It's the second time this week we have started out an article talking about the rumors flying around Countrywide, but this time the rumors seem to have more grounding in fact and are certainly much better news for Coutrywide, its employees, and stockholders.

On Tuesday the buzz on Wall Street was that Countrywide could not survive the financial crisis it was in due to its high profile role in subprime lending. Bankruptcy, the "experts" were saying, is coming and coming soon. The stock lost a huge chunk of its value that day and the company's problems contributed in no small part to the Dow Jones falling over 200 points.

But Thursday the rumor was that Bank of America Corporation was in "advanced talks" to buy Countrywide and the stock's price soared in minutes from around $5 a share to close to $9 before settling down to close at $7.75.

By late afternoon both Reuters and the Wall Street Journal were reporting the rumor as fact, saying that Bank of America was preparing to follow-up its August investment of $2 billion in Countrywide preferred stock (at approximately $18 per share - ouch) with an outright purchase of the company. The bank confirmed this morning that it is offering $4 billion in stock to buy the troubled mortgage lender. Countrywide shareholders will receive 0.1822 of a share of Bank of America stock for each share they own of Countrywide. This values Countrywide stock at 7.16 per share, 7.6 percent less than where the stock finished up the day on Thursday.

The transaction is expected to close in the third quarter of 2008.

This deal, if sealed, would make Bank of America the largest mortgage lender and servicer in the country. Much of its growth has been fueled through acquisitions under its president Kenneth Lewis. In the last four years he has purchased FleetBoston Financial Corporation (which itself had earlier swallowed up the bankrupt Bank of New England and its Maine and Connecticut subsidiaries, Bank of Boston, and Sterling Bankcorp), MBNA, the credit card company; LaSalle Bank Corp.; and U.S. Trust, spending $100 billion in the process.

Not everyone was viewing the proposed buyout as a plus for Bank of America. The Wall Street Journal warned that the many lawsuits brought by borrowers against Countrywide alleging lending and loan-servicing abuses might place its new owner in significant legal and financial jeopardy unless it takes steps during the acquisition process to limit its exposure to the suits. Bankruptcy would have severely reduced the litigants' recovery but typically in an acquisition the party buying the assets must agree to address pending litigation.

In addition, the attorneys general of Illinois and California are investigating Countrywide's mortgage-lending practices and attorneys at the Justice Department are looking at allegations that the company misrepresented borrowers' debt and the handling of their payments during bankruptcy proceedings.

In another interesting take on the story, Hank Greenberg, writing in his MarketBlog opines that the federal government could be behind the deal and has likely agreed to guarantee Bank of America against Countrywide-related loss. While he hastened to add that there was no evidence of the latter, it is intriguing.

And there were also rumors this morning that another big mortgage lender/servicer might disappear into the maw of a larger financial institution. CNBC is reporting the Washington Mutual has held "very preliminary merger talks with JPMorgan Chase. This is far from a done deal as JP Morgan is also exploring the purchase of two other banks - SunTrust and PNC.

In December Washington Mutual announced it would cut its dividend along with over 3,000 jobs and attempt to raise $2.5 billion in new capital as it struggled to cope with mortgage related losses.

**VIDEO(1057,1058)**