Countrywide sinking into sunset crapper as housing woes continue

A day after its second-quarter bad news came out, D.R. Horton couldn’t escape the Street, off 6.6 percent. Pulte was off nearly 6 percent.

But here’s the biggie: Countrywide Financial shares were down 7.5 percent to $4.94 today as speculation grew that its merger with Bank of America will crash or be renegotiated. Here’s why:

Standard & Poor's equity analysts wrote today that they believe Bank of America “will renegotiate a lower price due to large losses in CFC’s loan portfolio.” They value the shares at $6, on the expectations that the deal will be reworked.

Bank of America’s recent regulatory filing intimating that the company may not guarantee Countrywide’s debt has also increased the cost of default insurance.

I think S&P, the second-biggest financial rating company after Moody’s and itself responsible for some of this crap, is being too optimistic. And I’m not alone:

Earlier this week, Paul Miller, an analyst at FBR Capital Markets, wrote that Bank of America could slash its offer from roughly $7.25 a share to $2 or less.

Countrywide’s $95 billion loan portfolio has “deteriorated so rapidly” this year, Miller said, that buying the company could dent Bank of America's earnings or force the banking giant to raise additional capital.