Countrywide Plummets on Deal, Debt Fears

Still, he likened Countrywide to Washington MutualWM and National CityNCC -- two other big mortgage lenders that also had trouble sealing deals as a result of the poor quality of their loan books, despite market rumors surrounding both companies that sales were imminent.

WaMu and Nat City recently received $7 billion of capital injections each from private equity firms and other large institutional investors. Seattle-based WaMu received the infusion from investors led by private equity group TPG, while Corsair Capital led a consortium to invest in the Cleveland-based Nat City.

Countrywide "has significant credit risk in its loan portfolio, which in our opinion, could experience significant writedowns when market to fair value when the acquisition closes," he writes. "The issue of fair value marks was a significant part of the reason that National City failed to find an acquirer."

"We've heard throughout a lot of different sources [that] other banks ... could not get the accounting to work [for either Nat City or WaMu] because of the huge marks they would have to take" on the loan portfolios at either of the two troubled banks, Miller said in an interview with TheStreet.com. With Countrywide, "you start getting into big numbers" for the writedowns, he adds.

Countrywide's $95 billion loan portfolio includes option adjustable-rate mortgages, home equity lines of credit and second lien mortgages, among other things. Miller estimates that if the marks to the portfolio are less than $22 billion, then BofA can "offset the adjustments with fair value debt adjustments and the difference between tangible equity and its purchase price of [Countrywide]. If the loan portfolio marks exceed $22 billion, Bank of America becomes increasingly likely to renegotiate transaction terms."