Shares of Countrywide Financial Corp dropped as much as 7 percent on Monday after analysts slashed earnings estimates for the largest U.S. mortgage lender and a report showed existing home sales fell.

Analysts at Lehman Brothers lowered their third- and fourth-quarter and 2008 estimates for Countrywide's results, citing expectations that the lender will have to mark down loans on its balance sheet, and that the mortgage market will remain difficult.

Countrywide's shares have fallen more than 50 percent this year as defaults have risen first in subprime loans, and increasingly in loan categories seen as safer, like home equity loans.

The mortgage lender last week said it received a $2 billion capital injection from Bank of America Corp. to shore up its finances, just days after Countrywide drew down $11.5 billion on bank lines as its access to the commercial paper market was squeezed.

Countrywide's shares fell 4.9 percent to $19.97 in morning trading on the New York Stock Exchange, after trading as low as $19.53.

An increasing percentage of loans that Countrywide makes will have to be eligible for purchase by Fannie Mae or Freddie Mac, which should cut into profits in the future, Lehman analysts said.

Lehman lowered its target price on Countrywide shares to $28, from its previous $30.

Lehman also said it expected Countrywide to post a 75 cent- a-share loss for the third quarter, and earnings of 21 cents a share for the fourth quarter. Full year earnings for 2008 should be $1.55 a share.

Lehman had previously expected Countrywide to post earnings of 67 cents a share in the third quarter, 60 cents a share in the fourth quarter, and $3 a share for 2008.

Analysts on average expect earnings before special items of 15 cents a share for the third quarter, 47 cents a share for the fourth quarter, and $2.96 a share for 2008, excluding special items, according to Reuters Estimates.

A separate report from the National Association of Realtors said that the supply of unsold single-family homes hit its highest level since 1991, suggesting the U.S. housing market is still suffering.

(Reporting by Dan Wilchins)

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