Countrywide - Regulatory Crackdown

The fear of potential regulatory crackdowns helped drive Countrywide Financial Corp into the arms of acquirer Bank of America Corp, people familiar with the situation say. Though the big home mortgage lender faced large and unpredictable losses on defaults, the more immediate danger was pressure from regulators, politicians and rating firms. The $4 billion deal was announced Jan 11th.

Countrywide could no longer raise money through short-term borrowings in the capital markets or sales of mortgages other than those that could be guaranteed by government sponsored investors Fannie Mae and Freddie Mac. That forced Countrywide to rely much more heavily on two other sources of funding: deposits at its savings bank unit and borrowings - so called advances from the Federal Home Loan Banks system. In 2007, 1st quarter $26.5 billion, 2nd quarter $28.8 billion, $51.1 billion, $47 billion. Countrywide was already near a cap on the amount of FHLB borrowings it could obtain under rules that limit those to 50% of assets held by the borrower.