Countrywide Crushed Again

Updated from 11 a.m.

Countrywide Financial CFC shares dropped 6% Monday as investors endured some Wall Street downgrades and another round of bad news in the housing market.

First, analysts at Lehman Brothers cut their earnings estimates and those at Piper Jaffray downgraded the stock. Then data showed that sales of existing homes fell in July for a fifth consecutive month to the slowest pace in five years, according to the National Association of Realtors. The median price of a home sold last month slid 0.6% from a year ago to $230,200. The median is the middle value in a series of numbers ranging from lowest to highest.

The news sent Countrywide stock down $1.24 to $19.76 in afternoon trading Monday.

The decline comes just days after Bank of America BAC agreed to buy $2 billion in Countrywide preferred stock. BofA got preferred shares that yield 7.25% and would give the big bank a 16%-17% stake in Countrywide, the nation's largest mortgage lender, upon conversion.

Monday's selloff is significant, because it pushes Countrywide shares down toward BofA's $18-a-share exercise price on its preferred stock holdings. Countrywide shares fetched just under $22 last Wednesday, when the company announced the infusion from BofA.

Continued downward pressure on Countrywide's shares could prove irksome for BofA chief Kenneth Lewis. Although the agreement between Countrywide and BofA stipulates that the deal "may be adjusted on the occurrence of certain events," it's unclear what would count as a material occurrence.

Even so, it makes sense that Lewis might have negotiated wiggle room for his bank to retool the terms should Countrywide's shares continue to slide.

A message left on Countrwide's media line was not immediately returned. A BofA spokesman declined to comment on the terms of the agreement with Countrywide or the dip in the mortgage lender's share price.

In any case, Wall Street doesn't expect the housing market to get better any time soon. In the last week, a number of big mortgage firms either shut their doors or sent workers packing. Lehman LEH closed its subprime mortgage unit, putting 1,200 workers out on the street, and Accredited Home LEND slashed its workforce by more than half in a similar move.

"These two issues will take about 18 months to work their way through the market," says Keefe Bruyette & Woods analyst Frederick Cannon, who covers Countrywide shares, in a reference to declining home sales volume and prices.

That could mean a long wait for BofA to realize any benefits from its investment.