The mortgage meltdown in the United States passed another landmark yesterday after it emerged that Bank of America was in advanced discussions to buy Countrywide Financial, America’s biggest home loan provider.

The proposed deal, which could still fall through, follows Bank of America’s $2 billion cash injection in Countrywide last August, as the mortgage group struggled to prop up its operations after a surge in defaults on its loans severely restricted its ability to raise new debt.

Since then, Countrywide has faced persistent rumours that it was on the verge of bankruptcy. The company reported the first loss in 25 years in its third quarter and said on Wednesday that foreclosures and late payments reached a record in December.

It is not known how much Bank of America will pay for Countrywide but it is likely to be able to acquire the remaining shares for less than it paid last summer, when it took a 16 per cent stake.

Countrywide’s shares fell 79 per cent last year and a further 28 per cent this week when rumours of the group’s impending bankruptcy reached a new level of intensity. This left Countrywide with a market capitalisation of about $3 billion, despite the group’s repeated assertion that there was no substance to the bankruptcy rumours. Shares in Countrywide leapt by 74 per cent to $8.91 immediately after news of the deal leaked on The Wall Street Journal’s website yesterday. They closed at $7.75, a rise of 51 per cent on the previous night’s closing price.

Bank of America and Countrywide declined to comment.

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