Jan. 29 (Bloomberg) -- Countrywide Financial Corp., the mortgage lender that Bank of America Corp. plans to buy, lost $422 million in the fourth quarter, failing on its promise to return to profitability. The shares climbed 6.1 percent as Bank of America said it remains committed to the takeover.

The net loss equaled 79 cents a share, compared with a profit of $621.6 million, or $1.01 a share, in the year-earlier period, the Calabasas, California-based company said in a statement today. The loss was more than twice the 28 cents predicted in a Bloomberg survey of analysts.

Chief Executive Officer Angelo Mozilo agreed Jan. 11 to sell Countrywide, the biggest U.S. mortgage lender, for about $4 billion in stock to Bank of America, the nation's second- biggest bank. Investors have speculated the bid might be revised if Countrywide didn't fulfill Mozilo's October vow to restore profit by year-end.

``Everything is a `go' to complete this transaction,'' said Bank of America CEO Kenneth Lewis during a New York investor conference today.

Countrywide rose 36 cents to $6.31 at 4:18 p.m. in composite trading on the New York Stock Exchange. The company said today it will pay a regular quarterly dividend of 15 cents a share. Bank of America, based in Charlotte, North Carolina, added 74 cents to $41.94.

Loan Losses

The mortgage company posted a $1.2 billion third-quarter loss, its first in 25 years. Fourth-quarter results were hurt by higher estimates of future loan losses, and overdue loans rose more than expected during the period, Countrywide said in today's statement. Markets where Countrywide sells mortgages to investors also remained weak, Mozilo said in the statement.

``This was a clean-up quarter to get this company in shape for Bank of America,'' Dick Bove, managing director of Punk Ziegel & Co., said in a Bloomberg Television interview. ``Bank of America is asking them to look into every place they can find to take losses, so when they become Bank of America, we don't see similar impacts.''

The transaction is scheduled to be completed in the third quarter. The combination would make Bank of America the biggest U.S. mortgage lender, handling about one out of every four home loans. The bank ranked fifth last year, according to trade publication Inside Mortgage Finance.

Foreclosures Increase

Provisions for credit losses were $924 million in the fourth quarter, compared with $937 million in the preceding quarter and $73 million in the year-earlier period. Results included $831 million of impairment charges tied mostly to home- equity securitizations, a $394 million writedown on loans the company holds, and $87 million in restructuring charges.

The largest charge reflected Countrywide's revised view on the impact of lower home prices, the company said. The lender is obligated to provide further credit to some of its customers with home equity loans that were set up when housing markets were stronger. Now that prices have declined, some of those loans may not be fully repaid, Countrywide said.

``Nobody that I know of had anything in their black box -- their underwriting system -- for falling housing prices,'' said David Olson, president of Wholesale Access Mortgage Research in Columbia, Maryland, in an interview today. ``Housing prices are coming down and there's no backing behind those loans.''

Foreclosures doubled to 1.44 percent of unpaid principal in December from 0.7 percent a year earlier at the servicing unit, Countrywide said on Jan. 9. Overdue loans increased to 7.2 percent from 4.6 percent.

Loan Production

Loan production recorded a pretax loss of $448 million, compared with a profit of $421 million a year earlier. Total loans funded fell 48 percent to $61.2 billion.

Countrywide said 3.6 percent of the outstanding balances of home equity loans for ``prime,'' or high-quality, borrowers in its servicing portfolio were more than 90 days overdue as of Dec. 31, up from 1.4 percent a year earlier. About 17 percent of its subprime loans made to borrowers with the weakest credit were more than 90 days late, up from 7.3 percent.

Countrywide's results were ``consistent with our due diligence,'' Bank of America's Lewis said at the New York investor conference today. Both companies are experiencing ``significant increases'' in lending this month due to lower interest rates, including refinancings, he said.

Liquidity Concern

Net revenue more than doubled at Countrywide during the U.S. housing boom of 2002 through 2006. The company loosened its underwriting standards in 2005 and 2006 as competition for borrowers increased. That led to rising defaults last year, President David Sambol said in October.

Sambol called Countrywide's third-quarter loss ``an earnings trough'' and said the company would make a profit in the fourth quarter and throughout 2008.

``We believe liquidity issues, not operational executive issues, backed Countrywide into a corner and forced the sale,'' Piper Jaffray analyst Robert Napoli said in a Jan. 16 report. ``The deal could be a big win for Bank of America, if Countrywide's credit losses remain within the parameters Bank of America built into the purchase price.''

Absent a merger, Countrywide would likely have been downgraded to non-investment grade status, Napoli said, reducing the value of the company's servicing business that he called ``its greatest asset.'' The servicing unit handles billing and collections for Countrywide as well as other mortgage holders and investors.

New York Lawsuit

Countrywide faces a lawsuit by the New York city and state comptrollers and their pension funds, alleging Countrywide defrauded investors with overly optimistic comments. The lawsuit added 26 securities firms and two accounting firms this month as defendants.

Mozilo, 69, previously confirmed he's facing an informal U.S. inquiry into his stock sales. Mozilo has sold about $450 million of Countrywide shares during the past four years, according to the New York comptrollers' lawsuit.

Mozilo said he's cooperating with the U.S. Securities and Exchange Commission and that he's confident the investigation won't find anything improper. The company reported earlier this week he will give up $37.5 million in severance pay and other fees following the sale to Bank of America.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: January 29, 2008 17:33 EST