Wall Street increasingly expects that Bank of America will repudiate its agreement to buy Countrywide Financial, the disgraced and struggling mortgage company. Countrywide's balance sheet has continued to implode, and last week BOA told Countrywide's creditors not to count on getting paid back after the deal. Translation: BOA has buyer's remorse, just like so many home buyers. In fact, says a Friedman Billings analyst, Countrywide is in a negative equity situation and its owners may end up with only $2 a share. From Reuters:

Bank of America Corp (BAC.N: Quote, Profile, Research) is likely to renegotiate its deal to buy Countrywide Financial Corp (CFC.N: Quote, Profile, Research) down to the $0 to $2 level or completely walk away from it, said Friedman, Billings, Ramsey, which downgraded Countrywide to "underperform" from "market perform."

Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings due to the elevated credit expenses at Countrywide, analyst Paul Miller wrote in a note to clients.

He cut his target on Countrywide's stock to $2 from $7.

Bank of America, which said in January it would buy Countrywide for $4 billion, said in a filing last week there was no assurance that any of the mortgage lender's outstanding debt would be redeemed, assumed or guaranteed.

"Bank of America announced that it might not guarantee Countrywide's debt, which is most likely the first step in renegotiating the entire deal," Miller said.

Countrywide is down 60 cents this morning to around $5.30.