FROM CONSPIRACY THEORY TO COMMON WISDOM... JAN 8, 2008

NEW YORK (AP) - Shares of Countrywide Financial Corp. plummeted Tuesday after a New York Times report said the mortgage lender fabricated bankruptcy documents and a Lehman Brothers analyst said the company is unlikely to return to prior profitability levels.
Shares of Countrywide fell $2.17, or 28.4 percent, to $5.47 Tuesday. Earlier in the session,
shares bottomed out at an all-time low of $5.05 after speculation the company was planning to file for bankruptcy itself. Countrywide later denied the rumors.
Countrywide shares have already lost about 26 percent of their value since the beginning of
the year. Since the beginning of 2007, shares of Countrywide have plummeted about 84
percent.
According to the New York Times article, Countrywide "recreated" letters claiming a borrower owed the company $4,700, even though the borrower was under bankruptcy protection.
Countrywide said in a statement documents were not recreated, and that it was not trying to pass off the letters as being sent borrower. Instead, the letters were printed with dates that listed when payment adjustments were made to the borrower's escrow The case is one of 300 bankruptcy cases in western Pennsylvania where Countrywide's practices are being scrutinized.
The nation's largest mortgage lender has been trying to cope with a worsening housing market and rising delinquencies and defaults, among subprime mortgages given to customers with poor credit history.
Countrywide posted $1.2 billion in losses in the third quarter of 2007 because of the weakening mortgage market. Countrywide million during that quarter to cover rising defaults among loans.
The lender essentially shut down its subprime lending operations and is instead focusing on originating loans that conform to Fannie Freddie Mac guidelines. Because the loans meet the criteria of two government-sponsored entities, they are considered safe investments.
But they are also less profitable. Lehman Brothers analyst Bruce Harting cut his fourth-quarter earnings estimate for Countrywide share from 36 cents per share.
"While Countrywide's transition to originating mostly GSE conforming mortgages has reduced balance sheet risk caused by its originations, the dramatic decline in Countrywide's earnings power this transition has caused has kept Countrywide's creditors company's liquidity," Harting wrote in a research note.
Harting said Countrywide will face additional pressure because the weakness in the overall housing market has depressed totally © 2008 The Associated Press. All rights reserved.