The collapsing credit markets continue to strain the financial sector as Countrywide Financial ( CFC) shares plummeted more than 12.5% on Monday following reports that the Federal Bureau of Investigation was looking into possible securities fraud.

The beleaguered mortgage lender traded down to $4.46 and has now lost 85% over the last year.

Mortgage-finance companies Fannie Mae ( FNM) and Freddie Mac ( FRE) took a dive to 52-week lows after an article by Barron's speculated that Fannie may soon need a government bailout, and that either government-sponsored company would be bailed out if they collapsed. Fannie tumbled 13.9% to $19.69, and Freddie fell 13.2% to $17.05.

Another big loser was Ambac ( ABK) whose shares fell a whopping 24%, reversing most of its gains last Friday as investors worry over the dilutive effect of its securities offering. The bond insurer had raised $1.5 billion late last week selling common stock in an attempt to try to keep its triple-A ratings.

Bear Stearns ( BSC) shares were down nearly 12% after Moody's downgraded dozens of tranches of securities issued by a Bear Stearns trust and backed by home mortgages that stand between subprime and prime. The cuts came as delinquencies and foreclosures climbed higher than expected, the ratings agency said.

Fellow brokerage Lehman Brothers ( LEH) announced that it is laying off 5% of its work force, or about 1,430 people because of difficult market conditions. That stock slipped 6.5% to $43.35.

Elsewhere, MBIA ( MBI) lost $1.08, or 9%, to trade at $10.94. Desperately trying to convince the market that things are stable, MBIA's chief executive sent a letter to shareholders saying it was starting to write new business and that the credit markets are wrong in their dire predictions for MBIA.

All the bad news was enough to push financial stocks lower, as the Financial Select Sector SPDR ETF traded down 3%. The NYSE Financial Sector was down 1.8% to 6,817.74.

Bucking the trend Nationwide Financial Services ( NFS), who soared 25% to $47.69 after parent company Nationwide Mutual offered to take the publicly traded company private. The deal is valued at $2.2 billion and represents a 24% premium over the closing price on Friday, which was $37.93.