March 10 (Bloomberg) -- Bank of America Corp., the largest U.S. bank by market value, plans to press ahead with its $4 billion takeover of Countrywide Financial Corp., the mortgage lender under FBI investigation for possible securities fraud.

The Federal Bureau of Investigation, based in Washington, is scrutinizing whether Countrywide officials misrepresented the company's financial position and the quality of its mortgage loans in regulatory filings, said a person with knowledge of the probe on March 8. Bank of America spokesman Scott Silvestri said the acquisition of Calabasas, California-based Countrywide remains on track.

``Nothing I've seen suggests that Bank of America is backing off,'' says Tom Atteberry, a partner at Los Angeles- based First Pacific Advisors LLC, which oversees $2 billion. ``It's in everyone's best interest that Countrywide avoid bankruptcy and it's hard to believe that there isn't some kind of agreement to help Bank of America avoid some of these legal problems.''

Countrywide, the biggest U.S. mortgage lender, has fallen 31 percent in New York trading since Bank of America offered to buy the company on Jan. 11 in a stock swap. Investors are speculating the Charlotte, North Carolina-based bank may seek a lower price or walk away because the housing slump has deepened, with record foreclosures and falling home prices.

Countrywide fell 71 cents, or 14 percent, to $4.36 at 4:15 p.m. in New York Stock Exchange composite trading. Bank of America dropped $1.43, or 3.9 percent, to $35.31.

Widening Probe

The FBI's examination is at a preliminary stage, said the person, who declined to be identified because he wasn't authorized to speak about the matter. Officials at Bank of America declined to comment about the probe on March 8, the day it was disclosed in the Wall Street Journal. FBI spokesman Richard Kolko also declined to comment. Countrywide's Jumana Bauwens said the company wasn't aware of the investigation.

Countrywide is among at least 14 companies the FBI is checking for possible violations tied to the subprime lending crisis, including mortgage lenders, developers and Wall Street firms that packaged loans into securities. The FBI disclosed the review in January without naming any companies.

Lenders are facing increased scrutiny from regulators as record defaults displace homeowners, roil credit markets and threaten to tip the U.S. into recession.

``It's not uncommon for the FBI to investigate matters that have created such controversy,'' said Gary Townsend, co-founder of Chevy Chase, Maryland-based money management firm Hill- Townsend Capital. ``This is just one more thing for Bank of America to watch as they move forward on this deal.''

`Conflicting Views'

Analysts including Paul Miller of Friedman Billings Ramsey & Co. in Arlington, Virginia, criticized Bank of America for paying too much for Countrywide, citing the increase in overdue payments. Shareholders including Bill Miller of Baltimore-based Legg Mason Capital Management, which held about a 9 percent stake at the end of December, and the SRM Global Fund, with 5 percent, said Countrywide sold for too little.

``There are conflicting views within the Bank of America board on whether this is a good deal,'' said David Lykken, founder of Austin, Texas-based industry consulting firm Mortgage Banking Solutions. ``Ultimately, the economics will prevail and it will get done.''

Lykken said officials from the FBI have contacted him in recent months with general questions about the industry. While Lykken doesn't know specifics about any probe, investigators may be focused on income and credit information disclosed by borrowers and presented by lenders, he said.

Doubts Persist

``There's a whole lot of excitement and hullabaloo, but proving criminal conduct is likely to be difficult,'' Lykken said. ``A lot of people were caught up in the atmosphere when the housing market was booming.''

Edward Jones & Co. downgraded the stock to ``sell'' from ``hold'' today. The FBI investigation ``may give Bank of America reason to request the previous deal be restructured in the bank's favor or walk away from the deal completely,'' Edward Jones analyst Patrick Schumann wrote in a report today.

``The only reason the stock isn't trading lower is the perception of heavy regulator support or coercion on this deal,'' said Brian Horey, a general partner of New York-based Aurelian Management LP, which has made bets against mortgage insurers including Countrywide. ``I don't think the deal closes without a more explicit bailout of Countrywide by the government.''

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: March 10, 2008 17:04 EDT