According to a person with knowledge of the discussions, Bank of America (NYSE:BAC) is in serious talks to acquire Countrywide Financial Corporation (NYSE:CFC). California-based Countrywide has been speculated to be in severe danger of being forced to declare bankruptcy. It has been the face of what has now become the story of the past 6 to 8 months in the stock market, the mortgage crisis. 
Countrywide has one of the worst, if not the worst, mortgage portfolio of any of the lending banks. Countrywide is also the target of some government investigations because many believe they took advantage of consumers, many of whom are now being foreclosed upon.
The most interesting part about this possible takeover is the investment that Bank of America made in Countrywide back in August of last year. At that time Bank of America invested $2 billion into Countrywide by buying preferred securities that could converted into stock at $18 a share in the future. After the initial pop from this news, Countrywide's stock has plunged, falling to $5 a share a couple of days ago.
Some analysts believe this is Bank of America's way of doubling down on the investment in August, which has clearly not turned out too well yet. Others believe that while Countrywide's business will be very difficult to turn around, picking it up at this price could prove to be a very smart decision 5 or 10 years from now.
Importantly, if deals like this start becoming a common occurence, the stock market will likely get a boost. Investors love hearing that other major institutions are willing to buy troubled mortgage lenders, because it shows a confidence that those business can be turned around over time.
Stay tuned to see if these rumors end up being the truth, or just wild speculation.
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