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One thing that's scaring a lot of investors is the fate of Countrywide Financial. Countrywide is the biggest mortgage company in the United States. It originates 17 percent of all mortgages sold in this country. And like the entire mortgage industry right now, Countrywide is having trouble raising the capital it needs to operate. Increasingly, people are wondering whether Countrywide can survive the current turmoil in the credit markets.

NPR's Jim Zarroli reports.

JIM ZARROLI: Countrywide was not supposed to be in the position it's in right now, says analyst Fred Cannon of Keefe Bruyette & Woods.

Mr. FRED CANNON (Analyst, Keefe Bruyette & Woods): The trouble has evolved very rapidly, really. I mean, I would think that if you would talk to most investors as, you know, as recently as a month ago, this situation or the challenges they face today would be, you know, very difficult to fathom.

ZARROLI: But such is the state of the mortgage business right now that even Countrywide appears to be in some peril. Countrywide was founded in 1969 in Southern California, and Cannon says over the years, it's gained a reputation as one of the most efficient and best-run mortgage lenders around.

Mr. CANNON: By being focused on all things mortgage, they've really out competed many of their - the large bank competitors and just become a real category killer in the sector.

ZARROLI: Over the years, Countrywide has also diversified into banking services and insurance, and that's one reason why many analysts initially predicted it would survive the carnage in the mortgage business. But last month, the company's CEO, Angelo Mozilo, told investors in a Web cast that even Countrywide was starting to feel pinched.

Mr. ANGELO MOZILO (CEO, Countrywide Financial): As I try to walk through, you know, what happened here - incurred a lot of this didn't, you know, foreseen and, you know, should we have known, could we have seen it, that as I do reflect on it - and I do a lot - that nobody saw this coming.

ZARROLI: It's not that Countrywide isn't profitable - it still makes money offering conventional mortgages, and it gets a huge amount of money each month from outstanding loan payments.

But Guy Cecala, publisher of Inside Mortgage Finance newsletter, says Countrywide relies heavily on short-term financing to fund new mortgages and pay salaries. And with the mortgage business in so much trouble, it's having problems borrowing money.

Mr. GUY CECALA (Publisher, Inside Mortgage Finance): That is the entire issue. If funding was no longer an issue, they'd be back to normal and nobody would be questioning them at all.

ZARROLI: Countrywide has tried to reassure investors it can keep operating. Today it issued a statement saying it had tapped an $11 billion line of credit issued by a group of banks. Meanwhile, its ads continue to blanket cable TV channels.

(Soundbite of Countrywide TV ad)

Unidentified Male: Homeowners, want to refinance and get cash? Countrywide has a great reason to do it now - a no cost refine.

ZARROLI: But investors have grown more and more skeptical about Countrywide's future. The company's stock price started the year at $42 a share. Today, it finished at about 20.

Guy Cecala says if the credit crisis continues for as much as another week, it's not clear Countrywide can survive. And Cecala says that's a big problem for the economy.

Mr. CECALA: Is Countrywide too big to fail? And in my mind, they are. The U.S. government could not afford to have Countrywide go into bankruptcy.

ZARROLI: Cecala says if Countrywide fails, it will spark a worldwide panic about the state of the U.S. mortgage market.

Mr. CECALA: If we're having a panic now, what worst signal could you send than having the largest mortgage lender go under, particularly if they account for close to one in five of all mortgages made?

ZARROLI: And Cecala says it's hard to imagine how such a big bankruptcy could be carried out. It would mean selling off and disposing of a huge number of assets. Other lenders would have to step in to service Countrywide's large loan portfolio. And he says it's not even clear they have the capacity to do so. There has never been a mortgage lender as big as Countrywide, and for the economy, the prospect of it failing is chilling.

Jim Zarroli, NPR News, New York.

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