The banks are still not lending and I hear every excuse in the book. I accept the fact that lending practices are much more restrictive than they have been in the recent past. I also understand that banks are trying to conserve capital against volatile and unpredictable market gyrations. However, the pendulum has swung too far to the conservative side.

Here is a recent example from a deal I was able to get done but it took three times as long as it should have. First the appraisal by my estimation was 10% to 15% low -- no one is sticking their neck out. I know this because I am seeing weekly transactions in the neighborhood. Then the maximum loan to value has gone from the ridiculous 100%, which no sane person should have done, to 70%, the bank in this case Wells Fargo & Company (NYSE: WFC), said it was because it wanted to maintain its AAA rating.

Another bit of pain. After I had everything in place, in the case of a home loan, subordination became an issue! Things are so specialized and compartmentalized that the lender has different underwriters and standards for its First Trust Deeds and its Home Equity loans and since I had both, the HELOC (a form of second mortgage) had to be subordinated to the First.

No more home mortgages for the time being. The former number two originator of home mortgages in the United States, IndyMac Bancorp (NYSE: IMB), is shutting down its operations and laying off 3800 workers, more than half of its employees.

By halting its prime business, IMB might as well have announced they have turned to stone, as it seems its financial situation is frozen for now. Last quarter it announced continued losses and changed its outlook from being profitable in the fourth quarter to seeing nothing but losses through 2008.

It is always difficult to discuss one's failings, but nothing has been worse than my suggestion that IndyMac might be a screaming buy last year. The stock is down 97%. The sad truth is it was a screaming sell and my worst call since I have been writing for BloggingStocks.com. That will be a separate story.

Today, IndyMac is trading down 47% to $0.37. It will have to restructure once again and will be submitting a survival plan to the FDIC. The current market cap is about $37 million, while its losses over the last twelve months exceed $600 million.

Although Countrywide Financial (NYSE: CFC) the bank, has gone on record as stating it is not in danger of going bankrupt and has plenty of liquidity to continue to operate and meet its current obligations, that could change. The bank is no doubt referring to the immediate future, like today or this week. Those who have expressed concern are thinking about next week, next month or six months out. I have no idea what the truth is, or if there are multiple truths, or if the company is dancing on the head of a pin.

• "Countrywide Home Loans is expected to service debt maturities beyond 2008 without additional debt issuance," the company said. Earlier Tuesday, a Countrywide representative told The Wall Street Journal that speculation the company may file for bankruptcy is 'absolutely false.'"

The company stock started off the year around $45 per share -- shares now trade around $9 per share. Here is a point that may be lost on the average investor: Even if there was no problem whatsoever with subprime mortgages and even if not one single mortgage holder was foreclosed on, Countrywide's business is down perhaps 80% and it is losing money -- profits are not to be found.

If people are not buying homes and condos and are not seeking traditional loans or any other kind, then Countrywide has to move fast to shrink its enterprise to match the customer demand level (which it has indeed been doing), and then start growing when the market picks up again. That means it has to be lean and mean, which means in turn that the company has to have the wherewithal to survive in a tough market for several years, not just this month.

Judging from the terms it gave Bank of America (NYSE: BAC) for its infusion of cash, Countrywide Financial (NYSE: CFC) is pretty desperate. Word on the Street is that the company is in negotiations with Leona Helmsley's dog for another $12 million.

There's another way that the company could raise money, though it's doubtful that it will ever happen. As Brett Arends pointed out recently, CEO Angelo Mozilo sold $425 million worth of his company's stock in the past 3 years -- at an average price of $36.50. The stock is now trading under $20.

But don't worry -- a Countrywide spokesman has said that Mozilo was diversifying his portfolio for retirement. $425 million? Is he retiring to the Moon with Lance Bass? Mozilo has continued to dump more shares, even in the past few weeks, as part of his 10b5-1 plan.

Bloomberg News reports that Bank of America Corporation (NYSE: BAC) thinks that mortgages have further to fall. And Bank of America names specific companies which it believes will be damaged the most.

The bank believes that mortgage losses so far are "the tip of the iceberg." That's due to the enormous volume of variable rate mortgages scheduled to reset in the next couple years -- specifically $515 billion in 2007 and another $680 billion worth in 2008. If that's not bad enough, interest payments on about $900 billion of the riskiest subprime home loans are due to increase in 2007 and 2008.

I've been posting about real estate problems since last October. But Bank of America seems to think that two of the stocks most exposed to the mortgage mayhem have further to fall because they hold mortgages themselves as well as selling them on to investors and may not have set aside enough money to cover losses. These two:

• IndyMac Bancorp (NYSE: IMB) looks cheap. Its Price Earnings to Growth (PEG) ratio of 0.2 -- based on a P/E of 7.4 and earnings growth of 35% to $3.97 in 2008 -- makes it look extremely cheap to me unless the analysts who track IndyMac are way off the mark.
• Countrywide Financial Corp. (NYSE: CFC) looks cheap. Its PEG ratio of 0.5 -- based on a P/E of 9.7 and earnings growth of 19% to $4.55 in 2008 -- makes it look inexpensive to me unless the analysts who track Countrywide are way off the mark.

What investors need to figure out is whether their current stock prices reflect all the bad news or whether things will get still worse. I'd be inclined to think that the bad news is reflected in the stocks already and Bank of America is wrong about these two stocks. What do you think?

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post