Shares in Countrywide Financial, the biggest US mortgage lender, fell 13% on Wednesday on fears that it could face bankruptcy if conditions deteriorate.
The housing slump and rate rises have been big problems for lenders
Merrill Lynch advised its clients to sell shares in the lender.
Its analyst Kenneth Bruce wrote: "If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt."
Countrywide suffered growing defaults as rising interest rates made it harder for people to pay their mortgages.
Its shares fell $3.17 to $21.29, which was its biggest fall in a single day since the crash of 1987 - the shares have fallen 50% so far this year.
The warning from Merrill Lynch came a day after Countrywide announced that foreclosures and mortgage delinquencies had risen in July to their highest levels since early 2002.
There was much speculation in the market that Countrywide had been having difficulties selling short- term debt, which would make it difficult or unacceptably expensive for the lender to run its day-to-day operations.