As Tanta has written in Calculated Risk, Bloomberg reports

Countrywide Financial Corp. dropped the most in two decades on the New York Stock Exchange amid speculation the largest U.S. mortgage lender will file for bankruptcy.
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"There's some sort of rumor that they would go under, but it's purely a rumor," said Thomas Garcia, head of trading at Thornburg Investment Management, which oversees about $50 billion in Santa Fe, New Mexico.

I think that bankruptcy of Countrywide is inevitable. If it happens…

Is Countrywide going bankrupt?

This is a rumor only, not a fact as of this writing.

What will happen to your short sale in event of Countrywide bankruptcy?

Nothing should change. Countrywide currently has almost 15,000 properties it owns that it has repossessed from homeowners. It will not want more. So if you are doing a short sale, you should be able to continue.

What about other financial players such as the folks who insure mortgages and bonds?

Countrywide stock plummeted today on rumors that it would fail and then pull down the companies who insure mortgages and bonds:

Intraday, Countrywide shares are tanking another 15% after falling more than 9% yesterday. Bond insurers like MBIA and Ambac Financial have also taken an intraday swan dive. No "official" news/cause for the decline is out there. But a couple of newswires carried reports about speculation — pure speculation — that a bankruptcy filing could be looming at Countrywide. This is pressuring the entire financial sector and causing credit spreads to widen.

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