class, shall be filled by a majority vote of all the remaining directors, though less than a quorum. The term of office of any director elected to fill such a vacancy shall expire at the expiration of the term of office of directors of the class to which such director was elected.

        (d)   Notwithstanding any other provisions in this Article, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock or other securities of the corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the term of office, the filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and unless the terms of this Certificate of Incorporation expressly provide otherwise, such directorships shall be in addition to the number of directors provided in the bylaws, and such directors shall not be classified pursuant to this Article.

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        ELEVENTH:    Any action required or permitted to be taken by the stockholders of this Corporation shall be taken at an annual or special meeting of the stockholders. No action may be taken by stockholders by written consent.

        TWELFTH:    (a) Any direct or indirect purchase by the Corporation, or any subsidiary of the Corporation of any Voting Stock (as herein defined) from a person or persons known by the Board of Directors of the Corporation to be an Interested stockholder (as herein defined) who has beneficially owned such Voting Stock for less than two years prior to the date of such purchase or any agreement in respect thereof, at a price in excess of the fair market value (as herein defined), shall require the affirmative vote of no less than a majority of the votes cast by the holders, voting together as a single class, of all then outstanding shares of capital stock of the Corporation entitled to vote generally on matters relating to the Corporation, excluding for this purpose the votes by the Interested Stockholder, unless a greater vote shall be required by law.

        (b)   Such affirmative vote shall not be required for a purchase or other acquisition of securities of the same class made on substantially the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations). Furthermore, such affirmative vote shall not be required for any purchase effected on the open market and not the result of a privately-negotiated transaction.

        (c)   For the purposes of this Article:

        (i)    A "person" shall mean any individual, firm, corporation or other entity.

        (ii)   "Voting Stock" shall mean any class or series of the capital stock of the Corporation having the right to vote generally on matters relating to the Corporation and any security which is convertible into such stock.

        (iii)  "Interested Stockholder" shall mean any person (other than the Corporation or any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation or profit sharing, employee stock ownership or other employee benefit plan of the Corporation or any subsidiary thereof, or any trustee or other fiduciary with respect to any such plan when acting in such capacity) who or which:

        A.    is the beneficial owner, directly or indirectly, of 5% or more of the outstanding Voting Stock; or

        B.    is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 5% or more of the outstanding Voting Stock; or

        C.    is an assignee or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.

        (iv)  A person shall be a "beneficial owner" of any Voting Stock of the Corporation:

        A.    which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly, or

        B.    which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights,

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exchange rights, warrants or options, or otherwise, or (ii) any right to vote pursuant to any agreement, arrangement or understanding; or

        C.    which are beneficially owned, directly or indirectly, by any other person with which such person or any of its affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing any Voting Stock of the Corporation.

        (v)   For the purposes of determining whether a person is an Interested Stockholder pursuant to subparagraph (ii) hereof, Voting Stock outstanding shall be deemed to comprise all Voting Stock deemed owned through application of subparagraph (iii) hereof, but shall not include other Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

        (vi)  "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

        (vii) "Fair Market Value" shall mean as to each class of stock or other security which constitutes Voting Stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the composite tape for New York Stock Exchange-listed stocks, or, if such stock is not quoted on such composite tape or if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Exchange Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use. Or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors of the Corporation in good faith.

        (d)   The Board of Directors shall have the power and duty to determine, for purposes of this Article, on the basis of information known to the Board:

        (i)    the amount of Voting Stock beneficially owned by any person;

        (ii)   when such person acquired a beneficial interest in such Voting Stock;

        (iii)  whether such person owns 5% or more of the Voting Stock;

        (iv)  the aggregate number of shares of stock and the aggregate amount any other security outstanding at any time;

        (v)   whether a person is an Affiliate or Associate of another; and

        (vi)  whether paragraphs (a) or (b) above are or have become applicable in respect of a proposed purchase of Voting Stock by the Corporation.

and any such determination made in good faith shall be conclusive and binding for all purposes of this Article.

        THIRTEENTH:    The Corporation hereby reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the Delaware General Corporation Law and all rights conferred on stockholders therein granted are subject to this reservation; provided, however, that, notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law, the affirmative vote of the holders of at least two-thirds (66²/3%) of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, shall be

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required to amend, alter, change or repeal, or adopt any provision or provisions inconsistent with, any provision of Article Eighth, Tenth, Eleventh, Twelfth, or Thirteenth hereof, unless such amendment, alteration, change, repeal or adoption of any inconsistent provision or provisions is declared advisable by the Board of Directors by the affirmative vote of (a)  two-thirds of the entire Board of Directors and (b) a majority of the Continuing Directors (as defined in Article Eighth).

        4.     This Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware.

        IN WITNESS WHEREOF, said Countrywide Credit Industries, Inc. has caused this certificate to be signed by David S. Loeb, its President, and attested by Paul H. Moeller, it s Secretary, this 14th day of July, 1987.

		By	/s/David S. Loeb David S. Loeb President
ATTEST:
By	/s/Paul H. Moeller Paul H. Moeller Secretary

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CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES A PARTICIPATING PREFERRED STOCK

of

COUNTRYWIDE CREDIT INDUSTRIES, INC.

Pursuant to Section 151 of the General Corporation Law
of the State of Delaware

        We, David Loeb, Chairman of the Board and President and Dennis Slattery, Secretary, of Countrywide Credit Industries, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 3 thereof, DO HEREBY CERTIFY:

        That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on February 10, 1988, adopted the following resolution creating a series of 250,000 shares of Preferred Stock designated as Series A Participating Preferred Stock:

        RESOLVED, that pursuant to the authority vested in the Board of Directors of this Company in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Company be and it hereby is created, and that the designation and amount thereof and the powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

        Section 1.    Designation and Amount.    The shares of such series shall be designated as "Series A Participating Preferred Stock" $0.05 par value per share, and the number of shares constituting such series shall be 250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Participating Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation.

        Section 2.    Dividends and Distribution.

        (A)  Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to the dividends, the holders of shares of Series A Participating Preferred Stock in preference to the holders of shares of Common Stock, par value $.05 per share (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00, or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of common stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock. In the event the Corporation shall at any time after February 26, 1988 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by

a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        (B)  The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

        (C)  Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in the an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

        Section 3.    Voting Rights.    The holders of shares of Series A Participating Preferred Stock shall have the following voting rights:

        (A)  Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation.

        (B)  Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.

        (C)  (i) If at any time dividends on any Series A Participating Preferred Stock shall be in arrears in an amount equal t six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly period on all shared of Series A Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect (2) Directors.

        (ii)   During any default period, such voting right of the holders of Series A Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of shareholders, and thereafter at annual meeting of shareholders provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be

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exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock should not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased of decreased except by vote of the holders of the Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Participating Preferred Stock.

        (iii)  Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective if series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the Corporate Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days of such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the shareholders.

        (iv)  In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence.

        (v)   Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in, or pursuant to, the Restated Certificate of Incorporation or By-Laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however to change thereafter in any manner provided by law or in the Restated Certificate of Incorporation of By-Laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors, even though less than a quorum.

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        (D)  Except as set forth herein, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

        Section 4.    Certain Restrictions.

        (A)  Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 2 are in arrears thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not

        (i)    declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up)to the Series A Participating Preferred Stock;

        (ii)   declare any pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

        (iii)  redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution, or winding up) with the Series A Participating Preferred Stock provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; or

        (iv)  purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock or any shares of stock ranking on a parity with the Series A Participating Preferred Stock except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

        (B)  The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4 purchase or otherwise acquire such shares at such time and in such manner.

        Section 5.    Reacquired Shares.    Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.

        Section 6.    Liquidation, Dissolution or Winding Up.    (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Participating Preferred Stock shall have received per share, the greater of 100 times $35 or 100 times the payment made per share of Common Stock, plus and amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the

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"Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment" equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Participating Preferred Stock and Common Stock, respectively, holders of Series A Participating Preferred Stock and holders of shares of Common Stock shall receive their retable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

        (B)  In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Participating Preferred Stock then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.

        (C)  In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock that were outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        Section 7.    Consolidation, Merger, etc.    In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is change or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event.

        Section 8.    Redemption.    The shares of Series A Participating Preferred Stock shall not be redeemable.

        Section 9.    Ranking.    The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

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        Section 10.    Amendment.    The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Participating Preferred Stock voting separately as a class.

        Section 11.    Fractional Shares.    Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.

        RESOLVED FURTHER, that the proper officers of the Corporation be, and each of them hereby is, authorized to execute a Certificate of Designation with respect to the Series A Participating Preferred Stock pursuant to Section 151 of the General Corporation Law of the State of Delaware and to take all appropriate action to cause such Certificate to become effective, including, but not limited to, the filing and recording of such Certificate with and/or by the Secretary of State of the State of Delaware.

        IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 11^th day of February, 1988.

	/s/ David Loeb Chairman of the Board and President
Attest:
/s/ Dennis Slattery Secretary

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CERTIFICATE OF DESIGNATION

OF

$23.75 CONVERTIBLE PREFERRED STOCK

OF

COUNTRYWIDE CREDIT INDUSTRIES, INC.

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware

        COUNTRYWIDE CREDIT INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that, pursuant to the authority conferred on the Board of Directors of the Corporation by the Restated Certificate of Incorporation, as amended, of the Corporation and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation (and, as to certain matters allowed by law, a duly authorized committee thereof) adopted the following resolution establishing a series of 184,000 shares of Preferred Stock of the Corporation designated as $23.75 Convertible Preferred Stock":

        RESOLVED, that pursuant to the authority conferred on the Board of Directors of this Corporation by the Certificate of Incorporation, a series of Preferred Stock, par value $.05 per share, of the Corporation be and hereby is established and created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows:

$23.75 Convertible Preferred Stock

        1.    Designation and Amount:    There shall be a series of Preferred Stock designated as "$23.75 Convertible Preferred Stock" and the number of shares constituting such series shall be 184,000. Such series is referred to herein as the "Preferred Stock".

        2.    Stated Capital.    The amount to be represented in stated capital at all times for each share of Preferred Stock shall be $.05.

        3.    Rank.    All shares of Preferred Stock shall rank prior to all of the Corporation's Common Stock, par value $.05 per share (the "Common Stock"), now or hereafter issued and all of the Corporation's Series A Participating Preferred Stock (the "Series A Preferred Stock"), both as to payment of dividends and as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

        4.    Dividends.    The holders of the shares of Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or a duly authorized committee thereof, out of funds legally available therefor, cumulative cash dividends at the rate of $23.75 per share per annum on March 31, June 30, September 30, and December 31 of each year, commencing September 30, 1990; provided that, if on any such day banks in The City of New York are authorized or required to close, dividends otherwise payable on such day shall be payable on the next day that banks in The City of New York are not authorized or required to close. Each dividend on the Preferred Stock shall be payable to holders of record as they appear on the stock register of the Corporation on such record date, which shall be no more than forty days prior to the payment date therefor, as shall be fixed by the Board of Directors of the Corporation or a duly authorized committee thereof.

        The dividends on the shares of Preferred Stock shall be cumulative from the date of first issuance and shall be deemed to accrue from day to day regardless of whether or not the Corporation shall have funds or assets available for the payment of such dividends. The amount of dividends payable on each share of Preferred Stock for each quarterly dividend period shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for the initial dividend period and for any

period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months.

        Holders of shares of Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full dividends (including accrued dividends, if any) on shares of Preferred Stock. No interest or sum of money in lieu of interest shall be payable in respect of any dividend or payments which may be in arrears.

        Dividends in arrears payable, if declared, but not paid on any quarterly dividend payment date may be declared by the Board of Directors of the Corporation or a duly authorized committee thereof and paid on any date fixed by the Board of Directors of the Corporation or a duly authorized committee thereof, whether or not a quarterly dividend payment date, to the holders of record of the shares of Preferred Stock, as they appear on the stock register of the Corporation on such record date, which shall be no more than forty days prior to the payment date therefor, as shall be fixed by the Board of Directors of the Corporation or a duly authorized committee thereof.

        The Corporation may not declare or pay any dividend or make any distribution of assets (other than dividends paid or other distributions made in stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquation, dissolution or winding up) on, or redeem, purchase or otherwise acquire (except upon conversion or exchange for stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up), shares of Common Stock, of Series A Preferred Stock or of any other Stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, unless all accrued and unpaid dividends on the Preferred Stock for all prior dividend periods have been or contemporaneously are declared and paid and the full quarterly dividend on the Preferred Stock for the current dividend period has been or contemporaneously is declared and set apart for payment.

        Whenever all accrued dividends on the Preferred Stock are not pad in full, the Corporation may not declare or pay dividends or make any distribution of assets (other than dividends paid or other distributions made in stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) on any other stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends unless (i) all accrued and unpaid dividends on the Preferred Stock for all prior dividend periods are contemporaneously declared and paid or (ii) all dividends declared and paid or set aside for payment or other distributions made on Preferred Stock and any other stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends are declared and paid or set apart for payment or made pro rata so that the amount of dividends declared and paid or set apart for payment or other distributions made per share on the Preferred Stock and such other stock of the Corporation will bear the same ratio that accrued and unpaid dividends per share on the Preferred Stock and such other stock of the Corporation bear to each other.

        Whenever all accrued dividends on the Preferred Stock are not paid in full, the Corporation may not redeem, purchase or otherwise acquire (except upon conversion or exchange for stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) other stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up unless (i) all outstanding shares of the Preferred Stock are contemporaneously redeemed or (ii) a pro rata redemption is made of shares of Preferred Stock and such other stock of the Corporation, with the amount allocable to each series of such stock determined on the basis of the aggregate liquidation preference of the outstanding shares of each series and the shares of each series being redeemed only on a pro rata basis.

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        5.    Liquidation of Preference.    Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Preferred Stock shall be entitled to receive and to be paid out of the assets of the Corporation available for distribution to its stockholders (after any payment or distribution on any stock of the Corporation ranking senior to the Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up and before any payment or distribution on the Common Stock, the Series A Preferred Stock or any other stock of the Corporation ranking junior to the Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up) a liquidation distribution in the amount of $250.00 per share plus an amount equal to all dividends on such shares accumulated (whether or not earned or declared) and unpaid thereon to the date of final distribution.

        Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other Corporation into or with the Corporation shall constitute a liquidation, dissolution or winding up, voluntary or involuntary, for the purposes of the foregoing paragraph. After the payment to the holders of the shares of Preferred Stock of the full preferential amounts provided for above, the holders of the shares of Preferred Stock as much shall have no right or claim to any of the remaining assets of the Corporation.

        In the event the assets of the Corporation available for distribution to the holders of the shares of Preferred Stock upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled as provided above, no such distribution shall be made on account of any other stock of the Corporation ranking on a parity with the Preferred Stock as to the distribution of assets upon such liquidation, dissolution or winding up unless a pro rata distribution is made on the Preferred Stock and such other stock of the Corporation, with the amount allocable to each series of such stock determined on the basis of the aggregate liquidation preference of the outstanding shares of each series and distributions to the shares of each series being made on a pro rata basis.

        6.    Voting Rights.    

        (a)    General.    The holders of the Preferred Stock shall have no voting rights except as described below or as required by law. In exercising any such vote, each outstanding share of Preferred Stock shall be entitled to one vote.

        (b)    Default Voting Rights.    Whenever dividends on the shares of Preferred Stock or on the shares of any other outstanding stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends have not been paid in an aggregate amount equal to at least six quarterly dividends on such shares (whether or not consecutive), the number of directors of the Corporation shall be increased by two and the holders of the shares of Preferred Stock, voting separately as a class with the holders of the shares of such other parity stock of the Corporation on which like voting rights have been conferred and are exercisable, shall have the exclusive right to vote for and elect such two additional directors to the Board of Directors of the Corporation at any meeting of stockholders of the Corporation at which directors are to be elected held during the period such dividends remain in arrears. Each class or series of stock entitled to vote for the additional directors shall have a number of votes proportionate to the aggregate liquidation preference of its outstanding shares. Such voting right will terminate when all such dividends accrued and in default have been paid in full or set apart for payment. The term of office of all directors so elected shall terminate immediately upon such payment or setting apart for payment.

        Whenever such right shall vest, it may be exercised initially either at a special meeting of holders of Preferred Stock or at any annual stockholders' meeting, but thereafter it shall be exercised only at annual stockholders' meetings. Any director who shall have been elected by the holders of Preferred Stock as a class pursuant to this subparagraph (b) shall hold office for a term expiring (subject to the

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earlier termination of the default in dividends) at the next annual meeting of stockholders, and during such term may be removed at any time, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of Preferred Stock given at a special meeting of such stockholders called for such purpose, and any vacancy created by such removal may also be filled at such meeting. Any vacancy caused by the death or resignation of a director who shall have been elected by the holders of Preferred Stock as a class pursuant to this subparagraph (b) may be filled only by the holders of all outstanding Preferred Stock at a meeting called for such purpose.

        Whenever a meeting of the holders of Preferred Stock is permitted or required to be held pursuant to this subparagraph (b), such meeting shall be held at the earliest practicable date and the Secretary of the Corporation shall call such meeting, providing written notice to all holders of record of Preferred Stock in accordance with law, upon the earlier of the following:

        (a)   as soon as reasonably practicable following the occurrence of the event or events permitting or requiring such meeting hereunder; or

        (b)   within twenty (20) days following receipt by said Secretary of a written request for such a meeting, signed by the holders of record of at least twenty percent (20%) of the shares of Preferred Stock then outstanding.

        In the event that such meeting shall not be called by the proper corporate officers within twenty (20) days after the receipt of such request by the Secretary of the Corporation, or within twenty-five (25) after the mailing of same within the United States of America by registered mail addressed to the Secretary of the Corporation at its principal office, then the holders of record of at least twenty percent (20%) of the shares of Preferred Stock then outstanding may designate of their number to call such a meeting at the expense of the Corporation, and such meeting may be called by such person in the manner and at the place provided in this Section 6. Any holder of Preferred Stock so designated to call such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of such stockholders to be so called.

        Any provision of this subparagraph (b) to the contrary notwithstanding, no Special meeting of the holders of shares of Preferred Stock: (i) shall be held during the ninety (90) day period next preceding the date fixed for the annual meeting of stockholders of the Corporation; or (ii) shall be required to be called or held in violation of any law, rule or regulation.

        Any meeting of the holders of all outstanding Preferred Stock entitled to vote as a class for the election or removal of directors shall be held at the place at which the last annual meeting of stockholders was held. At such meeting, the presence in person or by proxy of the holders of a majority of the outstanding shares of all outstanding Preferred Stock shall be required to constitute a quorum; in the absence of a quorum, a majority of the holders present in person or by proxy shall have the power to adjourn the meeting from time to time without notice, other than announcement at the meeting, until a quorum shall be present.

        (c)    Class Voting Rights.    In addition, so long as any Preferred Stock is outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least 66²/3 percent of all the outstanding shares of Preferred Stock voting separately as a class, (i) amend, alter or repeal any provision of the Restated Certificate of Incorporation or the By-Laws of the Corporation so as adversely to affect the relative rights, preferences, qualifications, limitations or restrictions of the Preferred Stock, (ii) authorize, issue or increase the authorized amount of any class or series of stock, or any security convertible into stock of such class or series, ranking senior to the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or (iii) effect any reclassification of the Preferred Stock.

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        The affirmative vote or consent of the holders of a majority of all the outstanding shares of Preferred Stock, voting or consenting separately as a class, shall be required to (A) authorize any sale, lease or conveyance of all or substantially all of the assets of the Corporation, or (B) approve any merger, consolidation or compulsory share exchange to which the Corporation is a party, unless (i) the terms of such merger, consolidation or compulsory share exchange do not provide for a change in the terms of the Preferred Stock and (ii) the Preferred Stock is on a parity with or prior to (in respect of the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) any other class or series of capital stock authorized by the surviving corporation, other than any class or series of stock of the Corporation ranking senior as to the Preferred Stock either as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation and previously authorized with the consent of holders of Preferred Stock as described herein (or other than any capital stock into which such prior stock is converted as a result of such merger, consolidation or compulsory share exchange).

        7.    Redemption at Option of the Corporation.    The shares of Preferred Stock shall not be redeemable prior to July 1, 1993. Commencing July 1, 1993, the shares of Preferred Stock will be redeemable for cash, in whole or in part, at any time at the option of the Corporation, if redeemed during the 12-month period beginning July1 of the year specified below, at the following redemption prices;

Year	Price Per Share
1993	$	273.7500
1994		270.3571
1995		266.9643
1996		263.5714
1997		260.1786
1998		256.7857
1999		253.3929

and thereafter at $250.00 per share, plus in each case accrued and unpaid dividends to the redemption date (the "Redemption Price").

        If less than all the outstanding shares of Preferred Stock are to be redeemed, the Corporation shall select those to be redeemed pro rata or by lot or in such other manner as the Board of Directors of the Corporation or a duly authorized committee thereof may determine. There shall be no mandatory redemption or sinking fund obligation with respect to the Preferred Stock.

        Not more than 60 nor less than 30 days prior to the redemption date, notice by first class mail, postage prepaid, shall be given to the holders of record of the Preferred Stock to be redeemed, addressed to such stockholders at their last addresses as shown on the books of the Corporation. Each such notice of redemption shall specify the date fixed for redemption, the Redemption Price, the place or places of payment, that payment will be made upon presentation and surrender of the shares of Preferred Stock, that on and after the redemption date, dividends will cease to accumulate on such shares, the then-effective conversion rate pursuant to Section 9 and that the right of holders to convert shall terminate at the close of business on the redemption date.

        Any notice which is mailed as herein provided shall be conclusively presumed to have been duly given, whether or not the holder of the Preferred Stock receives such notice; and failure to give such notice by mail, or any defect in such notice, to the holders of any shares designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Preferred Stock. On or after the date fixed for redemption as stated in such notice, each holder of the shares called for redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Redemption

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Price. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If, on the date fixed for redemption, funds necessary for the redemption shall be available therefor and shall have irrevocably deposited or set aside, then, notwithstanding that the certificates evidencing any shares so called for redemption shall not have been surrendered, the dividends with respect to the shares so called shall cease to accumulate after the date fixed for redemption, the shares shall no longer be deemed outstanding, the holders thereof shall cease to be stockholders with respect to the shares so called for redemption (except the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor) shall terminate.

        8.    Contingent Redemption at Option of Holder.    In the event that there occurs a Designated Event (as hereinafter defined) with respect to the Corporation, each holder of shares of Preferred Stock shall have the right, at the holder's option, to require the Corporation to redeem all or any part of such holder's shares of Preferred Stock on the date (the "Contingent Redemption Date") that is 100 days after the rating Decline, at $250.00 per share plus accrued and unpaid dividends to the Contingent Redemption Date.

        On or before the twenty-eighth day after the Designated Event, the Corporation is obligated to notify the transfer agent for the Preferred Stock of such event, and promptly thereafter to mail, or cause to be mailed, to each holder of record of the shares of Preferred Stock notice regarding the Designated Event and the redemption right. The Corporation shall use its best efforts to cause such notice to be disseminated to beneficial owners of the Preferred Stock in accordance with Rule 13e-4(e) (1) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The notice shall state the Contingent Redemption Date, the date by which the redemption right must be exercised, the applicable price for such shares of Preferred Stock and the procedure which the holder must follow to exercise this right. The Corporation will cause a copy of such notice to be published in an English language newspaper of general circulation in the Borough of Manhattan, The City of New York. To exercise this right, the holder of shares of Preferred Stock must deliver at least ten days prior to the Contingent Redemption Date (the "Contingent Redemption Record Date") written notice to the Corporation (or an agent designated by the Corporation for such purpose) of the holder's exercise of such right, together with the certificate for the shares with respect to which the right is being exercised, duly endorsed for transfer. Such written notice may be withdrawn at any time prior to the Contingent Redemption Record Date.

        As used herein, a "Designated Event" shall be deemed to have occurred at such times as (i) a "person" or "group" (within the meaning of Sections 13(d) and 14 (d) (2) of the Exchange Act), other than a holding company created as permitted by clause (ii)(a) of this paragraph, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 30% of the total voting power of all classes of stock then outstanding of the Corporation normally entitled to vote in elections of directors ("Voting Stock"), (ii) the Corporation consolidates with or merges into another corporation or conveys, transfers or leases all or substantially all of its assets to any person, or any corporation consolidates with or merges into the Corporation, in either event pursuant to a transaction in which Voting Stock, of the Corporation is changed into or exchanged for cash, securities or other property, provided that such transactions (A) involving solely the creation of a public holding company or the reincorporation of the Corporation in another state or (B) involving the exchange of the Corporation's Voting Stock as consideration in the acquisition of another business or businesses, without change or exchange of the Corporation's outstanding Voting Stock, shall be excluded from the operation of this clause (ii); or (iii) the Corporation, any subsidiary of the Corporation or any employee benefit plan maintained by the Corporation or any subsidiary of the Corporation purchases or otherwise acquires, directly or indirectly, beneficial ownership of Voting Stock of the Corporation if, after giving affect to such purchase or acquisition, the Corporation (together with its subsidiaries and an such plans) shall have acquired, within any 12-month period, a number of shares

6

of the Corporation's Voting Stock equal to 30% or more of the number of shares of the Corporation's Voting Stock outstanding on the date immediately prior to the first such purchase or acquisition during such 12-month period (as adjusted in such manner as the Corporation reasonably deems appropriate to reflect any stock dividends or stock splits during such period); or (iv) on any date (a "Calculation Date") the Corporation makes any distribution or distributions of cash, property or securities (other than regular dividends and distributions of capital stock, or rights to acquire capital stock, of the Corporation) to holders of Voting Stock of the Corporation or the Corporation, any subsidiary or any employee benefit plan maintained by the Corporation or any subsidiary purchases or otherwise acquires, directly or indirectly, beneficial ownership of Voting Stock of the Corporation and the sum of the fair market value (as determined in good faith by the Corporation's Board of Directors, which determination shall be conclusive) of such distribution or purchase, plus the fair market value of all other such distributions by the Corporation and purchases by the Corporation together with its subsidiaries and any such plans which have occurred during the preceding 12-month period, is at least 30% of the fair market value of the outstanding Voting Stock of the Corporation (based on the closing sale price of the Voting Stock of the Corporation (based on the closing sale price of the Voting Stock as reported in The Wall Street Journal). This percentage is calculated on each Calculation Date by determining the percentage of the fair market value of the Corporation's outstanding Voting Stock as of such Calculation Date which is represented by the fair market value of the distributions and purchases which have occurred on such date and adding to that percentage all of the percentages which have been similarly calculated on the Calculation Dates of all such distributions and purchases during the preceding 12-month period.

        As used in the preceding paragraph, "Company" shall mean the Corporation or any holding company permitted under clause (ii) (a) thereof which may be created.

        9.    Conversion Rights.

        (a)    Right to Covert.    Subject to and upon compliance with the provisions of this Section, the holder of any Shares of Preferred Stock shall have the right, at his option, at any time (except that, with respect to any Shares of Preferred Stock which shall be called for redemption, such right shall terminate, except as provided in the third paragraph of Section 9(b) hereof, at the close of business on the date fixed for redemption of such shares of Preferred Stock unless the Corporation shall default in payment due upon redemption thereof) to convert any number of shares of Preferred Stock that is an integral multiple of 1/10^th of one share into fully paid and nonassessable shares of Common Stock (as such shares shall be constituted) initially at the conversion price of $9.375 per share of Common Stock, subject to adjustment as described below (such price or adjusted price being referred to herein as the "Conversion Price"), by surrender of the Preferred Stock so to be converted in whole or in part in the manner provided in Section 9(b) below. For purposes of conversion, each share of Preferred Stock shall be valued at $250, which shall be divided by the then current Conversion Price in effect to determine the number of full shares issuable upon conversion thereof.

        For the purpose of this Section 9, the term "Common Stock" shall initially mean the class designated as Common Stock, par value $.05 per share, of the Corporation as of the date hereof, subject to adjustment as hereinafter provided.

        (b)    Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends.    In order to exercise the conversion privilege, the holder of any shares of Preferred Stock to be converted in whole or in part shall surrender the certificate representing such shares of Preferred Stock (the "Preferred Stock Certificate") at the office of the transfer agent for the Preferred Stock, and shall give written notice of conversion in the form provided on the Preferred Stock Certificates (or such other notice which is acceptable to the Corporation) to the Corporation at such office or agency that the holder elects to convert such shares of Preferred

7

Stock represented by the Preferred Stock Certificates so surrendered or the portion thereof specified in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 9(f) hereof. Each Preferred Stock Certificate surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Preferred Stock Certificate, by duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Corporation duly executed by, the holder or his duly authorized attorney.

        As promptly as practicable after the surrender of such Preferred Stock Certificate and the receipt of such notice and funds, if any, as aforesaid, the Corporation shall issue and shall deliver at such office or agency to such holder, or on his written order, a certificate or certificates for the number of full shares issuable upon the conversion of such shares Preferred Stock represented by the Preferred Stock Certificates so surrendered or portion thereof in accordance with the provisions of this Section and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion as provided in Section 9(c) hereof. In case less than all of the shares of Preferred Stock represented by a Preferred Stock Certificate surrendered for conversion are to be converted, the Corporation shall deliver to or upon the written order of the holder of such Preferred Stock Certificate a new Preferred Stock Certificate representing the shares of Preferred Stock not converted. If a holder fails to notify the Corporation of the number of shares which such holder wishes to convert, such holder shall be deemed to have elected to covert all shares represented by the certificate or certificates surrendered for conversion.

        Each conversion shall be deemed to have been effected on the date on which such Preferred Stock Certificate shall have been surrendered and such notice shall have been received by the Corporation, as aforesaid, and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Corporation shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the conversion price in effect on the date upon which such Preferred Stock Certificate shall have been surrendered.

        The dividends due on any Preferred Stock surrendered for conversion during the period from the close of business on the record date for any dividend payment date to the opening of business on such dividend payment date shall be paid to the record holder of such Preferred Stock, notwithstanding such conversion.

        (c)    Cash Payments in Lieu of Fractional Shares.    No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Preferred Stock. The number of full shares of Common Stock which shall be issuable to a holder of Preferred Stock upon conversion shall be computed on the basis of the whole number of shares of Preferred Stock (or specified portions thereof to the extent permitted hereby) surrendered by such holder for conversion. If any fractional share of Common Stock would be issuable upon the conversion of any shares of Preferred Stock, the Corporation shall make an adjustment therefor in cash at the current market value thereof. The current market value of a share of Common Stock shall be the last reported price on the first day (which is not a legal holiday as defined below) immediately preceding the day on which the shares of Preferred Stock are deemed to have been converted and such last reported price shall be determined as provided in the last sentence of subsection (D) of Section 9(d).

        The term "Legal Holiday" shall mean a legal holiday or a day on which banking institutions in Los Angeles or any national securities exchanges are authorized by law or by executive order to close.

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        (d)    Adjustment of Conversion Price.    The conversion price shall be adjusted from time to time as follows:

        (A)  In case the Corporation shall (i) pay a dividend or make a distribution in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class), (ii) subdivide its outstanding Common Stock or (iii) combine its outstanding Common Stock into a smaller number of shares, the conversion price in effect immediately prior thereto shall be adjusted so that the holder of any share of Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Corporation which he would have owned or have been entitled to receive after the happening of any of the events described above had such share of Preferred Stock been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (A) shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of subdivision or combination. If, as a result of an adjustment made pursuant to this subsection (A), the holder of any share of Preferred Stock thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of capital stock of the Corporation, the Board of Directors (whose determination shall be conclusive and shall be described in a written statement filed with the transfer agent for the Preferred Stock) shall determine the allocation of the adjusted conversion price between or among shares of such classes of capital stock.

        (B)  In case the Corporation shall issue rights or warrants (other than rights pursuant to the Rights Agreement, dated as of February 10, 1988, between the company and Bank of America NT&SA, as such agreement may be amended from time to time (the "Rights")) to all holders of its Common Stock entitling them (for a period expiring within 90 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the current market price per share of Common Stock (as defined in subsection (D) below) at the record date of the determination of stockholders entitled to receive such rights or warrants, the conversion price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such current market price, and in determining the aggregate offering price of such shares, there shall taken into account any consideration received by the Corporation for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors.

        (C)  In case the Corporation shall distribute to all holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions paid from retained earnings of the Corporation) or rights or warrants (other than the Rights) to subscribe for or purchase Common Stock (excluding those referred to in subsection (B) above), then in each such case the conversion price shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the current market price per share (as defined in subsection (D) below) of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be

9

conclusive), of the portion of the assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator shall be the current market price per share (as defined in subsection (D) below) of the Common Stock. Such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.

        (D)  For the purpose of any computation under subsections (B) and (C) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the last reported prices for the ten consecutive days (which are not Legal Holidays as defined in Section 9(b)) next preceding the day in question. The last reported price for each day shall be the last reported sale price of Common Stock on the New York Stock Exchange (or, if not listed on the New York Stock Exchange, then on such other exchange on which the Common Stock is listed as the Corporation may designate) on such day (which is not a Legal Holiday as defined in Section 9(b)), or it there shall not have been a sale on such day, on the basis of the average of the bid and asked quotations therefor on such exchange on such day, or if the Common Stock shall not then be listed on any exchange, at the highest bid quotation in the over-the-counter market on such as reported by National Quotation Bureau, Incorporated or similar quotation service.

        (E)  No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subsection (E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 9 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. Anything in this Section 9(d), to the contrary notwithstanding, the Corporation shall be entitled to make such reductions in the conversion price, in additional to those required by this Section 9(d), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock hereafter made by the Corporation to its stockholders shall not be taxable. The Board of Directors shall have the power to resolve any ambiguity or correct any error in this Section 9(d) and to authorize the filing of a Certificate of Correction with respect to any such ambiguity or error.

        (F)  Whenever the conversion price is adjusted, as herein provided, the Corporation shall promptly file with the transfer agent of the Preferred Stock an Officers' Certificate setting forth the conversion price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such adjustment of the conversion price setting forth the adjusted conversion price and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the conversion price to the holders of Preferred Stock at their address as appearing in the stock transfer books of the Corporation.

        (G)  In any case in which this Section 9(d) provides that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (i) issuing to the holder of any shares of Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 9(c).

        (H)  The Corporation at any time may reduce the Conversion Price, temporarily or otherwise, by any amount but in no event shall such Conversion Price be less than the par value of the Common Stock at the time of such reduction is made.

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        Whenever the Conversion Price is reduced pursuant to this paragraph (H), the Corporation shall mail to the holders of shares of Preferred Stock a notice of the reduction. The Corporation shall mail the notice at least 15 days before the date the reduced Conversion Price takes effect. The notice shall state the reduced Conversion Price and the period in which it will be in effect. A reduction in the Conversion Price pursuant to this paragraph (H) shall not change or affect the Conversion Price otherwise in effect for purposes of paragraphs A, B and C of this Section 9 (d).

        (e)    Reclassification, Consolidation, Merger or Sale of Assets.    In case of any reclassification of the Common Stock, any consolidation of the Corporation with, or merger of the Corporation into, any other person, any merger of another person into the Corporation (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), any sale or transfer of all or substantially all of the assets of the Corporation or any compulsory share exchange pursuant to which share exchange the Common Stock is converted into other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the holder of each share of Preferred Stock then outstanding shall have the right thereafter, during the period such share shall be convertible, to convert such share only into the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock of the Corporation into which such share of Preferred Stock might have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange assuming such holder of Common Stock of the Corporation (i) is not a person with which the Corporation consolidated or into which the Corporation merged or which merged into the Corporation, to which such sale or transfer was made or a party to such share exchange, as the case may be ("constituent person"), or an affiliate of a constituent person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange (provided that if the kind or amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange is not the same for each share of Common Stock of the Corporation held immediately prior to such consolidation, merger, sale or transfer by others than a constituent person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). The Corporation, the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 9. The above provisions shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges.

        (f)    Taxes on Shares Issued.    The issue of stock certificates on conversions of Preferred Stock shall be made without charge to the converting holder of Preferred Stock for any tax in respect of the issue thereof. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Preferred Stock converted, and the Corporation shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

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        (g)    Reservation of Shares; Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock.    The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Preferred Stock and shall take all such corporate action as may be required from time to time in order that it may validly and legally issue fully paid and non-assessable shares of Common Stock upon conversion of the Preferred Stock.

        Before taking any action which would cause an adjustment reducing the conversion price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue shares of such Common Stock at such adjusted conversion price.

        All share of Common Stock which may be issued upon conversion of Preferred Stock will upon issue be fully paid and nonassessable by the Corporation and free from all taxes, liens and charges with respect to the issue thereof.

        If any share of Common Stock to be provided for the purpose of conversion of Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or state law before such shares may be validly issued upon conversion, the Corporation will in good faith and as expeditiously as possibly endeavor to secure such registration or approval, as the case may be.

        So long as the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange the Corporation will, if permitted by the rules of such exchange, list and keep listed and for sale so long as the Stock issuable upon conversion of the Preferred Stock.

        (h)    Notice to Holder Prior to Certain Actions.    In case:

        (A)  the Corporation shall declare a dividend (or any other distribution) of its Common Stock (other than in cash out of retained earnings); or

        (B)  the Corporation shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or

        (C)  of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value) or, of any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation is required, or of the sale or transfer of all or substantially all of the assets of the Corporation; or

        (D)  of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation; the Corporation shall cause to be filed with the transfer agent for the Preferred stock and to be mailed to each holder of Preferred Stock at their address appearing on the stock transfer books of the Corporation, as promptly as possible but in any event at least fifteen days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.

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        10.    Outstanding Shares.    For purposes of this Certificate of Designation, all shares of Preferred Stock shall be deemed outstanding except (i) from the date fixed for redemption pursuant to Section 7 or 8 hereof, all shares of Preferred Stock that have been so called for redemption under Section 7 or have been required to be redeemed by the holder thereof under Section 8 if funds necessary for the redemption of such shares are available and shall have been irrevocably deposited or set aside and, in the case of a redemption under Section 8, have been deposited in trust with a bank having a combined capital and surplus in excess of $10,000,000, as trustee, for the benefit of the holders of such shares to be redeemed for payment of the relevant redemption price; (ii) from the date of surrender of certificates representing shares of Preferred stock, all shares of Preferred Stock converted into Common Stock; and (iii) from the date of registration of transfer, all shares of Preferred Stock held of record by the Corporation or any subsidiary of the Corporation.

        11.    Partial Payments.    If at any time the Corporation does not pay amounts sufficient to redeem all Preferred Stock required to be redeemed by the Corporation at such time pursuant to Section 8 hereof, then such funds which are paid shall be applied to redeem such Preferred Stock as the Corporation may designate by lot.

        12.    Status of Acquired Shares.    Shares of Preferred Stock redeemed by the Corporation, received upon conversion pursuant to Section 9 or otherwise acquired by the Corporation will be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to class, and may thereafter be issued, but not as shares of Preferred Stock.

        13.    Preemptive Rights.    The Preferred Stock is not entitled to any preemptive or subscription rights in respect of any securities of the Corporation.

        14.    Severability of Provisions.    Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

        15.    Fractional Shares.    The Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Preferred Stock.

        16.    Reversion to Corporation.    Subject to applicable escheat laws, any monies set aside by the Corporation in respect of any payment with respect to shares of the Preferred Stock, or dividends thereon, and unclaimed at the end of two years from the date upon which such payment is due and payable shall revert to the general funds of the Corporation, after which reversion the holders of such shares shall look only to the general funds of the Company for the payment thereof. Any interest accrued on funds so deposited shall be paid to the Corporation from time to time.

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        IN WITNESS WHEREOF, Countrywide Credit Industries, Inc. has caused this certificate to be signed by Angelo R. Mozilo, its Executive Vice President, and its corporate seal to be hereunto affixed and attested by Sandor E. Samuels, its Secretary, this 11^th day of July, 1990.

COUNTRYWIDE CREDIT INDUSTRIES, INC.
By:	/s/ Angelo R. Mozilo Name: Angelo R. Mozilo Title: Vice Chairman and Executive Vice President

Attest:

/s/ Sandor E. Samuels Name: Sandor E. Samuels
Title: Secretary

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CERTIFICATE OF CORRECTION
FILED TO CORRECT CERTAIN ERRORS
IN THE
CERTIFICATE OF DESIGNATION OF
$23.75 CONVERTIBLE PREFERRED STOCK
OF
COUNTRYWIDE CREDIT INDUSTRIES, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE
ON JULY 12, 1990

        COUNTRYWIDE CREDIT INDUSTRIES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"),

        DOES HEREBY CERTIFY:

1.

The name of the Corporation is Countrywide Credit Industries, Inc.



2.

A Certificate of Designation of $23.75 Convertible Preferred Stock (the "Certificate") was filed with the Secretary of State of Delaware on July 12, 1990 and said Certificate requires correction as permitted by subsection (f) of Section 103 of the General Corporation Law of the State of Delaware.



3.

The inaccuracies or defects of said Certificate to be corrected are as follows:

        A.    The words, ", as amended (including this Certificate of Designation)" should be inserted following the words "Restated Certificate of Incorporation" in the first sentence of Section 6(c) of the Certificate, so that the first sentence of Section 6(c) of the Certificate is corrected to read in its entirety as follows:

        (c)    Class Voting Rights.    In addition so long as any Preferred Stock is outstanding the Corporation shall not, without the affirmative vote or consent of the holders of at least 66²/3 percent of all the outstanding shares of Preferred Stock voting separately as a class, (i) amend, alter or repeal any provision of the Restated certificate of Incorporation, as amended (including this Certificate of Designation) or the By-Laws of the Corporation so as adversely to affect the relative rights, preferences, qualifications, limitations or restrictions of the Preferred Stock, (ii) authorize, issue or increase the authorized amount of any class or series of stock, or any security convertible into stock of such class or series, ranking senior to the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or (iii) effect any reclassification of the Preferred Stock.

        B.    The words "Rating Decline" contained in the first sentence of Section 8 of the Certificate should be deleted and replaced with the words "Designated Event," so that the first sentence of Section 8 of the Certificate is corrected to read in its entirety as follows:

        8.    Contingent Redemption at Option of Holder.    In the event that there occurs a Designated Event (as hereinafter defined) with respect to the Corporation, each holder of shares of Preferred Stock shall have the right, at the holder's option, to require the Corporation to redeem all or any part of such holder's shares of Preferred Stock on the date (the "Contingent Redemption Date" that is 100 days after the Designation Event, at $250.00 per share plus accrued and unpaid dividends to the Contingent Redemption Date.

        C.    The word "Company" in the last sentence of Section 8 of the Certificate should be deleted and replaced with the word "Corporation" so that the last sentence of Section 8 of the Certificate is corrected to read in its entirety as follows:

        As used in the preceding paragraph, "Corporation" shall mean the Corporation or any holding company permitted under clause (ii)(a) thereof which may be created.

        D.    The word "or" should be inserted in the second sentence of Section 9(e) of the Certificate so that the second sentence of Section 9(e) of the Certificate is corrected to read in its entirety as follows:

The Corporation, or the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right.

        E.    The words "Preferred Stock" in the second-to-last line of Section 12 of the Certificate should be deleted and replaced with the words "preferred stock of the Corporation" so that Section 12 of the Certificate is corrected to read in its entirety as follows:

        12.    Status of Acquired Shares.    Shares of Preferred Stock redeemed by the Corporation, received upon conversion pursuant to Section 9 or otherwise acquired by the Corporation will be restored to the status of authorized but unissued shares of preferred stock of the Corporation, without designation as to class, and may thereafter be issued, but not as shares of Preferred Stock.

4.

As of the date hereof, no shares of $23.75 Convertible Preferred Stock have been issued by the Corporation.

        IN WITNESS WHEREOF, Countrywide Credit Industries, Inc. has caused this certificate to be signed by Angelo R. Mozilo, its Executive Vice President, and its corporate seal to be hereunto affixed and attested by Sandor E. Samuels, its Secretary, this 16^th day of July, 1990.

	COUNTRYWIDE CREDIT INDUSTRIES, INC.
	By:	/s/ Angelo R. Mozilo
		Name: Angelo R. Mozilo
		Title: Vice Chairman and Executive Vice President
Attest:
/s/ Sandor E. Samuels
Name: Sandor E. Samuels
Title: Secretary

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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE CREDIT INDUSTRIES, INC.

Countrywide Credit Industries, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, hereby certifies as follows:

        1.     That at a meeting of the Board of Directors of Countrywide Credit Industries, Inc., (the "Corporation" or "Company") resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling for the proposal to be presented to the shareholders of the Corporation at the next Annual Meeting of the Shareholders. The resolution setting forth the proposed amendment is as follows:

RESOLVED, That the Company's Certificate of Incorporation be amended to Increase the authorized Common Stock, and for this purpose the Third article be amended to read as follows:

        THIRD:    The aggregate number of shares which the Corporation shall have authority to issue is two hundred forty million (240,000,000) shares of Common Stock, of the par value of five cents ($.05) per share, and one million, five hundred thousand (1,500,000) shares of Preferred Stock, of the par value of five cents ($.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, preferences, privileges, liquidation preferences, and all other rights, preferences, privileges and restrictions, including without limitation, conversion rights into Common Stock, granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations or restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series.

        2.     That thereafter, the Annual Meeting of the Stockholders, of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware on June 24, 1992, at which meeting the necessary number of shares as required by statue were voted in favor of the amendment.

        3.     That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

        IN WITNESS WHEREOF, said Countrywide Credit Industries, Inc. has cause this certificate to be signed by David S. Loeb, its President, and Sandor E. Samuels, its Secretary, this 25^th day of June, 1992.

	BY:	/s/ David S. Loeb David S. Loeb President
ATTEST:
/s/ Sandor E. Samuels Sandor E. Samuels Secretary

CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT

        It is hereby certified that:

        1.     The name of the corporation (hereinafter called the "corporation") is

COUNTRYWIDE CREDIT INDUSTRIES, INC.

        2.     The registered office of the corporation within the State of Delaware is hereby changed to 32 Loockerman Square, Suite L-100, City of Dover 19901, County of Kent.

        3.     The registered agent of the corporation within the State of Delaware is hereby changed to The Prentice-Hall Corporation System, Inc., the business office of which is identical with the registered office of the corporation as hereby changed.

        4.     The corporation has authorized the changes hereinbefore set forth by resolution of its Board of Directors.

Signed on 1/19, 1993.

	/s/ Gwen J. Eells Gwen J. Eells,                                            Vice President
Attest:
/s/ Patricia I. Poe Patricia I. Poe,                                                              Secretary

COUNTRYWIDE CREDIT INDUSTRIES, INC

CERTIFICATE OF DESIGNATIONS

PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE

SERIES B CUMULATIVE CONVERTIBLE
PREFERRED STOCK

        I, Stanford L. Kurland, Senior Managing Director and Chief Operating Officer, of Countrywide Credit Industries, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:

        That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation, as amended, of the said Corporation, the said Board of Directors on January 26, 2000, adopted the following resolutions creating a series of 1,000,000 shares of Preferred Stock designated as Series B Cumulative Convertible Preferred Stock:

        RESOLVED, that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of its Restated Certificate of Incorporation, as amended, a series of Preferred Stock of the Corporation be, and hereby is, created and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows:

        SECTION 1.DESIGNATION.    The series of Preferred Stock established hereby shall be designated the "Series B Cumulative Convertible Preferred Stock" (the "Series B Convertible Preferred Shares") and the authorized number of Series B Convertible Preferred Shares shall be 1,000,000 shares.

        SECTION 2.DIVIDENDS.    

        (a)   Holders of outstanding Series B Convertible Preferred Shares will be entitled to received, when and as declared by the Board of Directors out of funds legally available therefore, cash dividend payments in the amount of the Dividend Yield on each Series B Convertible Preferred Share, payable quarterly for each of the quarters ending February, May, August and November of each year, payable on the last business day of each such quarter (each such date being hereinafter referred to as "Preferred Dividend Payment Date"). The first dividend shall be payable on the Preferred Dividend Payment Date during the quarter in which the Issuance Date falls. Each such dividend will be payable to holders of record as they appear on the stock books of the Corporation on such record dates, not less than 10 nor more than 50 days preceding the related Preferred Dividend Payment Date, as shall be fixed by the Board of Directors. Dividends on each Series B Convertible Preferred Share shall accrue on a daily basis and compound quarterly commencing on the Issuance Date for such share and continuing to, but not including, the Redemption Date, Change of Control Redemption Date or Conversion Date for such share (or other date on which such Series B Convertible Preferred Share is no longer outstanding) and accrued dividends for each quarterly dividend period shall accumulate as Unpaid Dividend Yield, to the extent not paid, on the Preferred Dividend Payment Date for the quarter in which they accrued. Dividend payments under this paragraph (a) shall accrue whether or not the Corporation shall have earnings, whether or not there shall be funds legally available for the payment of such dividends and whether or not such dividends are declared. The Unpaid Dividend Yield will earn interest until paid at the Interest Rate, compounded quarterly from the date payable until the date actually paid.

        (b)   So long as any Series B Convertible Preferred Shares shall remain outstanding, no dividend (other than a dividend payable in shares of Common Stock or rights to obtain Common Stock or any class of capital stock of the Corporation which is junior to the Series B Convertible Preferred Shares) shall be declared, nor shall the Corporation make any other distribution or payment or set aside anything of value for distribution or payment on, or redeem, repurchase or otherwise acquire any shares of, the Common Stock of the Corporation or any other class of stock or series thereof ranking

junior to the Series B Convertible Preferred Shares in the payment of dividends (other than a redemption or purchase of shares of Common Stock of the Corporation made for purposes of an employee incentive or benefit plan of the Corporation or any of its subsidiaries) unless the full amount of Unpaid Dividend Yield, if any, accumulated on all outstanding Series B Convertible Preferred Shares through all past Preferred Dividend Payment Dates plus accrued interest thereon shall have been paid in full and not refunded. No dividend shall be declared on any share or shares on any class of stock of the Corporation or series thereof ranking on a parity with the Series B Convertible Preferred Shares in respect of payment of dividends for any prior dividend payment period of said parity stock unless there shall have been declared on all shares then outstanding of the Series B Convertible Preferred Shares terminating with or before such prior dividend payment period of such parity stock, like proportional dividends determined ratably in proportion to the respective Unpaid Dividend Yield accumulated to date for all previous quarterly dividend periods on all outstanding Series B Convertible Preferred Shares and the dividends accumulated on all outstanding shares of said parity stock.

        (c)   CHANGE IN TAX LAWS.

        (i)    If because of an increase or decrease (up to and including full elimination), effective on or after January 1, 2000, of the dividends received deduction ("DRD") with respect to dividend payments on the Series B Convertible Preferred Shares presently permitted by any Tax Law (a "change in the DRD Tax Law"), corporate holders of Series B Convertible Preferred Shares ("Corporate Holders") would realize a greater or lesser after-tax yield from dividend payments on a Series B Convertible Preferred Shares than would have been the case had such change in the DRD Tax Law not occurred (a positive or negative "Tax Effect," respectively), then a dividend adjustment shall be calculated on the Series B Convertible Preferred Shares (whether or not held by Corporate Holders) so that a Corporate Holder's net after-tax yield would be the same as if there has been no change in the DRD Tax Law. Calculation of the dividend adjustment pursuant to this paragraph (c) of Section 2 shall be made (1) without regard to any other changes in Tax laws except those affecting the deductibility of dividends received by Corporate Holders (including changes in the characterization of Series B Convertible Preferred Shares dividends which impact their deductibility under any DRD related Tax Law); and (2) assuming that Corporate Holders pay federal income tax at the highest marginal corporate income tax rate effective at January 1, 2000.

        (ii)   For purposes of calculating the Preferred Dividend Yield Rate as set forth in Section 8 herein, any adjustment in dividends required pursuant to paragraph (c)(1) of this Section 2 shall be expressed as (1) the dividend payment required, after considering the change in DRD Tax law, to equalize a Corporate Holder's net after tax yield, expressed as a percentage (in decimals) of (2) dividends which would have accrued to such Corporate Holder had the change in DRD Tax law not occurred (such percentage to be referred to as the "Preferred Dividend Tax Adjustment Factor"). Therefore, if in equalization of any negative Tax Effect, the Corporation were required to pay $15.25 in extra dividends for each $100.00 of dividends that would have accrued and been payable without regard to any changes in the DRD Tax Law, the Preferred Dividend Tax Adjustment Factor would be 1.1525 ($115.25/$100.00). Conversely, if in equalization of any positive Tax Effect, the Corporation were entitled to pay $8.25 less in dividends for each $100.00 of dividends that would have accrued and been payable without regard to any changes in the DRD Tax Law, the Preferred Dividend Tax adjustment Factor would be 0.9175 ($91.75/$100.00).

        (iii)  Upon the occurrence of any change in the DRD Tax Law resulting in a positive or negative Tax Effect, dividends accruing on each Series B Convertible Preferred Share shall be calculated using the Preferred Dividend Tax Adjustment Factor, effective as of the first day of the quarterly dividend period in which such change in the DRD Tax Laws become effective, or from the Issuance Date, if such Issuance Date occurred for such Series B Convertible Preferred Share from the date of adoption of this Certificate until the end of the quarterly dividend period in

2

which the change in the DRD Tax Law occurred. Dividends calculated using the adjusted Preferred Dividend Yield Rate shall continue to be payable on the Preferred Dividend Payment Date immediately following the end of such quarterly dividend period. To the extent not paid on any Series B Convertible Preferred Share outstanding on the record date corresponding to the Preferred Dividend Payment Date for such quarterly dividend period, any additional dividend shall accumulate as Unpaid Dividend Yield of such share and shall remain a part thereof until (but only until) such additional dividend is paid. The Preferred Dividend Tax Adjustment Factor shall be calculated for each change in the DRD Tax Law resulting in a positive or negative Tax Effect.

        SECTION 3.CASH REDEMPTION BY THE CORPORATION.    

        (a)REDEMPTION AT OPTION OF CORPORATION.    At any time, the Corporation may, at its option, with proper notice as set forth in paragraph (b) of this Section 3, redeem all of the outstanding Series B Convertible Preferred Shares, as of a Proposed Redemption Date Specified in the notice to holders, for cash in an amount equal to the Redemption Price per share.

        (b)NOTICE OF REDEMPTION.    In order to properly effect the redemption of Series B Convertible Preferred Shares, the Corporation will provide notice to holders of record of the Series B Convertible Preferred Shares not less than forty-five (45) days prior to the Proposed Redemption Date. Such notice may be provided by registered mail, first class postage prepaid, to the holders of record of the Series B Convertible Preferred Shares at their respective addresses as the same shall appear on the books of the Corporation or any transfer agent for the Series B Convertible Preferred Shares, or by facsimile or telecopy, as set forth in paragraph (a) of Section 9 herein. Each such notice shall state, as appropriate: (1) the Proposed Redemption Date; (2) the total number of Series B Convertible Preferred Shares to be redeemed; (3) the Redemption Price; (4) the place or places where certificates for such shares are to be surrendered for redemption; and (5) that dividends on the Series B Convertible Preferred Shares to be redeemed will cease to accrue on the Proposed Redemption Date.

        Each holder of Series B Convertible Preferred Shares shall surrender the certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive the cash payable upon such redemption. If proper notice of redemption shall have been duly provided to holders of the Series B Convertible Preferred Shares in accordance with this paragraph (b), and payment therefor has been made or duly provided for, then, notwithstanding that the certificates evidencing any of such shares so called for redemption shall not have been surrendered, as of the close of business on the Redemption Date the shares represented thereby shall be deemed no longer outstanding, dividends with respect to such redeemed Series B Convertible Preferred Shares shall cease to accrue and all rights of the holder with respect to such Series B Convertible Preferred Shares shall forthwith cease and terminate, except for the right of the holders to receive the cash payable upon such redemption, without interest, upon surrender of the certificates therefor.

        (c)REVOCATION OF NOTICE TO REDEEM.    The Corporation's election to redeem the Series B Convertible Preferred Shares pursuant to paragraph (a) of this Section 3 shall be revocable, and any notice to holders of Series B Convertible Preferred Shares provided in accordance with paragraph (b) of this Section 3 shall be subject to revocation or amendment by the Corporation. In order to properly effect the revocation or amendment of such notice, the Corporation will provide notice of its revocation or amendment, not less than one business day prior to the Proposed Redemption Date, to holders of record of the Series B Convertible Preferred Shares previously notified of the proposed redemption. Such notice may be provided in any of the manners permissible for providing notice of redemption under paragraph (b) of this Section 3. Such notice of revocation or amendment shall clearly state that: (1) on the Proposed Redemption Date, the Corporation will not redeem any of the Series B Convertible Preferred Shares; and (2) dividends on the Series B Convertible Preferred Shares will continue to accrue on and after the Proposed Redemption Date without interruption. Notwithstanding the foregoing, in the event that a notice of conversion has been

3

delivered in accordance with paragraph (e) of Section 4 below (which notice of conversion then remains unrevoked), the Corporation shall not issue a notice of redemption under paragraph (b) of this Section 3, or revoke a previously issued notice of redemption, within thirty (30 days prior to the Proposed Conversion Date set forth in such notice of conversion.

        (d)CHANGE OF CONTROL.    Notwithstanding anything to the contrary in this Section 3, for a period of ninety (90) days after the occurrence of a Change of Control, any holder of Series B Convertible Preferred Shares shall be entitled, at the option of such holder, to cause all of the Series B Convertible Preferred Shares held by such holder to be redeemed by the Corporation for cash in the amount of the Redemption Price per share as of a Change of Control Redemption Date. To properly effect the redemption of any Series B Convertible Preferred Shares pursuant to this paragraph (d) of Section 3, the holder of Series B Convertible Preferred Shares shall provide notice to the Corporation not less than ten (10) business days prior to the proposed Change of Control Redemption Date. Such notice must be provided by first class, registered mail, postage prepaid, to the Corporation at its principal executive offices, or by facsimile or telecopy, at the address or number set forth in paragraph (a) of Section 9 herein. Each such notice shall state, as appropriate: (1) the proposed Change of Control Redemption Date; and (2) a statement setting forth the facts and circumstances under which the holder believes a Change of Control has occurred. The Corporation shall give notice of the occurrence of a Change of control to all holders of Series B Convertible Preferred Shares promptly upon the occurrence of such Change of Control.

        (e)CANCELLATION OF SHARES.    All Series B Convertible Preferred shares redeemed by the Corporation as provided in this Section 3 (or otherwise acquired by the Corporation) shall be retired and thereupon restored to the status of authorized but unissued but unissued Series B Convertible Preferred Shares.

        SECTION 4.CONVERSION BY HOLDERS INTO COMMON STOCK.    

        (a)RIGHT OF CONVERSION.    At any time, on the terms and subject to the conditions set forth in this Section 4, any holder of Series B Convertible Preferred Shares shall be entitled, at the option of such holder, to cause any or all of such shares to be converted into shares of Common Stock of the Corporation at the conversion rate set forth in paragraph (c) of this Section 4, as of the Proposed Conversion Date specified in such holder's notice to the Corporation delivered pursuant to paragraph (d) of this Section 4. The minimum number of Series B Convertible Preferred Shares for which conversion may be elected by such holder shall be 100,000 or such lesser number which constitutes all of the outstanding Series B Convertible Preferred Shares held by such holder.

        (b)PRIORITY OF CORPORATION'S RIGHT OF REDEMPTION.    Notwithstanding paragraph (a) of this Section 4, no Series B Convertible Preferred Shares shall be converted on or after the close of business on any Redemption Date for which notice has been properly delivered in accordance with Section 3 hereof. The Corporation's right to redeem all shares of Series B Convertible Preferred Stock on or prior to any Proposed Conversion Date shall supersede any holder's right of conversion under this Section 4, whether or not such holder's notice of conversion was properly delivered prior to the Corporation's notice to redeem, so long as the Corporation's notice to redeem was properly delivered in accordance with Section 3 hereof at least forty-five (45) days prior to the Proposed Conversion Date and the Proposed Conversion Date is on or after the Proposed Redemption Date.

        (c)CONVERSION RATE.    For purposes of conversion of Series B Convertible Preferred Shares to shares of Common Stock pursuant to this Section4, each Series B Convertible Preferred Share shall be converted into the number of Common Stock shares resulting from dividing (i) the Original Value of such Series B Convertible Preferred Share plus Unpaid Dividend Yield to and including the Conversion Date, by (ii) the Conversion Price. The Conversion Price is subject to adjustment from time to time pursuant to paragraph (m) of this Section 4.

4

        (d)NOTICE OF CONVERSION.    In order to properly effect the conversion of Series B Convertible Preferred Shares, the holder of such shares will provide notice to the Corporation not less than thirty (30) days prior to the Proposed Conversion Date. Such notice must be provided by first class, registered mail, postage prepaid, to the Corporation at its principal executive offices, or by facsimile or telecopy, at the address or number set forth in paragraph (a) of Section 9 herein. Each such notice shall state, as appropriate; (1) the Proposed Conversion Date; (2) the number of Series B Convertible Preferred Shares (which must be a whole number of shares) to be converted; and (3) the name or names in which such holder wishes the certificate or certificates for Common Stock and for any Series B Convertible Preferred Shares not to be so converted to be issued and the address to which such holder wishes delivery to be made of the new certificates to be issued upon conversion. A Notice of Conversion with a Proposed Conversion Date on or after a Proposed Redemption Date or provided less than thirty (30) days prior to the Proposed Conversion Date shall be of no force and effect.

        (e)REVOCATION OF NOTICE TO CONVERT.    The right of any holder of Series B Convertible Preferred Shares electing to convert the Series B Convertible Preferred Shares pursuant to paragraph (a) of this Section 4 shall be fully or partially revocable, and any notice to the Corporation provided in accordance with paragraph (d) of this Section 4 shall be subject to revocation or amendment by the holder of the shares to which such notice relates. In order to properly effect the revocation or amendment of such notice, the holder shall provide notice to the Corporation of its revocation or amendment not less than three (3) business days prior to the Proposed Conversion Date. Such notice shall be provided in the same manner specified as permissible for providing notice of conversion under paragraph (d) of this Section 4, and shall clearly state that the holder of such Series B Convertible Preferred Shares will not convert any of such shares, or if notice of partial revocation, the amended number of Series B Convertible Preferred Shares held by such holder that are to be converted.

        (f)SURRENDER OF SERIES B CONVERTIBLE PREFERRED SHARES.    Any holder of Series B Convertible Preferred Shares desiring to convert any such shares into shares of Common Stock shall surrender the certificate or certificates representing the Series B Convertible Preferred Shares being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Series B Convertible Preferred Shares or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Series B Convertible Preferred Shares by the Corporation or the transfer agent for the Series B Convertible Preferred Shares, accompanied by a copy of the written notice of conversion previously provided to the Corporation in accordance with paragraph (d) of this Section 4.

        (g)DELIVERY OF COMMON STOCK.    Upon the effectiveness of a conversion of Series B Convertible Preferred Shares on the Conversion date for such shares, the Corporation, subject to the provisions of paragraph (i) of this Section 4 regarding fractional shares and paragraph (k) of this Section 4 regarding payment of taxes, shall issue and send by first-class mail, postage prepaid, to the holder thereof, or to such holder's designee, at the address designated by such holder a certificate or certificates for the number of whole shares of Common Stock to which such holder shall be entitled upon conversion. In case there shall have been surrendered a certificate or certificates representing Series B Convertible Preferred Shares only part of which are to be converted, the Corporation, subject to the provisions of paragraph (k) of this Section 4 regarding payment of taxes, shall issue and deliver to such holder or such holder's designee a new certificate or certificates for the number of Series B Convertible Preferred Shares which shall not have been converted.

        (h)EFFECTIVENESS OF CONVERSION.    Any conversion of Series B Convertible Preferred Shares into shares of Common Stock made at the option of the holder thereof shall be effective immediately following the close of business on the Conversion Date. At and after the effective time on the Conversion Date, the person or persons entitled to receive the Common Stock issuable upon such

5

conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock.

        (i)FRACTIONAL SHARES.    No fractional shares of Common Stock shall be issued upon conversion of any series B Convertible Preferred Shares but, in lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of the aggregate number of Series B Convertible Preferred Shares surrendered for conversion at one time by the same holder, the Corporation shall pay an amount in cash equal to the same fraction of the Conversion Price (based on the Market Price at Conversion).

        (j)RESERVATION OF SHARES.    The Corporation shall at all times reserve and keep available out of the authorized but unissued shares of Common Stock the maximum number of shares of Common Stock into which all Series B Convertible Preferred Shares from time to time outstanding are convertible, but shares of Common Stock held in the treasury of the Corporation may in its discretion be delivered upon any conversion of Series B Convertible Preferred Shares.

        (k)   TAXES. The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Common Stock or any other securities issued upon conversion of the Series B Convertible Preferred Shares pursuant hereto. The Corporation shall not, however, be required to pay any additional tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities in a name other than that in which the Series B Convertible Preferred Shares with respect to which such shares are issued were registered, or any payment to any person other than the registered holder thereof, and shall not be required to make any such issuance or delivery unless and until the person otherwise entitled to such issuance or payment has paid to the Corporation the amount of any such additional tax or has established, to the satisfaction of the Corporation, that such additional tax has been paid or is not payable.

        (l)    CANCELLATION OF SHARES. All Series B Convertible Preferred Shares converted into shares of Common Stock, other capital stock or other securities of the Corporation as provided in this Section 4 (or otherwise acquired by the Corporation) shall be retired and thereupon restored to the status of authorized but unissued shares of preferred stock, par value $0.05 per share, undesignated as to series.

        (m)  ADJUSTMENTS TO THE CONVERSION PRICE. The conversion Price shall be adjusted from time to time as follows:

        (i)    In case the Corporation shall (x) subdivide its outstanding Common Stock, (y) combine its outstanding Common Stock into a smaller number of shares or (z) reclassify or reorganize its capital stock, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any Series B Convertible Preferred Shares thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Corporation which he would have owned or have been entitled to receive after the happening of any of the events described above had such Series B Convertible Preferred Shares been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (i) shall become effective immediately after the effective date in the case of subdivision, combination, reclassification or reorganization.

        (ii)   No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustment which by reason of this subsection (ii) is not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. Anything in this Section 4(m) to the contrary notwithstanding, the Corporation shall be entitled to

6

make (but shall not be required to make) such reductions in the Conversion Price, in addition to those required by this Section 4(m), as it in its discretion shall determine to be advisable in order that any of the actions referred to in subsection (i) above shall not be taxable. Notwithstanding any provision to the contrary in this Section 4(m), in no event shall the Conversion Price be adjusted so that, after giving effect to such adjustment, the Conversion Price would be less than the par value, if any, of the common Stock.

        (iii)  Whenever the Conversion Price is adjusted, the Corporation shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holders of Series B Convertible Preferred Shares at their address as appearing in the stock transfer books of the Corporation.

        (iv)  In any case in which this Section 4(m) provides that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (a) issuing to the holder of any Series B Convertible Preferred Shares converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (b) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 4(i).

        SECTION 5.LIQUIDATION RIGHTS.    

        (a)   In the event of any Liquidation, after payment or provision for payment has been made for the debts and other liabilities of the Corporation, the holders of Series B Convertible Preferred Shares shall be entitled to receive, out of the net assets of the Corporation, for each Series B Convertible Preferred Share its Original Value plus an amount equal to the sum of Unpaid Dividend yield (whether or not declared) accrued and unpaid plus accrued interest thereon for all previous periods and the current period, whether or not accumulated, and no more. After such amount is paid in full, no further distributions or payments shall be made in respect of Series B Convertible Preferred Shares, such series B Convertible Preferred Shares shall no longer be deemed to be outstanding or be entitled to any other powers, preferences, rights or privileges, including voting rights, and such Series B Convertible Preferred Shares shall be surrendered for cancellation to the Corporation.

        (b)   The full amount payable to the holders of Series B Convertible Preferred Shares shall be paid before any distribution shall be made to the holders of any class of common stock of the Corporation or any other class of stock or series thereof ranking junior to the series B Convertible Preferred Shares with respect to the distribution of assets upon a Liquidation. No payment on account of any Liquidation shall be made to the holders of any class or series of stock ranking on a parity with the Series B Convertible Preferred Shares in respect of the distribution of assets upon Liquidation unless there shall likewise be paid at the same time to the holders of the Series B Convertible Preferred Shares like proportionate amounts determined ratably in proportion to the full amounts to which the holders of all outstanding Series B Convertible Preferred Shares and the holders of all outstanding shares of such parity stock are respectively entitled with respect to such distribution.

        (c)   If the assets distributed to the holders of Series B Convertible Preferred Shares upon any Liquidation shall be insufficient to permit the payment to such holders of the full amount to which they are entitled in such circumstances, then such assets or the proceeds thereof shall be distributed among such holders ratably in proportion to the sums which would be payable to such holders if all sums were paid in full.

        (d)   Once any payment required upon any Liquidation is made to any holder of Series B Convertible Preferred Shares, there shall not be any conversion rights in respect of such shares pursuant to Section 4 hereof unless the full amount of all such distributions and payments made in

7

respect of such shares being converted is remitted to the Corporation prior to or concurrently with the conversion of such shares.

        (e)   Neither the merger nor consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Corporation, nor a sale, transfer or lease of all or any part of the assets of the Corporation, shall be deemed to be a Liquidation for purposes of this Section 5.

        (f)    Written notice of any Liquidation, stating the payment date or dates when and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than thirty (30) days prior to any payment date stated therein, to the holders of record of the series B Convertible Preferred Shares at their respective addresses as the same shall appear on the books of the Corporation or any transfer agent for the Series B Convertible Preferred Shares.

        SECTION 6.VOTING RIGHTS.    

        (a)    General.    The holders of the Series B Convertible Preferred Shares shall have no voting rights except as described below or as required by law. In exercising any such vote, each outstanding share of Series B Convertible Preferred Shares shall be entitled to one vote.

        (b)    Class Voting Rights.    So long as any Series B Convertible Preferred Share is outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least 50 percent of all the outstanding Series B Convertible Preferred Shares voting separately as a class, (i) amend, alter or repeal any provision of the Restated Certificate of Incorporation, as amended, or the By-Laws of the Corporation so as adversely to affect the relative rights, preferences, qualifications, limitations or restrictions of the Series B Convertible Preferred Shares, (ii) authorize, issue or increase the authorized amount of any class or series of stock, or any security convertible into stock of such class or series, ranking senior to the Series B Convertible Preferred Shares as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or (iii) effect any reclassification of the Series B Convertible Preferred Shares.

        SECTION 7.SINKING FUND.    No sinking fund or other mechanism for the segregation of funds shall be established for the purpose of redemption or repurchase of the Series B Convertible Preferred Shares or payment of dividends thereon.

        SECTION 8.CERTAIN DEFINITIONS.    For purposes of this Certificate of Designations, the following terms shall have the meanings set forth below.

        "AVERAGE MARKET PRICE" means, with respect to a share of Common Stock on any date of determination, the average of the daily Closing Prices for the thirty (30) consecutive calendar days ending on the date of determination without considering the Closing Price on non-Trading Days; provided, however, that in averaging the daily Closing Prices, all adjustments shall be made as are necessary to reflect any subdivision, reclassification, recapitalization or combination of, or dividend paid or distribution made on, shares of Common Stock during such period.

        "CHANGE OF CONTROL" means, with respect to the Corporation, (i) the acquisition of ownership (by any Person or "group" within the meaning of Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended) of greater than 50% of the voting power of the capital stock of the Corporation (whether by sale or other transfer of capital stock, merger, consolidation or other reorganization or means, including a reorganization under bankruptcy or insolvency laws); or (ii) the consummation of a sale, transfer or other disposition of greater than 50% of the assets of the Corporation (determined on a combined and consolidated fair market value basis) in one or a series of related transactions to any Person or "group" that is not an affiliate of the Corporation.

8

        "CHANGE OF CONTROL REDEMPTION DATE" shall be the day designated by any holder of Series B Convertible Preferred Shares for redemption by the Corporation of all Series B Convertible Preferred Shares held by such holder, as set forth in the notice of such election, properly delivered in accordance with paragraph (e) of Section 3, following a Change of Control.

        "CLOSING PRICE" on any day shall mean the closing sales price regular way on such day for one share of Common Stock or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in each case on the New York Stock Exchange, as reported in The Wall Street Journal.

        "COMMON STOCK" means common stock of the Corporation, par value $0.05 per share.

        "CONVERSION DATE" shall be the same day as the Proposed Conversion Date, provided that (i) the holder of Series B Convertible Preferred Shares requesting such conversion has not delivered a notice of revocation in accordance with paragraph (e) of Section 4; and (ii) the Corporation has not properly delivered a notice of redemption pursuant to paragraph (b) of Section 3 naming any date on or prior to the Proposed Conversion Date as the Proposed Redemption Date and such notice to redeem has not been revoked prior to such date. Notwithstanding the foregoing, in the event that the holders of more than fifty percent (50%) of the outstanding Series B Convertible Preferred Shares hold registration rights with respect to Common Stock into which such Series B Convertible Preferred Shares can be converted, and such holders have delivered to the Corporation, concurrently with any notice of conversion under paragraph (d) of Section 4, a notice requesting registration of such Common Stock upon conversion in an underwritten securities offering, then the Conversion Date shall be delayed so that it occurs (i) on or after the effective date of such registration, and (ii) immediately prior to the purchase of such Common Stock by the underwriter(s) undertaking such offering.

        "CONVERSION PRICE" means, with respect to any Series B Convertible Preferred Share, the product of (i) 1.2 and (ii) the Average Market Price of the Common Stock at the time of the original purchase of such Series B Convertible Preferred Share. The Conversion Price is subject to adjustment from time to time pursuant to Section 4(m).

        "DEALER QUOTATION" means a quotation, expressed as an annual percentage rate, by a Reference Dealer as to the annual dividend rate that would be required to be paid on a series of perpetual convertible preferred stock issued for its stated value by the Corporation as of a date of determination. In determining such annual dividend rate, the Reference Dealer shall consider, without limitation, the annual dividend rate that other issuers, with similar credit ratings on outstanding debt to that of the Corporation and its principal subsidiary, would be required to pay on a series of perpetual convertible preferred stock issued for its stated value.

        "DIVIDEND YIELD" means, with respect to each Series B Convertible Preferred Share for each quarter, or such lesser period as may arise in connection with the issuance, redemption or conversion of such share, or with any Liquidation, the amount accruing on such share during the quarter, or such lesser period, at an annual rate equal to the Preferred Dividend Yield Rate, applied to such share's Original Value. Dividend Yield for any period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividend Yield will begin accruing on each Series B Convertible Preferred Share on the Issuance Date of such share and shall accrue to, but not including, the Preferred Dividend Payment Date, the Redemption Date, Change of Control Redemption Date or Conversion Date for such share (or other date on which such Series B Convertible Preferred Share is no longer outstanding).

        "GAAP" means United States generally accepted accounting principles, consistently applied.

        "INTEREST RATE" means the prime rate of interest publicly announced from time to time by Citibank, N.A. plus 400 basis points.

9

        "ISSUANCE DATE" means, for each Series B Convertible Preferred Share, the date on which such share was originally issued by the Corporation.

        "LIQUIDATION" means any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary.

        "MARKET PRICE AT CONVERSION" means the Average Market Price of one share of Common Stock determined as of the Proposed Conversion Date.

        "ORIGINAL ISSUANCE DATE" means the date on which a Series B Convertible Preferred Share was originally issued by the Corporation.

        "ORIGINAL VALUE" of each Series B Convertible Preferred Share shall be equal to $100, as proportionally adjusted for all stock splits, stock dividends, and any other subdivisions, combinations, reclassifications, or recapitalization affecting the Series B Convertible Preferred Shares.

        "PERSON" means any individual, partnership, joint venture, corporation, limited liability company, association, joint stock company, trust, or unincorporated organization or association, or a government or any department or agency or political subdivision thereof.

        "PREFERRED DIVIDEND PAYMENT DATE" has the meaning set forth in paragraph (a) of Section 2.

        "PREFERRED DIVIDEND TAX ADJUSTMENT FACTOR" has the meaning set forth in paragraph (c) of Section 2.

        "PREFERRED DIVIDEND YIELD RATE" means an annual dividend rate equal to the sum of: (i) the average of the Dealer Quotations obtained by the Corporation from three Reference Dealers, plus (ii) 100 basis points. Such Preferred Dividend Yield Rate will be calculated by the Corporation as of the Original Issuance Date and each anniversary thereof and be provided by the Corporation to holders of Series B Convertible Preferred Shares in a written notice.

        Commencing on the first day of the thirty-seventh (37^th) month after the Original Issuance Date, and on the first day following each twelve-month period thereafter, the Preferred Dividend Yield Rate shall be automatically increased by 50 basic points from that which would otherwise be applicable, provided that under no circumstances hereunder shall the Preferred Dividend Yield Rate be increased by this automatic mechanism by more than 200 basis points cumulatively.

        "PROPOSED CONVERSION DATE" shall mean the date on which a holder of Series B Convertible Preferred Shares proposes to convert any or all of such holder's Series B Convertible Preferred Shares, as set forth in its notice to the Corporation properly delivered in accordance with paragraph (d) of Section 4.

        "PROPOSED REDEMPTION DATE" shall mean the date on which the Corporation proposes to redeem all of the Series B Convertible Preferred Shares, as set forth in its notice to holders of Series B Convertible Preferred Shares properly delivered in accordance with paragraph (b) of Section 3.

        "REDEMPTION DATE" shall be the same day as the Proposed Redemption Date, provided that (i) the Corporation has not withdrawn its intention to redeem the Series B Convertible Preferred Shares pursuant to paragraph (c) of Section 3; and (ii) proper provision for the payment of the Redemption Price to holders of Series B Convertible Preferred Shares being redeemed has been made in accordance with paragraph (b) of Section 3 by the close of business on the Proposed Redemption Date.

        "REDEMPTION PRICE" for each Series B Convertible Preferred Share shall be equal to the sum of (A) the Original Value, plus (B) Unpaid Dividend Yield plus accrued interest thereon to and including the Redemption Date or Change of Control Redemption Date on such share.

10

        "REFERENCE DEALER" means a dealer, selected from Goldman, Sachs & Co., Lehman Brothers, Merrill Lynch & Co. or Morgan Stanley Dean Witter, or any other nationally recognized dealer in convertible preferred stock and other similar securities, as designated by the Corporation.

        "TAX LAWS" means the Internal Revenue Code of 1986, as amended, or any other revenue statute of the United States or in any United States regulation, ruling, administrative interpretation or judicial or other official interpretation (including a change in the characterization of dividends on the Series B Convertible Preferred Shares) applicable to the Corporation and/or Corporate Holders. For purposes of paragraph (c) of Section 2, "Tax Laws" does not include the tax laws of any state, municipality or foreign jurisdiction, or any tax law relating to the computation of taxes or treatment of income, expenses or deductions, or characterization of the dividends on the Series B Convertible Preferred Shares under the Alternative Minimum Tax rules.

        "TRADING DAY" shall mean a date on which the New York Stock Exchange (or if the New York Stock Exchange is not the principal stock exchange on which the Common Stock is listed or admitted to trading, the principal national securities exchange on which the Common Stock is listed or admitted to trading) is open for the transaction of business.

        "UNPAID DIVIDEND YIELD" of any Series B Convertible Preferred Share means, for any particular quarterly period (or lesser period, as may arise in connection with the issuance, redemption or conversion of such shares, or payments on such shares in connection with any Liquidation), an amount equal to the excess, if any, of (A) the aggregate Dividend Yield accrued on such share in such period, over (B) the aggregate amount of cash dividends or distributions paid by the Corporation in satisfaction of Dividend Yield on such share for such period.

        SECTION 9.MISCELLANEOUS.    

        (a)   Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given on the earlier of (a) the receipt thereof, or (b) five (5) days after mailing if sent by first class, registered mail, postage prepaid, if properly addressed or directed to such party at the appropriate address set forth below, or such address such party may designate by written notice to the other parties:

        (i)    if to the Corporation to:

Countrywide Credit Industries, Inc.
4500 Park Granada, MS: CH-11
Calabasas, California 91302-1613
Attn: Managing Director and Chief Financial Officer
(818) 225-4028—Fax

with a copy to:

Countrywide Credit Industries, Inc.
4500 Park Granada, MS: CH-11
Calabasas, California 91302-1613
Attn: Managing Director and General Counsel
(818) 225-4055—Fax

with an additional copy to:

LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55^th Street
New York, New York 10019
Attn: Stephen Rooney
(212) 424-8500—Fax

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        (ii)   if to a holder of the series B Convertible Preferred Shares: to such holder at the address for such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series B Convertible Preferred Shares if appropriate).

        (b)   In the event a holder of Series B Convertible Preferred Shares shall not by written notice designate the name to whom payment upon redemption of Series B Convertible Preferred Shares should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Series B Convertible Preferred Shares as shown on the records of the Corporation and send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation.

        (c)   All payments in the form of dividends and distribution upon any Liquidation or otherwise made upon the Series B Convertible Preferred Shares and any other shares of stock ranking on parity with the Series B Convertible Preferred Shares with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the Series B Convertible Preferred Shares and such other shares of stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, payable per share on the Series B Convertible Preferred Shares and such other shares of stock bear to each other.

        (d)   The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Series B convertible Preferred Shares.

        RESOLVED FURTHER, that the proper officers of the Corporation be, and each of them hereby is, authorized to execute a Certificate of Designations with respect to the Series B Convertible Preferred Stock pursuant to Section 151 of the General Corporation Law of the State of Delaware and to take all appropriate action to cause such Certificate to become effective, including, but not limited to, the filing and recording of such Certificate with and/or by the Secretary of the State of Delaware.

        IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 26^th day of January, 2000.

/s/ Stanford L. Kurland Stanford L. Kurland
Senior Managing Director and
Chief Operating Officer

Attest:

/s/ Sandor E. Samuels Sandor E. Samuels
Managing Director, Legal, General Counsel and Secretary

12

AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES A PARTICIPATING PREFERRED STOCK

of

COUNTRYWIDE CREDIT INDUSTRIES, INC.

Pursuant to Section 151 of the General Corporation Law
of the State of Delaware

        We, Sandor E. Samuels, Senior Managing Director, Legal, General Counsel and Secretary, and Susan E. Bow, Assistant Secretary, of Countrywide Credit Industries, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:

        That (i) pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on February 10, 1988, adopted a resolution creating a series of 250,000 shares of Preferred Stock designated as Series A Participating Preferred Stock and (ii) no shares of the Series A Participating Preferred Stock have been issued.

        WE DO FURTHER HEREBY CERTIFY:

        That pursuant to the authority conferred upon by the Board of Directors by the Certificate of Incorporation of the said Corporation and Section 151(g) of the General Corporation Law of the State of Delaware, the said Board of Directors on November 15, 2001 adopted the following resolution amending the voting powers, preferences and relative participating, optional or other special rights of the shares of the Series A Participating Preferred Stock, and the qualification, limitations or restrictions thereof while keeping the designation of such series unchanged:

        RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, that the series of Preferred Stock of the Corporation previously designated "Series A Participating Preferred Stock" remain so designated and that the terms thereof be amended so that the amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

        Section 1.    Designation and Amount.    The shares of such series shall be designated as "Series A Participating Preferred Stock", par value $0.05 per share, and the number of shares constituting such series shall be 250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Participating Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation.

        Section 2.    Dividends and Distributions.

        (A)  Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock, in preference to the holders of shares of Common Stock, par value $0.05 per share (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (or, in each case, if not a date on which the Corporation is open for business, the next succeeding business day) or such earlier date in any such month on which dividends on the Common Stock are payable (each such date being referred to herein

A-1

as a "Quarterly Dividend Payment Date") commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $20.00 or (b) subject to the provision for adjustment hereinafter set forth, 2,000 times the aggregate per share amount of all cash dividends, and 2,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock. In the event the Corporation shall at any time after November 15, 2001 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        (B)  The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution, shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $20.00 per share on the Series A Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

        (C)  Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preferred stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amounts of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

        Section 3.    Voting Rights.    The holders of shares of Series A Participating Preferred Stock shall have the following voting rights:

        (A)  Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Preferred Stock shall entitle the holder thereof to 2,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event shall

A-2

be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        (B)  Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

        (C)  (i) If at any time dividends on any Series A Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors.

        (ii)   During any default period, such voting right of the holders of Series A Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Participating Preferred Stock.

        (iii)  Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders.

A-3

        (iv)  In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence.

        (v)   Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the Certificate of Incorporation or By-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however to change thereafter in any manner provided by law or in the Certificate of Incorporation or By-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors.

        (D)  Except as set forth herein, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

        Section 4.    Certain Restrictions.

        (A)  Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distribution, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not

        (i)    declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock;

        (ii)   declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled

        (iii)  redeem or purchase or otherwise acquire for consideration shares of any stock ranking on parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock;

        (iv)  purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights

A-4

and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

        (B)  The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

        Section 5.    Reacquired Shares.    Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.

        Section 6.    Liquidation, Dissolution or Winding Up.    (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution, or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holder of shares of Series A Participating Preferred Stock shall have received $70,000 per share, plus an amount equal to accrued and unpaid dividends and distribution thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 2,000 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock)(such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of Series A Participating Preferred Stock and Common Stock, respectively, holders of Series A Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ration of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

        (B)  In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.

        (C)  In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        Section 7.    Consolidation, Merger, etc.    In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 2,000 times

A-5

the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event.

        Section 8.    No Redemption.    The shares of Series A Participating Preferred Stock shall not be redeemable.

        Section 9.    Ranking.    The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

        Section 10.    Amendment.    The Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class.

        Section 11.    Fractional Shares.    Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distribution and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.

        IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 5^th day of December, 2001.

	/s/ Sandor E. Samuels Sandor E. Samuels Senior Managing Director, Legal, General Counsel and Secretary
Attest:
/s/ Susan E. Bow Susan E. Bow Assistant Secretary

A-6

CERTIFICATE OF OWNERSHIP AND MERGER

OF

CW MERGER CORP.
a Delaware corporation

INTO

COUNTRYWIDE CREDIT INDUSTRIES, INC.
a Delaware corporation

(Pursuant to Section 253 of the
Delaware General Corporation Law)

        Countrywide Credit Industries, Inc., a Delaware corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that:

        FIRST:    The Corporation was incorporated on December 2, 1986 pursuant to the General Corporation Law of the State of Delaware.

        SECOND:    The Corporation is the owner of all of the issued and outstanding common shares of CW Merger Corp., a Delaware corporation incorporated on October 16, 2002, pursuant to the General Corporation Law of the State of Delaware.

        THIRD:    The Corporation hereby merges CW Merger Corp. into the Corporation.

        FOURTH:    In a Telephonic Meeting of the Board of Directors of the Corporation on October 23, 2002, the Board of Directors adopted the following recitals and resolutions to merge CW Merger Corp. into the Corporation:

        WHEREAS, this Board of Directors has previously deemed it advisable and in the best interest of the Corporation to change its corporate name; and

        WHEREAS, it is proposed that CW Merger Corp., a Delaware corporation and wholly owned subsidiary of the Corporation be merged into the Corporation, with the Corporation being the surviving entity for the purpose of effectuating the name change;

        NOW THEREFORE, BE IT RESOLVED, That CW Merger Corp., a Delaware corporation ("CMC") merge and it hereby does merge into the Corporation pursuant to the provisions of Section 253 of the Delaware General Corporation Law and Sections 332 and 337 of the Internal Revenue Code of 1986, as amended (the "IRC"), with the Corporation being the surviving entity (the "Merger");

        RESOLVED FURTHER, That the Merger be and it hereby is, approved and authorized;

        RESOLVED FURTHER, That the Merger shall become effective upon the filing of a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law (the "Effective Date");

        RESOLVED FURTHER, That upon the Effective Date (i) the separate existence and corporate organization of CMC shall cease and the Corporation shall thereupon become the surviving corporation and shall continue its existence under Delaware Law, (ii) the Corporation shall assume all of the obligations and liabilities of CMC, and (iii) the issued and outstanding shares of stock of CMC shall not be converted in any manner, but each said share of stock which is issued as of the Effective Date shall be surrendered and cancelled;

        RESOLVED FURTHER, That upon the Effective Date, the name of the Corporation shall be changed to "Countrywide Financial Corporation" and ARTICLE FIRST of the Restated Certificate of Incorporation of the Corporation shall be amended to read as follows:

        "FIRST': The name of the corporation is Countrywide Financial Corporation".

        RESOLVED FURTHER, That, except for the foregoing amendment to ARTICLE FIRST, the Restated Certificate of Incorporation shall remain unchanged by the Merger and in full force and effect until further amended in accordance with the Delaware General Corporation Law;

        RESOLVED FURTHER, That the distribution of the assets of CMC pursuant to the Merger shall constitute a plan of complete liquidation of CMC and shall in all particulars conform to the requirements of Sections 332 and 337 of the IRC;

        RESOLVED FURTHER, That the officers of the Corporation be, and they hereby are, authorized, empowered and directed for and on behalf of the Corporation and in its name (i) to execute and file or cause to be filed with the Delaware Secretary of State a Certificate of Ownership and Merger evidencing the Merger pursuant to which the Corporation will change its name as described above, (ii) to cause to be filed certificates evidencing the Merger and change of name with such other states where the Corporation is qualified to do business as may require a filing evidencing the Merger or change of name, and (iii) to execute and file or cause to be filed any such other documents as may require a filing evidencing the Merger or change of name;

        RESOLVED FURTHER, That all actions taken and documents executed by the officers or other authorized representative of the Corporation, or any person or persons designated and authorized to act by any of them, prior to the adoption of these resolutions in connection with the transaction described above, are hereby ratified, confirmed, approved and adopted in all respects; and

        RESOLVED FURTHER, That the officers of the Corporation, and any of them, be, and each of them hereby is, authorized, empowered and directed to do or cause to be done all such acts or things and to sign and deliver, or cause to be signed and delivered all such further agreements, documents, instruments and certificates, required or permitted to be given or made in connection with the Merger and the change of name, in the name and on behalf of the Corporation or otherwise (including without limitation any written consents as the sole stockholder of CMC), as such officer or officers of the Corporation executing the same shall deem necessary, advisable or appropriate to carry out the purposes and intent of the foregoing resolutions with such changes, additions and modifications thereto and any supplements or amendments thereof, as such officers executing and/or delivering the same have approved, such approval to be conclusively evidenced by such officer's execution and delivery thereof and to perform the obligations of the Corporation.

        IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by its duly authorized officer this 7th day of November, 2002.

COUNTRYWIDE CREDIT INDUSTRIES, INC. a Delaware corporation
By:	/s/ Sandor E. Samuels Sandor E. Samuels, Senior Managing Director, Legal, General Counsel & Secretary

2

CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE FINANCIAL CORPORATION

        COUNTRYWIDE FINANCIAL CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation" or the "Company"), hereby certifies as follows:

        1.     That at a meeting of the Board of Directors of the Corporation resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation, declaring said amendment to be advisable and calling for the proposal to be presented to the stockholders of the Corporation at a Special meeting of the Stockholders. The resolution setting forth the proposed amendment is as follows:

        RESOLVED, That the Restated Certificate of Incorporation of the Company be amended to increase the authorized Common Stock and for this purpose Article Third thereof shall be struck out in its entirety and shall be replaced with the following new Article Third:

"THIRD:    The aggregate number of shares which the Corporation shall have authority to issue is five hundred million (5,000,000) shares of Common Stock, of the par value five cents ($0.05) per share, and one million five hundred thousand (1,500,000) shares of Preferred Stock, of the par value of five cents ($0.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized o determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, privileges and restrictions, including without limitation, conversion rights into Common Stock granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations or restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series the outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series."

        2.     That thereafter, a Special Meeting of the Stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware of January 9, 2004, at which special meeting the necessary number of shares as required by statute were voted in favor of the amendment of the Restated Certificate of Incorporation herein certified.

        3.     That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

        IN WITNESS WHEREOF, said Corporation has caused this certificate to be executed by an authorized officer on this 9th day of January, 2004.

By:
/s/ Angelo R. Mozilo Angelo R. Mozilo
Chairman of the Board and CEO

3

CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE FINANCIAL CORPORATION

        COUNTRYWIDE FINANCIAL CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation" or the "Company"), hereby certifies as follows:

        1.     That at a meeting of the Board of Directors of the Corporation resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling for the proposal to be presented to the stockholders of the Corporation at a Special Meeting of the Stockholders. The resolution setting forth the proposed amendment is as follows:

        RESOLVED, that the Restated Certificate of Incorporation of the Company be amended to increase the authorized Common Stock and for this purpose Article Third thereof shall be struck out in its entirety and shall be replaced with the following new Article Third:

        "THIRD:    The aggregate number of shares which the Corporation shall have authority to issue is one billion (1,000,000,000) shares of Common Stock, of the par value five cents ($.05) per share, and one million five hundred thousand (1,500,000) shares of Preferred Stock, of the par value of five cents ($.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, privileges and restrictions, including without limitation, conversion rights into Common Stock granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations or restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series."

        2.     That thereafter, a Special Meeting of the Stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware on August 17, 2004, at which Special Meeting the necessary number of shares as required by statute were voted in favor of the amendment of the Restated Certificate of Incorporation herein certified.

        3.     That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

        IN WITNESS WHEREOF, said Corporation has caused this certificate to be executed by an authorized officer on this 17th day of August, 2004.

By:
/s/ Angelo R. Mozilo Angelo R. Mozilo
Chairman of the Board and CEO

4

CERTIFICATE OF DESIGNATIONS

OF

7.25% SERIES B NON-VOTING CONVERTIBLE
PREFERRED STOCK

OF

COUNTRYWIDE FINANCIAL CORPORATION

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware

        Countrywide Financial Corporation, a Delaware corporation (the "Company"), certifies that pursuant to the authority contained in Article Third of its Restated Certificate of Incorporation, as amended (the "Restated Certificate of Incorporation"), and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company at a meeting duly called and held on August 22, 2007 duly approved and adopted the following resolution which resolution remains in full force and effect on the date hereof:

        RESOLVED, that pursuant to the authority vested in the Board of Directors by the Restated Certificate of Incorporation, the Board of Directors does hereby designate, create, authorize and provide for the issue of a series preferred stock having a par value of $0.05 per share, with a liquidation preference of $100,000 per share (the "Liquidation Preference") which shall be designated as 7.25% Series B Non-Voting Convertible Preferred Stock (the "Preferred Stock") consisting of 20,000 shares having the following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof as follows:

        1.    Ranking.    The Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, rank (i) senior to the common stock, par value $0.05 per share (the "Common Stock"), of the Company and to each other class of capital stock or series of preferred stock established after August 22, 2007 by the Board of Directors the terms of which do not expressly provide that it ranks on a parity with the Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to with the Common Stock of the Company as "Junior Stock"); and (ii) on a parity with any other shares of Preferred Stock issued by the Company in the future and any other class of capital stock or series of preferred stock issued by the Company established after August 22, 2007 by the Board of Directors (collectively referred to as "Parity Stock"). The Company's ability to issue Parity Stock shall be subject to the provisions of Section 6 hereof.

        2.    Dividends.

        (a)    Payment of Dividends.    The holders of shares of the Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors or a duly authorized committee thereof, out of funds of the Company legally available therefor, cumulative cash dividends at the rate per annum of 7.25% of the Liquidation Preference per share. Such cash dividends shall be payable, if declared, quarterly in arrears on February 15, May 15, August 15 and November 15, of each year, or, if such day is not a Business Day (as defined below), on the next Business Day (each such date, a "Dividend Payment Date"). Dividends shall begin to accumulate on the Preferred Stock on the Issue Date and shall be deemed to accumulate from day to day whether or not earned or declared until paid. The first Dividend Payment Date shall be November 15, 2007 (the "Initial Dividend Payment Date"). Each declared dividend shall be payable to holders of record of the

1

Preferred Stock as they appear on the stock books of the Company at the close of business on such record dates, not more than sixty (60) calendar days nor less than ten (10) calendar days preceding the Dividend Payment Date therefor, as determined by the Board of Directors (each such date, a "Record Date"); provided, however, that if a redemption date for the Preferred Stock occurs after a dividend is declared but before it is paid, such dividend shall be paid as part of the redemption price to the person to whom the redemption price is paid. Quarterly dividend periods (each, a "Dividend Period") shall commence on and include the first day, and shall end on and include the last day, of the calendar quarter that immediately precedes the calendar quarter in which the corresponding Dividend Payment Date occurs. The dividend to be paid to holders of the Preferred Stock on the Initial Dividend Payment Date shall be payable in respect of the Dividend Period (the "Initial Dividend Period") commencing on and including the Issue Date (as defined below) and ending on and including November 15, 2007. "Business Day" shall mean any day except a Saturday, a Sunday, or any day on which banking institutions in New York, New York are required or authorized by law or other governmental action to be closed.

        (b)   The initial amount of dividends payable on each share of the Preferred Stock outstanding on a Record Date for each full Dividend Period shall be $1,812.50. The amount of dividends payable for any Dividend Period which, as to a share of Preferred Stock (determined by reference to the redemption or retirement date thereof), is other than a full three months shall be computed on the basis of the number of days elapsed in the period using a 360-day year composed of twelve thirty-day months.

        Dividends on the Preferred Stock shall be cumulative, and from and after any Dividend Payment Date on which any dividend or any payment upon redemption or conversion that has accumulated or been deemed to have accumulated through such date has not been paid in full, additional dividends shall accumulate in respect of the amount of such unpaid dividends or unpaid redemption or conversion payment (the "Arrearage") at the rate per annum of 7.25%. Such additional dividends in respect of any Arrearage shall be deemed to accumulate from day to day whether or not earned or declared until the Arrearage is paid, shall be calculated as of such successive Dividend Payment Date and shall constitute an additional Arrearage from and after any Dividend Payment Date to the extent not paid on such Dividend Payment Date. References in any Article herein to dividends that have accumulated or that have been deemed to have accumulated with respect to the Preferred Stock shall include the amount, if any, of any Arrearage together with any dividends accumulated or deemed to have accumulated on such Arrearage pursuant to the immediately preceding two sentences. Additional dividends in respect of any Arrearage may be declared and paid at any time, in whole or in part, without reference to any regular Dividend Payment Date, to holders of Preferred Stock as they appear on the record books of the Company on such record date as may be fixed by the Board of Directors. Dividends in respect of any Arrearage shall be paid in cash.

        (c)    Priority as to Dividends.    The Company shall not declare, pay or set apart funds for any dividends or other distributions (other than in Common Stock or other Junior Stock) with respect to any Common Stock or other Junior Stock of the Company or repurchase, redeem or otherwise acquire, or set apart funds for repurchase, redemption or other acquisition of, any Common Stock or other Junior Stock through a sinking fund or otherwise, in any case during or in respect of any Dividend Period, unless all dividends (including any Arrearage and dividends accumulated in respect thereof) have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment) on the Preferred Stock for all Dividend Periods terminating on or prior to the date of such declaration, payment, repurchase, redemption or acquisition. When dividends (including any Arrearage and dividends accumulated in respect thereof) are not paid in full (or declared and a sum sufficient for such full payment is not so set apart) for any Dividend Period on the Preferred Stock and any Parity Stock, dividends

2

declared on the Preferred Stock and Parity Stock shall only be declared pro rata based upon the respective amounts that would have been paid on the Preferred Stock and such Parity Stock had dividends (including any Arrearage and dividends accumulated in respect thereof) been declared and paid in full.

        (d)   Any reference to "dividends" or "distributions" in this Section 2 shall not be deemed to include any distribution made in connection with any voluntary of involuntary dissolution, liquidation or winding up of the Company.

        3.    Conversion Rights.

        (a)   Upon the terms and in the manner set forth in this Section 3 and subject to the provisions for adjustment contained in Section 3(f), the shares of Preferred Stock shall be convertible, in whole or in part, at the option of the holders thereof, at any time after the Issue Date (as hereinafter defined), upon surrender to the Company of the certificate(s) for the shares to be converted, into (i) a number of fully paid and nonassessable shares of Common Stock equal to the aggregate Liquidation Preference of the Preferred Stock to be converted divided by the conversion price of $18.00 (as such price may be adjusted from time to time in accordance with this Section 3, the "Conversion Price"), plus (ii) if the Issue Date occurs on or prior to a Distribution Date (as defined in the Amended and Restated Rights Agreement, dated as of November 27, 2001, as amended, between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agreement"), an equal number of Rights to purchase Series A Preferred Stock (the "Rights") issued pursuant to the Rights Agreement, plus (iii) an amount in cash equal to the amount of all accumulated and unpaid dividends through the end of the last full Dividend Period, whether or not declared (including any Arrearage and dividends accumulated in respect thereof), thereon. As used herein, the term "Issue Date" shall mean the date of initial issuance of the Preferred Stock.

        (b)   In order to convert shares of Preferred Stock, the holder thereof shall deliver a properly completed and duly executed written notice of election to convert specifying the number (in whole shares) of shares of Preferred Stock to be converted. Each holder of Preferred Stock shall (i) deliver a written notice to the Company at its principal office or at the office of the agency which may be maintained for such purpose (each, a "Common Stock Conversion Agent") specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued, (ii) surrender the certificate for such shares of Preferred Stock to the Company or the Common Stock Conversion Agent, accompanied, if so required by the Company or the Common Stock Conversion Agent, by a written instrument or instruments of transfer in form reasonably satisfactory to the Company or the Common Stock Conversion Agent duly executed by the holder or its attorney duly authorized in writing, and (iii) pay any transfer or similar tax required by Section 3(h).

        (c)   (i) A "Common Stock Conversion" shall be deemed to have been effected at the close of business on the date (the "Common Stock Conversion Date") on which the Company or the Common Stock Conversion Agent shall have received a written notice of election to convert, a surrendered certificate, any required payments contemplated by Section 3(h) below, and all other required documents. Immediately upon conversion, the rights of the holders of Preferred Stock shall cease and the persons entitled to receive the shares of Common Stock upon the conversion of such shares of Preferred Stock shall be treated for all purposes as having become the beneficial owners of such shares of Common Stock.

        (ii)   As promptly as practicable after the Common Stock Conversion Date (and in no event more than five days thereafter), the Company shall deliver or cause to be delivered at the office or agency of the Common Stock Conversion Agent, to or upon the written order of the holders of the surrendered shares of Preferred Stock, (A) a certificate or certificates representing the number

3

of fully paid and nonassessable shares of Common Stock, with no personal liability attaching to the ownership thereof, free of all taxes with respect to the issuance thereof, liens, charges and security interests and not subject to any preemptive rights, into which such shares of Preferred Stock have been converted in accordance with the provisions of this Section 3, and any cash payable in respect of fractional shares as provided in Section 3(d) and (B) the amount of cash, if any, due in respect of such surrendered shares pursuant to clause (ii) of Section 3(a), payable in immediately available funds, at such account designated by the holder.

        (iii)  Upon the surrender of a certificate representing shares of Preferred Stock that is converted in part, the Company shall issue or cause to be issued for the holder a new certificate representing shares of Preferred Stock equal in number to the unconverted portion of the shares of Preferred Stock represented by the certificate so surrendered.

        (d)   No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion or redemption of any shares of Preferred Stock. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion or redemption of a share of Preferred Stock, the Company shall pay to the holder of such share of Preferred Stock an amount in cash (computed to the nearest cent) equal to the product of (i) such fraction and (ii) the current market price (as defined in Section 3(f)(v) below) of a share of Common Stock on the Business Day next preceding the day of conversion or redemption. If more than one share shall be surrendered for conversion or redemption at one time by the same holder, the number of full shares of Common Stock issuable upon conversion or redemption thereof shall be computed on the basis of the aggregate Liquidation Preference of the shares of Preferred Stock so surrendered.

        (e)   The holders of Preferred Stock at the close of business on a Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof or the Company's default in payment of the dividend due on such Dividend Payment Date.

        (f)    The Conversion Price shall be subject to adjustment as follows:

        (i)    If the Company shall (1) declare or pay a dividend on its outstanding Common Stock in shares of Common Stock or make a distribution to holders of its Common Stock in shares of Common Stock (other than a distribution of Rights), (2) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (3) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (4) issue by reclassification of its shares of Common Stock other securities of the Company, then the Conversion Price in effect immediately prior thereto shall be adjusted so that a holder of any shares of Preferred Stock thereafter converted shall be entitled to receive the number and kind of shares of Common Stock or other securities that such holder of Preferred Stock would have owned or been entitled to receive after the happening of any of the events described above had such shares of Preferred Stock been converted immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Section 3(f)(i) shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. Such adjustment shall be made successively.

        (ii)   If the Company shall issue any shares of Common Stock, or any rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (including any distribution of Rights, whether or not currently outstanding, upon the occurrence of any Distribution Date (as defined in the Rights Agreement)), at a price per share that is lower than the then current market price per share

4

of Common Stock (as defined in Section 3(f)(v) below), the Conversion Price shall be adjusted in accordance with the following formula:

				(N × P)
AC	=	C ×	O    +    (M) O + N

where

AC	=	the adjusted Conversion Price
C	=	the current Conversion Price
O	=	the number of shares of Common Stock outstanding on the record date
N	=	the number of additional shares of Common Stock offered
P	=	the offering price per share of the additional shares
M	=	the current market price per share of Common Stock on the record date

The adjustment shall be made successively whenever any such rights, options, warrants or convertible or exchangeable securities are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options, warrants or convertible or exchangeable securities.

        (iii)  Upon the expiration of any rights, options, warrants or convertible or exchangeable securities issued by the Company to all holders of its Common Stock (including any Rights) which caused an adjustment to the Conversion Price pursuant to Section 3(f)(ii), if any of such rights, options, warrants or convertible or exchangeable securities in whole or in part shall not have been exercised, then the Conversion Price shall be increased by the amount of the initial adjustment of the Conversion Price pursuant to Section 3(f)(ii) in respect of such expired rights, options, warrants or convertible or exchangeable securities.

        (iv)  If the Company shall distribute to all holders of its outstanding Common Stock any shares of capital stock of the Company (other than Common Stock) or evidences of indebtedness or assets (excluding ordinary cash dividends and dividends or distributions referred to in Sections 3(f)(i) and (ii) above) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in Section 3(f)(ii) above) (any of the foregoing being hereinafter in this Section 3(f)(iv) called the "Securities or Assets"), then in each such case, unless the Company elects to reserve shares or other units of such Securities or Assets for distribution to the holders of Preferred Stock upon the conversion of the shares of Preferred Stock so that a holder converting shares of Preferred Stock will receive upon such conversion, in addition to the shares of the Common Stock to which such holder of Preferred Stock is entitled, the amount and kind of such Securities or Assets which such holder of Preferred Stock would have received if such holder had, immediately prior to the record date for the distribution of the Securities or Assets, converted its shares of Preferred Stock into Common Stock, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the current market price per share (as defined in Section 3(f)(v) below) of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors in good faith) of the portion of the capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and of which the denominator shall be the current market price per share of the Common Stock on such record date; provided, however, that if the then fair market value (as so determined) of the portion of the Securities or Assets so distributed applicable to one share of Common Stock is equal to or greater than the current market price per share of the Common Stock on

5

the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of shares of Preferred Stock shall have the right to receive, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of Securities and Assets such holder would have received had such holder converted each such share of Preferred Stock immediately prior to the record date for the distribution of the Securities or Assets. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution.

        (v)   For the purposes of any computation under Section 2(d) or Section 3(f), and for the purposes of Section 3(d), the "current market price" per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for the 10 consecutive trading days immediately prior to the date in question. The closing price for each day shall be (i) if the Common Stock is listed or admitted to trading on a national securities exchange, the closing price on the New York Stock Exchange or (ii) if the Common Stock is not listed or admitted to trading on any such exchange, the closing price, if reported, or, if the closing price is not reported, the average of the closing bid and asked prices as reported by The Nasdaq Stock Market, or (iii) if bid and asked prices for the Common Stock on each such day shall not have been reported through The Nasdaq Stock Market, the average of the bid and asked prices for such date as furnished by any three New York Stock Exchange member firms regularly making a market in the Common Stock and not affiliated with the Company selected for such purpose by the Board of Directors, or (iv) if no such quotations are available, the fair market value of the Common Stock as determined by a New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board of Directors.

        (vi)  No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% of such price; provided, however, that any adjustments which by reason of this Section 3(f)(vi) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3(f) shall be made to the nearest one-hundredth of a cent or to the nearest one-hundredth of a share, as the case may be.

        (vii) If the Company shall be a party to any transaction, including without limitation a merger, consolidation, sale of all or substantially all of the Company's assets, reorganization, liquidation or recapitalization of the Common Stock (each of the foregoing being referred to as a "Transaction"), in each case as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each share of Preferred Stock shall, at and after the consummation of the Transaction, be convertible into the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Transaction by a holder of that number of shares of Common Stock into which one share of Preferred Stock was convertible immediately prior to such Transaction plus the amount of cash, if any, payable in respect of one share of Preferred Stock pursuant to clause (ii) of Section 3(a). The Company shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this Section 3(f)(vii) and it shall not consent or agree to the occurrence of any Transaction unless (x) the Company has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of Preferred Stock, which shall contain a provision enabling the holders of Preferred Stock to convert at their option into the consideration received by holders of Common Stock at the Conversion Price immediately after such Transaction (plus the amount of cash, if any, payable in respect of one share of Preferred Stock pursuant to clause (ii) of Section 3(a)) and (y) the Preferred Stock shall remain outstanding as preferred stock of the successor or purchasing entity in the

6

Transaction, with the seniority as to dividends, distributions and liquidation to which the Preferred Stock was entitled immediately prior to the Transaction. In connection with any Transaction, lawful provision shall be made so that, except as set forth in this paragraph, the terms of the Preferred Stock (or any stock issued in such transaction in consideration therefor) shall remain substantially unchanged to the extent practicable. The provisions of this Section 3(f)(vii) shall similarly apply to successive Transactions.

        (viii) Notwithstanding the provisions of this Section 3(f), the applicable Conversion Price shall not be adjusted (A) upon the issuance of any shares of Common Stock (and any associated Rights) (including upon the exercise of options or rights) or options or rights to purchase those shares pursuant to any present or future employee, director or consultant benefit plan, program or practice of or assumed by the Company or any of its Subsidiaries; or (B) upon the issuance of any shares of the Common Stock (and any associated Rights) pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the Issue Date.

        (ix)  For the purposes of this Section 3(f) and Section 3(i), the term "shares of Common Stock" shall mean (A) the class of stock designated as the Common Stock of the Company at the date hereof or (B) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from no par value to par value. If at any time, as a result of an adjustment made pursuant to Sections 3(f)(i), (iv) or (vii) above, the holders of Preferred Stock shall become entitled to receive any securities other than shares of Common Stock, thereafter the number of such other securities so issuable upon conversion of the shares of Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Preferred Stock contained in this Section 3(f).

        (x)   Notwithstanding the foregoing, in any case in which this Section 3(f) provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (A) issuing to the holder of any share of Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 3(d).

        (xi)  If the Company shall take any action affecting the Common Stock, other than any action described in this Section 3(f), which in the reasonable opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of Preferred Stock, the Conversion Price for the Preferred Stock shall be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine in good faith to be equitable in the circumstances.

        (g)   Whenever the Conversion Price is adjusted as herein provided, the chief financial officer of the Company shall compute the adjusted Conversion Price in accordance with the foregoing provisions and shall prepare a certificate setting forth such adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based. A copy of such certificate shall be filed promptly with the Common Stock Conversion Agent. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to each holder of shares of Preferred Stock at such holder's last address as shown on the stock books of the Company.

7

        (h)   The Company will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on the conversion of shares of Preferred Stock pursuant to this Section 3; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any registration or transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of Preferred Stock converted or to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid.

        (i)    (i) The Company shall at all times reserve and keep available, free from all liens, charges and security interests and not subject to any preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its issued Common Stock held in its treasury, or both, for the purpose of effecting the conversion of Preferred Stock, the full number of shares of Common Stock then deliverable upon the conversion of all outstanding shares of Preferred Stock.

        (ii)   Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value (if any) of the Common Stock issuable upon conversion of Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Conversion Price.

        (j)    If (i) the Company shall declare a dividend on its outstanding Common Stock (excluding ordinary cash dividends) or make a distribution to holders of its Common Stock; (ii) the Company shall authorize the granting to the holders of the Common Stock of rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase any shares of Common Stock or any of its securities (other than as contemplated under Section 3(f)(viii)); or (iii) there shall be any reclassification of the Common Stock or any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or the sale or transfer of all or substantially all of the assets of the Company; then the Company shall cause to be mailed to the holders of Preferred Stock at their addresses as shown on the stock books of the Company, as promptly as possible, but at least 15 days prior to the applicable date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend or distribution, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend or distribution are to be determined or (2) the date on which such reclassification, consolidation, merger, sale or transfer is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale or transfer.

        4.    Liquidation Preference.    (a) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, each holder of shares of the Preferred Stock will be entitled to payment out of the assets of the Company legally available for distribution of an amount per share of Preferred Stock (the "Liquidation Amount") held by such holder equal to the Liquidation Preference per share of Preferred Stock held by such holder, plus any accumulated and unpaid dividends in respect of such shares, whether or not declared (including any Arrearage and dividends accumulated in respect thereof), to the date fixed for liquidation, dissolution or winding-up, before any distribution is made on any Junior Stock, including, without limitation, Common Stock of the Company. After payment in full of the Liquidation Amount to which holders of Preferred Stock are entitled, such holders will not be entitled to any further participation in any distribution of assets of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Preferred Stock and all other Parity Stock are not paid in full, the holders of the Preferred Stock and the Parity Stock will share equally and ratably in any distribution of assets of the Company in

8

proportion to the full liquidation preference and any declared and unpaid dividends to which each is entitled.

        (b)   Neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more Persons will be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Company for purposes of this Section 4.

        5.    Redemption.    

        (a)   The Company shall not have any right to redeem any shares of the Preferred Stock prior to the 10^th anniversary of the Issue Date.

        (b)   From and after the 10^th anniversary of the Issue Date, if the daily closing price per share of Common Stock (determined in accordance with Section 3(f)(v)) exceeds 150% of the Conversion Price for 30 consecutive trading days ending on the date prior to the mailing of a Redemption Notice (as defined below), then the Company shall have the right, at its option and election, to redeem all, but not less than all, outstanding shares of Preferred Stock by paying the Liquidation Amount (calculated as if the date of redemption was the date fixed for liquidation, dissolution or winding-up) therefor in cash out of funds legally available for such purpose.

        (c)   The Company shall send a notice of any redemption of shares of Preferred Stock pursuant to Section 5(b) (a "Redemption Notice") to the holders of the Preferred Stock by first class mail, postage prepaid, at each such holder's address as it appears on the stock record books of the Company, not more than 270 nor fewer than 180 days prior to the date fixed for redemption, which date shall be set forth in such notice (the "Redemption Date"), and shall set forth in reasonable detail the calculations and supporting data used by the Company in its determination that it had the right to effect such redemption. On or after the Redemption Date, except with respect to shares of Preferred Stock for which a Common Stock Conversion Date has occurred on or prior to such Redemption Date, each holder of the shares of Preferred Stock called for redemption in accordance with the terms hereof shall surrender the certificate evidencing such shares to the Company at the place designated in the Redemption Notice and shall thereupon be entitled to receive payment of the Liquidation Amount (calculated as if the date of redemption was the date fixed for liquidation, dissolution or winding-up) in cash. From and after the Redemption Date, all dividends on shares of Preferred Stock shall cease to accumulate and all rights of the holders thereof as holders of Preferred Stock shall cease and terminate, except if the Company shall default in payment of the Liquidation Amount on the Redemption Date in which case all such rights shall continue unless and until such shares are redeemed and such price is paid in accordance with the terms hereof.

        6.    Voting Rights.    

        (a)   Except as expressly provided in this Section 6 or as otherwise required by applicable law or regulation, holders of the shares of Preferred Stock shall have no voting rights.

        (b)   If dividends on shares of the Preferred Stock shall not have been paid for six Dividend Periods, upon written notice to the Secretary by holders of at least a majority of the then outstanding shares of the Preferred Stock, the number of directors constituting the Board of Directors shall thereupon be increased by two. Subject to compliance with any requirement for regulatory approval of (or non-objection to) persons serving as directors, the holders of shares of the Preferred Stock, voting together as a class, shall have the exclusive right to elect two additional directors until full dividends have been paid or declared and set apart for payment for two consecutive Dividend Periods. To exercise this right, holders of at least a majority of the then outstanding shares of the Preferred Stock may by written notice to the Secretary request that the

9

Company call a special meeting of the holders of the Preferred Stock for the purpose of electing the additional directors and, if such non-payment of dividends is continuing, the Company shall call such meeting within twenty days after receipt of such written request. If the Company fails to call such meeting with twenty days after receipt of such written request, or within twenty-five days after the mailing of such request within the United States of America by registered mail addressed to the Secretary of the Company at its principal office, any holder of Preferred Stock may call such a meeting at the expense of the Company. Any holder of Preferred Stock that calls such meeting shall have access to the stock books of the Company for the purpose of causing such a meeting to be so called. Any directors elected by the holders of Preferred Stock shall be deemed to be in a class separate from the classes of directors established by the Restated Certificate of Incorporation of the Company. If any director so elected by the holders of the Preferred Stock shall cease to serve as a director before his term shall expire, the holders of the Preferred Stock then outstanding may, at the next annual meeting of stockholders or at a special meeting requested by any holder of the Preferred Stock in accordance with the procedures described above, elect a successor to hold office for the unexpired term of the director whose place shall be vacant. The term of such directors elected thereby shall terminate, and the total number of directors shall be decreased by two, upon the payment or the declaration and setting aside for payment of full dividends on the Preferred Stock for two consecutive Dividend Periods.

        (c)   So long as any shares of the Preferred Stock are outstanding, the Company shall not, without the consent or vote of the holders of at least two-thirds of the outstanding shares of the Preferred Stock, voting separately as a class, (1) amend, alter or repeal or otherwise change (including in connection with any merger or consolidation) any provision of the Restated Certificate of Incorporation of the Company or this Certificate of Designation if such amendment, alteration, repeal or change would adversely affect the rights, preferences, powers or privileges of the Preferred Stock or (2) authorize, create or increase the authorized amount of or issue any additional shares of the Preferred Stock or any class or series of any equity securities of the Company, or any warrants, options or other rights convertible or exchangeable into any class or series of any equity securities of the Company, in each case ranking senior to or on parity with the Preferred Stock, either as to dividend rights or rights on liquidation, dissolution or winding up of the Company.

        7.    Preemptive Rights.    

        (a)   Except for (i) the issuance of any of the options, rights, warrants or other securities described in Section 3(f)(viii), or any issuance of any shares of Common Stock upon the exercise or conversion of any of such options, rights, warrants or other securities, or any distribution of Rights, (ii) a subdivision (including by way of a stock dividend) of the outstanding shares of Common Stock into a larger number of shares of Common Stock, and (iii) the issuance of capital stock as full or partial consideration for a merger, acquisition, joint venture, strategic alliance, license agreement or other similar non-financing transaction, if the Company wishes to issue any shares of capital stock or     any other securities convertible into or exchangeable for capital stock of the Company (collectively, "New Securities") to any person (the "Proposed Purchaser"), then the Company shall send written notice (the "New Issuance Notice") to the holders of the Preferred Stock, which New Issuance Notice shall state (A) the number of New Securities proposed to be issued and (B) the proposed purchase price per share of the New Securities (the "Proposed Price").

        (b)   For a period of ten business days after the giving of the New Issuance Notice, each holder of the Preferred Stock shall have the right to purchase up to its Proportionate Percentage (as defined below) of the New Securities at a purchase price equal to the Proposed Price and upon the terms and conditions set forth in the New Issuance Notice. Each holder shall have the right to purchase up to that percentage of the New Securities determined by dividing (i) a number equal to the number of shares of Common Stock into which the shares of Preferred Stock then owned by

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such holder are convertible by (ii) the sum of (A) the number of shares of Common Stock then outstanding and (B) the number of shares of Common Stock into which all outstanding shares of Preferred Stock are convertible (the "Proportionate Percentage").

        (c)   The right of each holder to purchase the New Securities shall be exercisable by delivering written notice of its exercise, prior to the expiration of the ten business day period referred to in Section 7(b) above, to the Company, which notice shall state the amount of New Securities that the holder elects to purchase. The failure of a holder to respond within the ten business day period shall be deemed to be a waiver of the holder's rights under this Section 7 only with respect to the issuance described in the applicable New Issuance Notice.

        (d)   In the event that any holder of the Preferred Stock is not permitted under applicable law to exercise any of its rights to purchase New Securities under this Section 7, such holder may, at its sole discretion, assign its rights under this Section to any affiliate of such person.

        8.    Exclusion of Other Rights.    Except as may otherwise be required by law, the shares of Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Restated Certificate of Incorporation. The shares of Preferred Stock shall have no preemptive or subscription rights, except as expressly set forth in Section 7 hereof.

        9.    Severability of Provisions.    If any voting powers, preferences and relative, participating, optional and other special rights of the Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional or other special rights of Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein.

        10.    Reissuance of Preferred Stock.    Shares of Preferred Stock that have been issued and reacquired in any manner, including shares purchased by the Company or redeemed or exchanged or converted, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, provided that any issuance of such shares as Preferred Stock must be in compliance with the terms hereof.

        11.    Mutilated or Missing Preferred Stock Certificates.    If any of the Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the Company shall issue, in exchange and in substitution for and upon cancellation of the mutilated Preferred Stock certificate, or in lieu of and substitution for the Preferred Stock certificate lost, stolen or destroyed, a new Preferred Stock certificate of like tenor and representing an equivalent amount of shares of Preferred Stock, but only upon receipt of evidence of such loss, theft or destruction of such Preferred Stock certificate and indemnity, if requested, satisfactory to the Company and the transfer agent (if other than the Company).

        IN WITNESS WHEREOF, the Company has caused this certificate to be duly executed by Sandor E. Samuels, Executive Managing Director and Chief Legal Officer and attested by Susan E. Bow,

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Senior Managing Director, General Counsel, Corporate and Securities, and Secretary of the Company, this 22^nd day of August, 2007.

By: /s/ Sandor E. Samuels Name: Sandor E. Samuels
Title: Executive Managing Director and Chief Legal Officer

ATTEST:
By:	/s/ Susan E. Bow
Name: Susan E. Bow Title: Senior Managing Director, General Counsel, Corporate and Securities, and Secretary

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CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATIONS OF
COUNTRYWIDE FINANCIAL CORPORATION

        COUNTRYWIDE FINANCIAL CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), in accordance with the provisions of Section 103 thereof,

DOES HEREBY CERTIFY:

1.

The name of the Company is Countrywide Financial Corporation.

2.

That a Certificate of Designations of 7.25% Series B Non-Voting Convertible Preferred Stock of the Company (the "Certificate") was filed with the Secretary of State of the State of Delaware on August 22, 2007 and that said Certificate requires correction as permitted by subsection (f) of Section 103 of the General Corporation Law of the State of Delaware.

3.

The inaccuracy or defect of the Certificate to be corrected is that the second to last sentence of Section 2(a) of the Certificate inadvertently provided that the Initial Dividend Period ends on November 15, 2007. Section 2(a) of the Certificate should have provided that the Initial Dividend Period ends on September 30, 2007.

4.

The second to the last sentence of Section 2(a) of the Certificate is hereby deleted in its entirety and replaced with the following sentence:

"The dividend to be paid to holders of the Preferred Stock on the Initial Dividend Payment Date shall be payable in respect of the Dividend Period (the "Initial Dividend Period") commencing on and including the Issue Date (as defined below) and ending on and including September 30, 2007."

5.

All other provisions of the Certificate remain unchanged.

IN WITNESS WHEREOF, the Company has caused this Certificate of Correction to be executed this 1^st day of November, 2007.

COUNTRYWIDE FINANCIAL CORPORATION
By:	/s/ Susan E. Bow
	Susan E. Bow Senior Managing Director, General Counsel, Corporate Securities and Corporate Secretary

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Exhibit 3.4

CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PARTICIPATING PREFERRED STOCK of COUNTRYWIDE CREDIT INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware
CERTIFICATE OF DESIGNATION OF $23.75 CONVERTIBLE PREFERRED STOCK OF COUNTRYWIDE CREDIT INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF COUNTRYWIDE CREDIT INDUSTRIES, INC.
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE AND OF REGISTERED AGENT
AMENDED AND RESTATED CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PARTICIPATING PREFERRED STOCK of COUNTRYWIDE CREDIT INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware
CERTIFICATE OF OWNERSHIP AND MERGER OF CW MERGER CORP. a Delaware corporation INTO COUNTRYWIDE CREDIT INDUSTRIES, INC. a Delaware corporation (Pursuant to Section 253 of the Delaware General Corporation Law)
CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF COUNTRYWIDE FINANCIAL CORPORATION
CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF COUNTRYWIDE FINANCIAL CORPORATION
CERTIFICATE OF CORRECTION OF CERTIFICATE OF DESIGNATIONS OF COUNTRYWIDE FINANCIAL CORPORATION

EX-10.151

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Exhibit 10.151

FIRST AMENDMENT TO THE
COUNTRYWIDE BANK, N.A. NON-EMPLOYEE DIRECTORS' FEE PLAN

        This First Amendment is made this 26th day of July, 2007 by Countrywide Bank, FSB formerly known as Countrywide Bank, N.A. (the "Bank").

        WHEREAS, the Bank maintains the Countrywide Bank, N.A. Non-Employee Directors' Fee Plan (the "Plan"), adopted October 27, 2005, and the Bank wishes to amend the Plan to permit elective deferrals of shares of Stock as provided for in the Countrywide Financial Corporation 2003 Non-Employee Directors' Fee Plan (as amended and restated September 27, 2005), effective January 1, 2008.

        NOW, THEREFORE, that the Bank hereby amends the Plan, pursuant to Section 8 thereof, effective on January 1, 2008 as follows:

1.

By deleting Section 4.2 in its entirety and by substituting therefor the following:

        4.2    Issuance of Certificates.    Subject to the deferral provisions of Section 9, as soon as practicable following the date of grant of a Restricted Stock Award, Countrywide Financial Corporation (the "Company") shall issue certificates (the "Certificates") to the Director receiving the Restricted Stock Award, representing the number of shares of Stock covered by the Award. Each Certificate shall bear a legend describing the restrictions on such shares imposed by this Section 4 and may be retained by the Company or its designee during the Restricted Period.

2.

By deleting Section 4.6 in its entirety and by substituting therefor the following:

        4.6    Forfeiture.    Except as otherwise provided in Section 4.4(i), (ii) and (iii), in the event that the Director's Date of Termination occurs prior to the business day immediately preceding the first anniversary of the date of grant, the Director shall forfeit any and all rights and interests with respect to such unvested Restricted Stock (or Restricted Stock Units, if a Deferral Election is applicable) and the Company shall have the right to cancel any such Certificates evidencing such Restricted Stock.

3.

By deleting Section 5 in its entirety and by substituting therefor the following:

SECTION 5
CHANGE IN CONTROL

        In the event of a Corporate Change, the Restricted Period with respect to all unvested Restricted Stock (or corresponding Restricted Stock Units) shall immediately lapse and the Director shall become fully vested in such shares of Stock (or Stock Units, as the case may be).

4.

By deleting Section 7.3 in its entirety and by substituting therefor the following:

        7.3    Unfunded Plan.    The Plan shall be unfunded. Neither the Bank nor the Board shall be required to segregate any assets that may at any time be represented by benefits or Awards made pursuant to the Plan. Neither the Bank nor the Board shall be deemed to be a trustee of any amounts to be paid under the Plan. Neither the Director nor any other person shall, by reason of participation in the Plan, the deferral of shares of Stock or the deferral of a cash payment, acquire any right in or title to any assets, funds or property of the Bank whatsoever prior to the date such shares of Stock or cash are distributed. A Director shall have only a contractual right to the shares of Stock and cash, if any, distributable under the Plan, unsecured by any assets of the Bank. Nothing contained in the Plan shall constitute a guarantee by the Bank that the assets of the Bank shall be sufficient to provide any benefits to any person. The Bank may, but shall not be obligated to, establish a trust to hold assets for the purpose of satisfying obligations under this Plan.

5.

By deleting Section 9 in its entirety and by substituting therefor the following:

SECTION 9
ELECTIVE DEFERRALS

        9.1    DEFERRAL ELECTION

        (i)    General.    A Director who is otherwise entitled to receive Director Fees in the form of shares of Stock or a cash payment under the terms of the Plan may elect to defer delivery of all or a portion of such fees, subject to Section 409A of the Internal Revenue Code and the following terms of this Section 9 (once deferred, the "Deferred Fees").

        (ii)    Deferral Election.    An election to defer the Director Fees into a Cash Account and Stock Unit Account shall be filed prior to the first day of the calendar year in which the Director Fees would otherwise have been delivered to the Director. The election to defer the Director Fees shall be made on an election form as provided by the Bank (the "Deferral Election").

        The Deferral Election form shall provide for the amounts of the Director Fees to be deferred and shall provide for the timing and method of distribution at the end of the applicable deferral period.

        (iii)    Conversion of Cash or Stock to Stock Units.    Deferred Fees credited to a Stock Unit Account, as defined below, under this Section 9 shall be converted to Stock Units by dividing the cash-based Director Fees so credited by the Fair Market Value of the Stock as of the date such Director Fees would otherwise have been paid or granted had the Director not made a Deferral Election. The Stock Unit Account will be credited with Stock Units equal to the number of shares of Restricted Stock as to which the Director has elected deferred receipt, with such Stock Units to be credited as of the date on which the shares of Stock would otherwise have been delivered to him in the absence of the deferral. To the extent that Stock Units are credited to the Director's Stock Unit Account with respect to the deferral of a Restricted Stock Award, such Stock Units shall have the same restrictions and vesting provisions as were applicable to the Restricted Stock Award.

        9.2    ACCOUNTS

        (i)    Stock Unit Accounts.    A "Stock Unit Account" shall be maintained on behalf of each Director who elects to defer all or a portion of his or her Director Fees under this Section 9, for the period during which delivery of such fees is deferred. A separate Stock Unit Account shall be established for each calendar year in which the Director elects to have all or a portion of the Director Fees deferred. A Director's Stock Unit Account(s) shall be subject to the following adjustments:

(a)

The Stock Unit Account will be credited with Stock Units, with such Stock Units to be credited as of the date on which the Director Fees would otherwise have been delivered to him in the absence of the deferral.



(b)

As of each dividend payment date for the Stock following the date any Stock Units are credited to the Director's Stock Unit Account, and prior to the date of distribution with respect to those Stock Units, the Director's Stock Unit Account shall be credited with additional Stock Units (including fractional Stock Units) equal to (i) the amount of the dividend that would be payable with respect to the number of shares of Stock equal to the number of Stock Units credited to the Director's Stock Unit Account on the dividend record date, divided by (ii) the Fair Market Value of a share of Stock on the date of payment of the dividend.

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(c)

As of the date of any distribution with respect to a Director's Stock Unit Account under Section 9.3, the Stock Units credited to a Director's Stock Unit Account shall be reduced by the amounts distributed to the Director.

        (ii)    Cash Account.    A Cash Account shall be maintained on behalf of each Director who elects to defer the distribution of cash-based Director Fees provided herein, for the period during which delivery of cash is deferred. At the beginning of each calendar quarter, there shall be credited to the Director's Cash Account "interest" using a rate equal to the "Applicable Interest Rate" on the first day of the calendar quarter. Such interest shall be determined on the balance in the Director's Cash Account as of the last day of each month for the preceding quarter. All amounts otherwise due and payable to the Director shall be deemed received and credited to the Director's Cash Account as of the first day of the month in which the amount was due and payable by the Bank to the Director. Unless otherwise agreed to by the Bank and the Director, the "Applicable Interest Rate" shall be the annual percentage rate offered by the Bank to its retail customers for a certificate of deposit having an "opening deposit" amount equal to the balance in the Director's Cash Account on the first day of the applicable calendar quarter and having a term of 60 months, divided by 12. As of the date of any distribution with respect to a Director's Cash Account under Section 9.3, the balance credited to a Director's Cash Account shall be reduced by the amount of the distribution to the Director.

        (iii)    Statement of Accounts.    As soon as practicable after the end of each Year, the Company shall provide each Director having a Stock Unit Account or Cash Account under the Plan with a statement of the transactions in such Accounts during that year and the Account balances as of the end of the year.

        9.3    DISTRIBUTIONS

        (i)    General.    Subject to the terms of this Section 9.3, a Director shall specify, as part of his or her Deferral Election with respect to Deferred Fees, the time and manner of the distribution of the amounts deferred pursuant to such election. In the event that no election is made with respect to the timing or method of distribution as of the date of the Director's termination, the Director's entire Stock Unit Account and Cash Account shall be distributed in a single lump sum as of the first anniversary of the Director's date of termination.

        (ii)    Distribution of Stock Unit Account.    At the time of distribution of the Stock Unit Account, shares in accordance with the Director's Deferral Election, the Director shall receive a distribution of shares of Stock equal to the number of Stock Units in his or her Stock Unit Account subject to distribution. If the scheduled distribution date would otherwise occur after a dividend record date but before the payment of the dividend, distribution may, in the Board's discretion, be deferred (not more than 30 days) until the dividend is paid.

        (iii)    Applicability of Vesting Provisions.    In determining a Director's right to distributions under this Section 9.3, the vesting provisions of Section 4 or 5 of the Plan shall apply to the Stock Units credited to the Director's Stock Unit Account as though each unit represented one share of Stock, and with all units attributable to payment of dividends being fully vested as of the date they are credited to the Director's Stock Unit Account.

        (iv)    Distribution of Cash Account.    At the time of distribution of the Cash Account in accordance with the Director's Deferral Election, the Director shall receive a cash payment equal to the amount in his or her Cash Account then subject to distribution.

        (v)    Termination of Deferral by Bank.    The Board shall retain the right to terminate, at any time, for any reason, or no reason, the deferral provisions under this Section 9 (which may, but need not, be in conjunction with a termination of the Plan, and shall immediately

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distribute all, but not less than all, of the Stock Unit Accounts and Cash Accounts as of the date of such termination. In the event that the Board terminates the Plan pursuant to the foregoing, the Restricted Period with respect to all unvested Restricted Stock Units shall immediately lapse and the Director shall become fully vested in such Stock Units.

        IN WITNESS WHEREOF, the Bank has caused this First Amendment to be executed as of the day and year first above written.

COUNTRYWIDE BANK, FSB
By:	/s/ Timothy H. Wennes Timothy H. Wennes Senior Managing Director, President and Chief Operating Officer

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Exhibit 10.151

FIRST AMENDMENT TO THE COUNTRYWIDE BANK, N.A. NON-EMPLOYEE DIRECTORS' FEE PLAN
SECTION 5 CHANGE IN CONTROL
SECTION 9 ELECTIVE DEFERRALS

EX-12.1

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Exhibit 12.1

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 12.1—COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES

        The following table sets forth the ratio of earnings to fixed charges of the Company for the nine months ended September 30, 2007 and 2006 and the years ended December 31, 2006, 2005, 2004, 2003, and 2002, computed by dividing net fixed charges (interest expense on all debt plus the interest element (one-third) of operating leases) into earnings (earnings before income taxes and fixed charges).

			Nine Months Ended September 30,					Years Ended December 31,
(dollar amounts in thousands)
			2007			2006		2006		2005		2004		2003		2002
Net (loss) earnings			$	(281,644	)	$	2,053,265	$	2,674,846	$	2,528,090	$	2,197,574	$	2,372,950	$	841,779
Income tax (benefit) expense				(320,565	)		1,296,333		1,659,289		1,619,676		1,398,299		1,472,822		501,244
Interest expense				7,941,494			6,543,619		9,133,682		5,616,425		2,608,338		1,940,207		1,461,066
Interest portion of rental expense				65,105			55,259		77,055		62,104		53,562		36,565		26,671
Earnings available to cover fixed charges			$	7,404,390		$	9,948,476	$	13,544,872	$	9,826,295	$	6,257,773	$	5,822,544	$	2,830,760
Fixed charges:
	Interest expense		$	7,941,494		$	$6,543,619	$	9,133,682	$	5,616,425	$	2,608,338	$	1,940,207	$	1,461,066
	Interest portion of rental expense			65,105			55,259		77,055		62,104		53,562		36,565		26,671
		Total fixed charges	$	8,006,599		$	6,598,878	$	9,210,737	$	5,678,529	$	2,661,900	$	1,976,772	$	1,487,737
Ratio of earnings to fixed charges				0.92			1.51		1.47		1.73		2.35		2.95		1.90

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Exhibit 12.1

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES EXHIBIT 12.1—COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES

EX-31.1

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Exhibit 31.1

CERTIFICATION

        I, Angelo R. Mozilo, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Countrywide Financial Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 9, 2007

/s/ Angelo R. Mozilo                        
Angelo R. Mozilo
Chairman of the Board and
Chief Executive Officer

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Exhibit 31.1

EX-31.2

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Exhibit 31.2

CERTIFICATION

        I, Eric P. Sieracki, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Countrywide Financial Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 9, 2007

/s/ Eric P. Sieracki                        
Eric P. Sieracki
Executive Managing Director
and Chief Financial Officer

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Exhibit 31.2

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report on Form 10-Q of Countrywide Financial Corporation (the "Company") for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Angelo R. Mozilo, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Angelo R. Mozilo Angelo R. Mozilo
Chairman of the Board and
Chief Executive Officer
November 9, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Countrywide Financial Corporation and will be retained by Countrywide Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report on Form 10-Q of Countrywide Financial Corporation (the "Company") for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eric P. Sieracki, Executive Managing Director and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Eric P. Sieracki                        
Eric P. Sieracki
Executive Managing Director and
Chief Financial Officer
November 9, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Countrywide Financial Corporation and will be retained by Countrywide Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.2