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Countrywide Financial's Latest Crisis

SUSIE GHARIB: More problems for Countrywide Financial tonight. Late today, Moody's investor service downgraded the ratings of some of Countrywide's mortgage debt and is considering additional downgrades. Shares of the mortgage lender have been in free fall on concerns about a possible bankruptcy. But Countrywide says it's making progress, pointing out that it made $24 billion in new loans last month. Still, it also said foreclosures doubled from a year ago and the number of borrowers late with payments is growing. As Stephanie Dhue reports, the question now is whether Countrywide, the nation's biggest mortgage lender, is too big to fail.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Countrywide is more than just a mortgage company. It's also an FDIC-insured bank with more than $60 billion in deposits and it has more than $55 million in loans from Federal home loan banks. That's why S&P equity analyst Stuart Plesser, whose firm may do business with Countrywide, says the government has an interest in avoiding a Countrywide collapse.

STUART PLESSER, EQUITY ANALYST, STANDARD & POOR'S: It would have a major impact on home prices because of originations and also the securities market for mortgage-backed securities, because of the paper that Countrywide holds. And this is a pretty big enterprise that the government really has to keep a watch on.

DHUE: But some analysts say the impact of a Countrywide failure on investor confidence is small at this point, since traders have already discounted a possible bankruptcy. "Inside Mortgage Finance" publisher Guy Cecala says competitors could replace Countrywide's lending, but the psychological impact of a failure may prompt regulators to keep it from going bankrupt.

GUY CECALA, PUBLISHER, INSIDE MORTGAGE FINANCE: They'd have to work out a planned marriage or merger to another financial institution, preferably a large bank and they'd have to make it attractive enough for that bank to assume those liabilities and associated costs with that.

DHUE: Countrywide received a $2 billion cash infusion from Bank of America in August. But if Countrywide were to declare bankruptcy, AEI's Peter Wallison says the assets would be snapped up.

PETER WALLISON, SR. FELLOW, AMERICAN ENTERPRISE INSTITUTE: Countrywide, in fact, would be a rather easy bankruptcy, because its assets turn out to be things that are readily marketable. They'll be marketable at a discount of some kind, but they are mortgages and many people are standing by to buy mortgages that will eventually become very valuable assets.

DHUE: Countrywide said today it is pleased with the progress that it's made in positioning itself to navigate the current challenging environment. The company has promised a return to profitability in the fourth quarter, but many analysts are skeptical they can pull it off. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.