Charlotte-based Bank of America, which announced its $4 billion acquisition of the Calabasas, Calif.-based mortgage lender in January, has faced much criticism for Countrywide's large exposure to subprime home loans that were offered to borrowers despite their shaky credit.
Countrywide lost about $1.6 billion in the last six months of 2007, and the company faces numerous investigations and lawsuits related to its lending practices.
Bank of America has said it will tighten those lending standards.
"This transaction represents a rare opportunity for Bank of America to significantly gain market share in the mortgage business, allowing it to expand in a cornerstone financial product," Bank of America Chairman and Chief Executive Officer Ken Lewis said in a statement commenting on the Fed decision.
In its order, the Fed board said that after the proposed deal Bank of America would remain the largest depository institution in the country, controlling approximately $773.4 billion in deposits, which represent 10.9 percent of total insured bank deposits in the country.
When the deal was first announced, Bank of America said it would pay about $4 billion in an all-stock deal for Countrywide, exchanging 0.1822 shares of Bank of America for each share of Countrywide outstanding.
In recent months, some analysts have speculated that the deal may be completed at a lower price because of further deterioration in the mortgage market and a continued rise in mortgage delinquencies and defaults.
Experts have said that the deterioration of the mortgage market and Countrywide's loan portfolio could lead to costly write-downs and create a drag on Bank of America's earnings.
But on Monday, Lewis told analysts on a conference call that he believed buying Countrywide was still a good deal even though the housing market had continued to falter since the deal was announced.
Lewis said he believed that housing conditions would improve by early next year. He said that Countrywide and its professional sales force would give the bank a boost as it pushes to increase market share in the mortgage sector.
Upon the Fed's decision Thursday, Lewis said that mortgages "continue to be a key consumer product for Bank of America, serving as a driver for adding new customers and deepening relationships with existing ones."
Bank of America said it expects the sale to close in the July-September quarter.
The Fed board approved the deal in a 32-page order issued Thursday. Countrywide had said previously that it will hold a special meeting of shareholders on June 25 to approve the proposed sale.
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