Bank of America Corp., the biggest US consumer bank, won Federal Reserve approval to acquire Countrywide Financial Corp., the nation's largest mortgage lender, thus clearing the way for the $4 billion acquisition which effectively gives the acquirer one-fourth of the mortgage market.

In a statement, the federal regulator said it considered many comments for and against the company buyout and ''has considered carefully the financial factors of the proposal.''

Charlotte-based Bank of America, which announced its stock-swap buyout of the Calabasas, California-based mortgage lender in January, has faced much criticism for Countrywide's large exposure to sub-prime home loans that were offered to borrowers despite their shaky credit. (See: Bank of America agrees to purchase Countrywide Financial Corp)

Countrywide lost about $1.6 billion in the last six months of 2007 at the peak of the sub-prime mortgage crisis, and the company faces numerous investigations and lawsuits related to its lending practices. Post-acquisition, Bank of America has assured tightening of control measures at the distressed company.

Since the news became public in January, Bank of America has lost close to 17 per cent of its market capitalization on fears of increasing losses and write-downs, which some analysts predict could run into $10 to $12 billion.

"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 CEO Ken Lewis said in a statement commenting on the Fed decision.

''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,'' he added.

Lewis told investors earlier this week during a conference call that his bank will come out ahead even if home prices drop more than Bank of America's estimate of 15 per cent this year and 10 per cent in 2009.

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.

Countrywide, co-founded in 1969 by CEO Angelo Mozilo, gives Bank of America about 9 million borrowers to whom it can sell more products, and fees from servicing $1.5 trillion of mortgages. Declines in housing prices and pending litigation are reflected in Bank of America's bid, Lewis has said.

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's 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.

The Fed said it considered the Community Reinvestment Act performance of the two companies, noting that Countrywide received a ''low satisfactory'' rating in its last evaluation in 2004. Bank of America received an ''outstanding'' rating in its 2006 evaluation, the Fed said. The act sets standards for how banks serve the communities in which they operate.