The Federal Bureau of Investigation is conducting a probe of Countrywide Financial Corp., exploring whether or not the firm engaged in securities fraud, the Wall Street Journal reported over the weekend. Investigations are at an early stage, according to sources interviewed by the WSJ, and center on whether the company misrepresented its financial position and/or the quality of the loans it originated in filings with the Securities and Exchange Commission. The company is one of sixteen under investigation by the FBI in a wide-ranging inquiry into subprime lending practices during the recent run-up in U.S. housing. From the Journal:

Federal investigators are looking at evidence that may indicate widespread fraud in the origination of Countrywide mortgages, said one person with knowledge of the inquiry. If borne out, that could raise questions about whether company executives knew about the prospect that Countrywide’s mortgage securities would suffer many more defaults than predicted in offering documents. Another potential issue facing the company is whether it has been candid in its accounting for losses. People familiar with the matter said that Countrywide’s losses may be several times greater than it has disclosed.

The unending spotlight placed on the nation’s largest lender and servicer has some questioning whether or not the proposed Countrywide/Bank of America merger will continue as planned, although one industry source with knowledge of the acquisition said this morning that BofA is moving “full steam ahead” to execute the deal. Disclosure: The author held shares in CFC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.