FLASH: Subprime king Countrywide (hello Sarbanes-Oxley) finally comes clean, says it may face "earnings volatility". You don't say!

I think there are now grounds to open an SEC investigation for insider stock dealing, stock manipulation and false statements at Countrywide.

Just last week Angelo Mozilo had Countrywide's CFO marched out to proclaim how happy days were here, and how Countrywide was a "top-conditioned athlete", even though they knew subprime is in 100% meltdown mode, 19% of their subprime loans are already delinquent, and the disease has likely spread to their Alt-A portfolio.

Well, now today, possibly because of the advice of legal council, Countrywide started coming clean just a bit. Or maybe Mozilo and the corrupt insiders at CFC finally sold through the shares they had available to dump.

Note: Like Mozilo and the CFC insiders, I'm betting the stock will continue to free-fall and am short CFC. Oh, anyone see NEW is off another 50% today, down 95% in the past six weeks? Nah, no problems in subprime. None at all.

NEW YORK, March 12 (Reuters) - Countrywide Financial Corp., the largest U.S. mortgage lender, on Monday said it has minimal exposure to nonprime mortgages, but may still experience fluctuating earnings in the near term due to turmoil in the U.S. subprime market.

The company said it was tightening its underwriting standards, adding that nonprime loans were only 7 percent of its funding volume in February.

Countrywide said it should benefit from competitors exiting the market. But the company may experience some short-term earnings fluctuations as difficulty in the subprime market cut into the amount of money it generates from selling loans to investors, and the value of the loans it hangs onto.

The lender also said it made $35 billion in mortgage loans in February, up 10 percent from a year earlier but down from January.

Countrywide said loans to less creditworthy borrowers fell to $2.6 billion from $2.8 billion a year ago.

FLASH: Mortgage Defaults Spread Beyond Sub-Prime Loans

Silly analysts. Silly Bernanke. Silly Mozilo. Silly Greenspan. Silly Lereah.

It's not just subprime, and they know it. Here comes The Great Alt-A Meltdown (needs a sexier name, eh?)

Wall Street Journal: Mortgage Defaults Start to Spread

The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks).

A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%.

The catch-all Alt-A category includes many of the innovative products that helped fuel the housing boom, such as mortgages that carry little, if any, documentation of income or assets, and so-called option adjustable-rate mortgages, which give borrowers multiple payment choices but can lead to a rising loan balance. Loans taken by investors buying homes they don't plan to occupy themselves can also fall into the Alt-A category.

Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. "The credit deterioration has been almost parallel to what's been happening in the subprime market," says UBS mortgage analyst David Liu.

Investor concerns about Alt-A loans are rising, according to Walter N. Schmidt, a mortgage investment strategist at FTN Financial Capital Markets in Chicago. A report from mortgage analysts at Barclays Capital in New York this week pointed to fraud as one reason for early defaults on Alt-A loans.

The mortgage industry is battling a rash of cases in which borrowers, loan officers and appraisers collude in providing false information to induce lenders to advance more money than homes are worth.