Countrywide Deal Wins Few Fans

Countrywide Financial's(CFC - Cramer's Take - Stockpickr) big coup failed to win the day on Wall Street.

Wednesday evening's news that the struggling mortgage lender had scored a $2 billion investment from Bank of America(BAC - Cramer's Take - Stockpickr) initially sent Countrywide shares surging 20% in after-hours trading. At first, the deal was widely viewed as expressing confidence in Countrywide's future in a darkening mortgage industry landscape.

But the big early gains evaporated Thursday, after ratings agencies declined to raise their ratings and Countrywide CEO Angelo Mozilo warned that the nation could be headed for a housing-led recession. The shift shows how deeply concerned investors are about the fate of the housing and mortgage sectors of the economy, which appear deeply troubled after a long-running boom came to an end last year.

Fitch Ratings revised Countrywide's credit status Thursday to evolving from negative, while maintaining its negative rating. The bigger bond rating agencies stood pat. Moody's Investors Service said that it left its rating Baa3, one notch above a junk rating, and maintained its negative outlook. Standard & Poor's also maintained its Countrywide credit rating of
A-minus, with a negative outlook.

Notably, Fitch's ratings move gives the rating agency sufficient wiggle room to assess the creditworthiness of the lender and its various subsidiaries and to factor in its newfound cash injection.

"This isn't a panacea for some of the things that Countrywide needs to work through, but this is a badly needed shot of confidence," comments Christopher Wolfe, managing director at Fitch and lead analyst on Countrywide. "I think that [this BofA investment] will give them the type of breathing room that they will need to restructure their business," he says.

Echoing comments Mozilo made earlier Thursday during a CNBC interview, Wolfe cautioned that the worst might not be over for the mortgage lending community. He said Fitch could still downgrade the lender if the market's challenges increase the likelihood that it might default on its debt.