Expanding rapidly as the nations largest home mortgage company, Countrywide Home Loans quietly promised investors who bought its loans that it would repurchase some if homeowners got into financial difficulties.

But now that Countrywide itself is struggling, it may not be able to do so, making it even harder for troubled borrowers to reduce their interest rates or make other changes to their loans to avoid foreclosure.

The possibility that Countrywide may have to buy back mortgages that it sold comes on the heels of its announcement last week that the tightening credit markets had forced it to draw on its $11.5 billion line of credit from a consortium of banks, a move that sent the market plummeting.

But Wednesday, Bank of America agreed to invest $2 billion in Countrywide, buying preferred shares that carry an interest rate of 7.25 percent and can be converted into common stock at $18 each.

“Bank of Americas investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success,” Angelo Mozilo, chief executive of Countrywide, said in a statement.

Countrywide, with its stock depressed, had been seen as a prospect for a takeover. But any obligation the company has to buy back loans may complicate discussions with potential investors or buyers.

The repurchase obligations are discussed in Countrywides prospectuses and pooling and servicing agreements that cover about $122 billion worth of mortgages packaged and sold to investors from early 2004 to April 1 of this year.

The agreements said that Countrywide Home Loans, a unit of Countrywide Financial, would buy back mortgages in the pools if their terms were changed to help borrowers remain current. Such changes are known as loan modifications. In general, it is difficult for homeowners to get loans modified if they are in a securitization pool.

It is unclear how many modified loans are involved. But it would cost $1.2 billion for the company to repurchase 1 percent of the loans in the pools at issue. Repurchasing 5 percent would cost $6.1 billion. When such buybacks are made, the original amount of the loan is paid into the pool and divided among the investors.

Under the terms of the loan pools, the decision to modify a mortgage is left to the company that services it. Servicers deal directly with borrowers, taking in monthly mortgage payments and sending them out to the investors in the pools. Most of Countrywides loans are serviced by its Home Loan Servicing unit.

But Countrywides servicing unit may have less incentive to help troubled borrowers who are interested in working out their loans, analysts said, because doing so could put the parent company on the hook to buy back a loan.

“With the volume of adjustable-rate mortgages that Countrywide has originated, their liquidity crunch potentially eliminates a viable tool to keep mortgages affordable in the face of impending interest rate resets,” said Kevin Byers, a principal at Parkside Associates, a consulting firm in Atlanta and an authority on securitizations.

According to company figures, last year 45 percent of Countrywides loans had adjustable rates; many begin with low rates and adjust to much higher levels.

Agreeing to buy back loans that are modified is highly unusual and perhaps unique among pools issued by companies like Countrywide, Byers said. Pools backed by mortgages issued by Fannie Mae and other government-sponsored entities typically include such language.

It is likely that Countrywide put the language into its agreements as an incentive to make its mortgage pools more attractive to investors, in turn generating more money for Countrywide when it sold them.

A Countrywide spokesman, Rick Simon, said that the companys servicing unit was interested only in keeping loans performing and that its modification decisions would be based on that goal.

“Investors rate servicers based on their ability to keep loans in a performing state and to turn nonperforming loans into performing loans,” he said. “The fees collected for servicing are based on the loans performing.”

Loans that reach foreclosure are expensive for both lenders and servicers, Simon added.

But servicers must also consider the interests of investors who bought the mortgage pools for the cash flow they generate. If the cash flow drops because of loan modifications, some investors will be unhappy.

Simon would not say how many loans Countrywide had modified and bought back as a result of the pooling agreements. But Countrywides financial statements from last year show that it bought fewer delinquent loans out of securitization entities than in previous years. Those purchases totaled $1.5 billion last year, down from $3.8 billion in 2005 and $3.4 billion in 2004.

WASHINGTON: With the blessing of the Bush administration, the regulator of Fannie Mae and Freddie Mac, the two largest mortgage finance companies in the United States, has eased a major restriction on the companies in an effort to unfreeze credit markets and stabilize housing prices.

The regulators announcement represented a stunning and some say risky change of course. It also reduces the likelihood that Congress will adopt tough new oversight rules for the companies.

By reducing the extra cushion of capital that the two companies have been required to hold since 2004, the regulator, the Office of Federal Housing Enterprise Oversight, is enabling the companies to invest $200 billion more in home loans. In essence, Fannie Mae and Freddie Mac are being allowed to take billions of dollars that had been used as a reserve against possible further losses and invest that money now in the housing market.

“Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market,” Treasury Secretary Henry Paulson Jr. said Wednesday when the plan was announced.

Officials hope that by unshackling mortgage finance companies, they can begin to reduce the cost of borrowing for prospective home buyers or refinancing for people who already own homes, help unlock the credit markets and possibly reduce some of the downward pressure on home prices.

But critics said that if housing markets continued to decline, the move could put the two companies on a less sure footing and ultimately require a huge taxpayer bailout. At the end of 2007, Fannie Mae had $45 billion in capital and Freddie Mac had $37 billion, for a total of $82 billion. But that cushion supports over $1.4 trillion of debt and debt guarantees.

“I think its very dangerous and its a sign that people are very frightened,” said Thomas Stanton, who is an expert on the two companies and teaches a course on credit risk at Johns Hopkins University. “At a time in which finance companies are holding questionable assets and facing losses, regulators typically require more capital, not less.”

Created by Congress, Fannie Mae and Freddie Mac do not lend to home buyers but instead purchase mortgages from banks and other lending institutions. They either hold the loans in investment portfolios or resell them to investors as mortgage-backed securities.

Fannie, the larger and older of the two, was founded during the Depression to help stabilize the economy and offer greater opportunities for Americans to buy homes.

The plan is the latest in a series of moves that make it easier for the two companies to maneuver in the mortgage markets.

This year, Congress lifted the cap to nearly $730,000 from $417,000 on the value of mortgages that the companies can purchase. The higher limits on such conforming loans, which expire at year-end, could breathe new life into high-priced markets like California and the East Coast by making it less costly to finance expensive homes.

Officials predicted that the plan announced Wednesday, combined with the easing of some restrictions last month to let the companies help finance a greater variety of mortgages, would allow the companies to buy or guarantee about $2 trillion in mortgages this year.

The companies have been required to hold 30 percent more capital than the minimum required before 2004, when accounting deficiencies were discovered at Freddie. The higher capital reserve in effect capped their ability to purchase mortgages at a time when Wall Street firms were also cutting back.

As part of a deal with regulators, the two companies will now be able to reduce that amount by one-third, to 20 percent. For Fannie Mae, that means holding $3.2 billion less capital, while for Freddie Mac it is $2.6 billion less.

In exchange, the companies have committed to raise “significant capital” in the future, though the pledge is vague and executives said they were only just starting to figure out a plan.

Since late last year, the companies have struggled to raise new capital as the housing crisis has worsened. Three weeks ago, Freddie Mac reported a record quarterly loss of $2.5 billion and Fannie Mae reported a $3.56 billion quarterly loss. In response to those losses, the companies said they had raised $13 billion through the sale of preferred stock.

Officials had been urging the companies to raise more capital to protect them against further losses. But the companies have been resistant, largely because they do not want to dilute the value of shares now held by investors.

SYDNEY: The price of oil, gold and other commodities fell sharply Thursday, bruising one of the main beneficiaries of the global boom in raw materials - Australia.

Australias main stock index, the SP/ASX 200, dropped 3.1 percent, wiping out nearly all of its gains from Wednesday, with miners taking a disproportionately hard hit. BHP Billiton, the worlds largest miner, lost 8.3 percent, Rio Tinto fell 7.7 percent and Fortescue Metals Group, long a favorite of the Australian stock market, lost 13.7 percent.

Commodities account for 17 percent of the Australian gross domestic product, and the strength of the market for its iron ore and coal is one of the main reasons why the Australian central bank has countered a global trend by continuing to raise interest rates.

Investors are worried that the credit crisis is going to take a severe toll on the U.S. economy and spill over to hit demand across the globe.

But analysts said that they generally believed that rapid economic growth in China and India would support commodities prices but that questions about the short-term outlook were causing commodity prices to fall.

“Quite clearly what is driving the commodity markets is still very strong underlying demand and some slowness in supply catching up with that demand,” said Terry Sheales, chief commodity analyst at the Australian Bureau of Agricultural and Resource Economics.

“But overlaying that at the moment is a fair bit of uncertainty around the place about what is happening with economic growth generally.”

Oil and metals prices fell sharply Thursday during Asian market hours on concern that a U.S. recession would reduce demand for raw materials. Oil fell below $100 a barrel to $99.59, compared with a record $111.80 earlier in the week. Gold fell to $904.65 a troy ounce, down from a recent record of more than $1,000. Copper also lost ground.

In part, the markets were also turned off because Rio Tinto and BHP Billiton are still in negotiations with their Chinese customers to establish a price for long-term ore contracts.

Last month, Vale, which is the worlds biggest ore producer and is based in Brazil, agreed to price rises of 65 percent to 71 percent, but Australian miners are holding out for more.

Continuing weakness in the commodities markets could undermine their position, though iron ore producers remain confident.

Vale announced this week that it had negotiated an 87 percent increase in prices for iron ore pellets with one of its Italian customers.

“This result indicates just how strong the market is at the moment and not just for pellet prices but for iron ore products in general, said Gervase Greene, a spokesman for Rio Tintos iron ore division. “It is a good indicator which will not go unnoticed.”

But Thursdays drop in the share prices of commodities producers also seemed to indicate a weakening in the markets confidence that the producers would escape the worst effects a U.S. economic slowdown because of Chinese economic growth.

China, with 36 percent of global steel production, is the most important factor in the iron ore market.

Australia is the worlds largest producer of coal and iron ore, the raw materials that have fueled the Chinese boom. Sheales, the analyst, said he did not expect a large drop in Chinese demand for iron ore even if the U.S. economy contracted. “We are assuming a small slowing in Chinese growth, but it is still very strong,” he said, “and we see that feeding into continuing demand for hard commodities.”

He said that with commodities like iron ore, the effect of a U.S. slowdown “may not be that great because the big growth in demand out of China for raw commodities is internally generated.”