Countrywide Plummets on Deal, Debt Fears

Miller's pessimistic outlook on the conclusion of the BofA-Countrywide saga adds fuel to the fire as investors are increasingly jittery when it comes to whether or not the deal will get done. In a filing with the Securities and Exchange Commission last week, BofA said among other things, that it may not guarantee all of Countrywide's debt.

Countrywide, once the nation's largest independent mortgage lender, likes its peers crimped by the housing downturn such as WaMu, Nat City, WachoviaWB and CitigroupC, has seen its loan portfolio go from bad to worse.

Last week Countrywide reported a first-quarter loss of $893 million, or $1.60 a share, more than double the lender's loss in the fourth quarter. It took $3.05 billion in credit-related writedowns and provisions for the first three months of the year.

While it is unlikely BofA will renege on the acquisition in total, observers, including Miller, agree that it is likely that BofA will renegotiate how much it pays for Countrywide given the rapid worsening of the loan portfolio.

"Everybody is puzzled by this thing about the debt," says Nancy Bush, an independent analyst in Aiken, S.C. "To me that does not signal that they are willing to walk away from this deal. My guess is they are looking for some innovative approach to get the deal done."

Bad loans aside, "at the core there is a real mortgage company with prime loans," Bush says. "We just don't know at this point what the loss content is. ...We haven't had a long enough experience of these [loans] actually going through foreclosure and the realization of actual losses to really know. There has been this massive amount of hysteria and no data really to back it up."