If approved by regulators and Countrywide shareholders, the deal would avert the collapse of the country's biggest mortgage lender and expand the financial services empire of the nation's largest consumer bank.
The acquisition will make Bank of America the nation's biggest mortgage lender and loan servicer.
"Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers," said Kenneth D. Lewis, Bank of America's chairman and chief executive officer, in a statement on the bank's Web site.
In the past few years, Lewis has expanded Charlotte, N.C.-based Bank of America's retail operation with multibillion-dollar purchases of FleetBoston Financial Corp., credit card business MBNA Corp. and wealth-management business U.S. Trust Co.
The result is a widely diversified financial services company that does business with nearly one of every two American households.
"There's still plenty of risk involved," Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm, said of Lewis' announcement, the Associated Press reported. "He's brave to do it. But I think that it's very likely down the road to be profitable, maybe not immediately, but long-term."
The buyout come less than five months after Bank of America plugged $2 billion into Countrywide during the height of the summer's global credit crisis, and just weeks after Lewis vowed that making a deal in the mortgage industry would require him "to eat about seven years of my words."
It also places Lewis, an aggressive dealmaker, in the position of a market savior. By buying Countrywide, he's keeping the industry and regulators from the messy task of figuring out who would take on the responsibility of collecting payments for the millions of U.S. home loans serviced by the Calabasas, Calif.-based lender.
"We believe this is the right decision for our shareholders, customers and employees," Angelo R. Mozilo, Countrywide's chairman and chief executive officer, said in a statement.
Countrywide was forced to draw on an $11.5 billion line of credit to steady itself in August. It also tightened its credit guidelines and stopped selling some types of adjustable rate loans. But analysts said it wasn't enough, with one noting this week that Countrywide needed an infusion of $4 billion in capital within the next two weeks to save itself.
"Countrywide has been a rogue lender with a rogue leader," Martin Eakes, chief executive of the Center for Responsible Lending, a consumer advocacy group, said to the New York Times. "Bank of America would be a responsible home for fixing the problems that Countrywide has created."
Shares in Countrywide hit record lows in recent days on persistent rumors that a bankruptcy was imminent, a condition brought on by the widespread spike in mortgage defaults and foreclosures, especially in subprime loans -- those made to borrowers with weak credit.
Seeking to ease any regulatory concerns, representatives for the companies were in Washington on Thursday to brief regulators.
Lewis' bank holds $1.5 trillion in assets and is the nation's largest bank by market capitalization.
"Their balance sheet can take a shock much better than Countrywide," said CreditSights senior analyst David Hendler. "When you take the shocks at Countrywide, they have a big, busting consequence that's negative."
A Countrywide failure would be a huge blow to government-sponsored mortgage finance companies Fannie Mae and Freddie Mac, which are major buyers of Countrywide's loans.
Almost 150 mortgage lenders failed last year and 43 were acquired by healthier institutions, according to Mortgagedaily.com. Banks and brokerage firms have also suffered steep losses, and several chief executives have been forced out."I'm breathing a big sigh of relief," said Nancy Bush, managing member of NAB Research LLC in Aiken, S.C., Reuters reported "This takes out a major point of uncertainty in the industry."