Will Countrywide Toxic Mortgage's Angelo Mozilo go to jail?

A) Yes
B) No
C) Not soon enough

Here's another couple of stinging exposes of The Orange One by Bloomberg and Krugman at the NY Times. Nice to see (again) the MSM catch up to HP. I especially liked the point that the damage caused by Mozilo to Americans (and foreign investors) is SIGNIFICANTLY worse than anything Ebbers or Lay did. SIGNIFICANTLY worse.

Note I'm short CFC via Oct puts.

Countrywide CEO sold big as stock dropped - Quick changes in Mozilo's trading plan raise red flags, experts say. The mortgage firm says the sales were in line with company policy.

As the mortgage industry swooned in late 2006 and 2007, Countrywide Financial Corp. Chief Executive Angelo Mozilo cashed in stock options valued at $138 million -- vastly expanding his wealth even as his shareholders watched their stock shrink in value.

"There is clearly no legal prohibition of altering your plan," said David Priebe, a Bay Area attorney who has helped set up more than 50 of such plans for executives. "But the more that you modify or add to your plan over a short period of time, the more risk that someone will call it into question. I would not say that you cannot do it. I would say there is a risk if you do do it."

And now here's Krugman highlights:

Enron’s Second Coming?

These days, of course, Mr. Mozilo doesn’t look like such a wonderful guy, after all. Instead, he’s starting to bring back memories of other people who used to be praised not just as great businessmen but as great human beings — people like Enron’s Ken Lay and WorldCom’s Bernie Ebbers.

So far, nobody has accused Mr. Mozilo of breaking the law. Still, what we’re learning from the housing mess is that the crisis of corporate governance, which made headlines in the early years of this decade, never went away.

Still, how can it be that so soon after Enron, WorldCom and other scandals rocked the business world, we’re once again hearing about executives cashing in just before their companies are revealed as less successful than advertised? The answer, of course, is that we never dealt properly with those scandals.

There is one big difference this time: the number of victims — misled borrowers, homeowners whose neighborhoods are being destroyed by foreclosures, investors who thought they were buying safe assets — is even larger.

Anyone want to guess when Countrywide announces the mass layoff and a hundreds-of-millions of dollars "mark to market" balance sheet markdown?

Orangelo has dumped enough shares, and the cat's out of the bag, so now he's gotta be thinking Sarbanes Oxley, and staying out of jail.

So here comes the huge layoff (20,000?), office closures, and shocking cancer loan portfolio markdown (mark to market CFC auditors? anyone minding the store?)

I've got a feeling the news could be soon, real soon... and yes, I own CFC puts. Do you?

FLASH: And today, for all the world to see (including the SEC), we see why Countrywide Mortgage's Angelo Mozilo was dumping shares like rotten oranges

I hope some of you were short Countrywide. HP'ers saw this car crash coming a mile away. Next up - IndyMac.

Yes, I'm short IMB and CFC, and it was all so obvious now. Mozilo is laughing all the way to the bank, but we all know you can't take your money to jail... Good luck Orange Man with the gotta-be-coming-soon SEC investigation.

Countrywide quarterly profit tumbles; shares off 7%
Subprime problems spread to top-rated mortgages, lender says

NEW YORK (MarketWatch) -- Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans.

The warning pushed Countrywide shares down more than 7%, to their lowest level in almost two years. It also weighed on the broader stock market because investors have been waiting to see if credit problems in the subprime-mortgage sector would spill over into higher-rated, or "prime" home loans.

"The company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home-equity loans," CEO Angelo Mozilo said in a press release detailing Countrywide's second-quarter financial results.

Countrywide's second-quarter net income fell 33% to $485 million, or 81 cents a share, down from $722 million, or $1.15 a share, earned a year earlier, on softening home prices.

Further dampening enthusiasm, Mozilo commented: "During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result."

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.

Wow - talk about telling it like it is. DR Horton CEO Donald Tomnitz: "2007 is going to suck, all 12 months of the calendar year"

You got Mozilo out there pumping Countrywide, when we all know what's about to happen there. You have Bob Toll talking bottom, and how he'll easily burn off his inventory and all will be fine in a few months. You have The Corrupt David Lereah, well, let's just forget his BS.

And then you have DR Horton's CEO. Oh, man, do you have DR Horton's CEO. I guess someone has read Sarbanes Oxley. I guess someone doesn't want to do jail time with all the others.

Bravo.

Bleak housing outlook for US firm

The boss of the largest US housebuilder has warned that his company's fortunes are likely to "suck" in 2007.

DR Horton chief executive Donald Tomnitz told investors that the weak US housing market would continue to hit home prices during the year.

"I don't want to be too sophisticated here, but '07 is going to suck, all 12 months of the calendar year," he said.

US housebuilders have been struggling with a glut of unsold new homes in the wake of a wider industry slowdown.

The number of new homes built in the US fell to a near-decade low in January, the US Commerce Department reported last month.

I don't think '08 is going to be a great year, but it's going to be much better than '07 Donald Tomnitz, DR Horton

Mr Tomnitz warned that DR Horton may have to make further write-offs to reflect the number of unsold homes and lower land values.

Countrywide's Mozilo takes $140,000,000 off the top - and sends the CFO out to pump up the stock yesterday (so he can sell some more)

The sheer volume and brazenness of this insider selling at Countrywide is staggering. Nearly $600,000,000 in sales, and $73,000 in buys. No, that's not a misprint.

And in the middle of this historic subprime / lending meltdown, instead of coming clean like HSBC and announcing the size of the write-off, Mozilo sends the CFO out yesterday to pump up the stock (so he can sell some more), having him say "We're a top-conditioned athlete" and that they have no problems, unlike all their competitors that are going belly-up.

So, why is the top conditioned athlete selling everything he has then? If times are so rosy ahead, wouldn't he be buying or holding instead?

Note: I'm gleefully short CFC.

Wall Street Journal: How Countrywide CEO Wins Amid Mortgage Mayhem

If you're looking for a big winner in the subprime-mortgage meltdown, try Angelo Mozilo.

The take-no-prisoners chief executive of Countrywide Financial sold $140 million of his personal holdings of Countrywide's stock in the past 14 months -- before last week's news that the delinquency rate on his company's subprime mortgages was soaring.

Even so, he expects shareholders to be grateful.

Mr. Mozilo's company didn't lead the subprime race-to-the-bottom in recent years, during which mortgage companies offered ever-easier terms to ever-more questionable borrowers. But he didn't slam on the brakes, either.

As subprime lending implodes, Angelo Mozilo is selling Countrywide shares as fast as he can

While putting out reassuring words to the street, false rumors of a pending acquisition by BofA, and holding back any information about what's really going on with CFC's imploding portfolio (Sarbanes-Oxley anyone?), this guy is dumping his shares as fast as possible, while his stock, industry and country's financial system melts down

Ah, only in America folks. Only in America.

Here's his soothing words the other day, from one of the largest subprime lenders in the US:

Chief Executive Officer Angelo Mozilo said last month the company pulled back from subprime loans in 2006.

"If you look at our market share, we lost some for the first time in years, but it's all in the subprime area,'' he said in a Feb. 8 interview, adding the company holds only higher- quality prime loans at its bank. ``We were a dominant player, and now subprime is a pretty small portion of our business.''

And here's his trades just this year (note - I'm still gleefully short CFC)

2-Mar-07
46,000
CFC
Option Exercise at $9.60 per share. (Cost of $441,600)
2-Mar-07
46,000
CFC
Automatic Sale at $37.18 per share.(Proceeds of $1,710,280)
1-Mar-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
1-Mar-07
70,000
CFC
Automatic Sale at $37.10 per share.(Proceeds of $2,597,000)
28-Feb-07
46,000
CFC
Option Exercise at $9.60 per share. (Cost of $441,600)
28-Feb-07
46,000
CFC
Automatic Sale at $37.91 per share.(Proceeds of $1,743,859)
22-Feb-07
70,000
CFC
Automatic Sale at $40.45 per share.(Proceeds of $2,831,500)
21-Feb-07
46,000
CFC
Option Exercise at $9.60 per share. (Cost of $441,600)
21-Feb-07
46,000
CFC
Automatic Sale at $40.77 per share.(Proceeds of $1,875,420)
21-Feb-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
15-Feb-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
15-Feb-07
70,000
CFC
Automatic Sale at $41.88 per share.(Proceeds of $2,931,600)
13-Feb-07
46,000
CFC
Option Exercise at $9.60 per share. (Cost of $441,600)
13-Feb-07
46,000
CFC
Automatic Sale at $41.26 per share.(Proceeds of $1,897,960)
13-Feb-07
241,081
CFC
Acquisition (Non Open Market) at $0 per share.
12-Feb-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
12-Feb-07
70,000
CFC
Automatic Sale at $41.19 per share.(Proceeds of $2,883,300)
9-Feb-07
46,000
CFC
Option Exercise at $9.60 per share. (Cost of $441,600)
9-Feb-07
46,000
CFC
Automatic Sale at $43.69 per share.(Proceeds of $2,009,740)
8-Feb-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
8-Feb-07
70,000
CFC
Automatic Sale at $43.47 per share.(Proceeds of $3,042,900)
5-Feb-07
46,000
CFC
Option Exercise at $9.60 per share. (Cost of $441,600)
5-Feb-07
46,000
CFC
Automatic Sale at $44.61 per share.(Proceeds of $2,052,060)
2-Feb-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
2-Feb-07
70,000
CFC
Automatic Sale at $44.52 per share.(Proceeds of $3,116,400)
26-Jan-07
23,000
CFC
Option Exercise at $9.60 per share. (Cost of $220,800)
26-Jan-07
23,000
CFC
Automatic Sale at $40.40 per share.(Proceeds of $929,200)
24-Jan-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
24-Jan-07
70,000
CFC
Automatic Sale at $41.65 per share.(Proceeds of $2,915,500)
22-Jan-07
23,000
CFC
Option Exercise at $9.60 per share. (Cost of $220,800)
22-Jan-07
23,000
CFC
Automatic Sale at $41.27 per share.(Proceeds of $949,210)
19-Jan-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
19-Jan-07
70,000
CFC
Automatic Sale at $41.24 per share.(Proceeds of $2,886,800)
18-Jan-07
23,000
CFC
Option Exercise at $9.60 per share. (Cost of $220,800)
18-Jan-07
23,000
CFC
Automatic Sale at $40.35 per share.(Proceeds of $928,050)
11-Jan-07
23,000
CFC
Option Exercise at $9.60 per share. (Cost of $220,800)
11-Jan-07
23,000
CFC
Automatic Sale at $42.18 per share.(Proceeds of $970,140)
10-Jan-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
10-Jan-07
70,000
CFC
Automatic Sale at $42.12 per share.(Proceeds of $2,948,400)
8-Jan-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
8-Jan-07
70,000
CFC
Automatic Sale at $42.05 per share.(Proceeds of $2,943,500)
5-Jan-07
23,000
CFC
Option Exercise at $9.60 per share. (Cost of $220,800)
5-Jan-07
23,000
CFC
Automatic Sale at $42.37 per share.(Proceeds of $974,509)
4-Jan-07
70,000
CFC
Option Exercise at $9.60 per share. (Cost of $672,000)
4-Jan-07
70,000
CFC
Automatic Sale at $42.22 per share.(Proceeds of $2,955,400)

NEW, FMT and LEND pretty much bit the dust today. This subprime implosion is fascinating isn't it?

NEW stock plummets another 69%

FMT down another 33%

LEND off 26%

CFC off 5%

Does anyone else have some serious dot-com deja-vu today?

This meltdown won't stop with subprime and the lenders. Nope, that's not where it ends. That's where it BEGINS.

NEW YORK, March 5 (Reuters) - Shares of New Century Financial Inc. dropped 69 percent on Monday on fears it could go bankrupt as rising concerns about defaults triggered a broad sell-off in the mortgage-lending sector.

Subprime lenders, which make loans to people with poor credit histories, suffered the biggest declines.

But the meltdown also spread to Countrywide Financial Corp, the largest mortgage lender, whose shares fell on concern that even homeowners with good credit scores will miss more payments.

"We think there is further downside risk, possibly to $0," wrote Merrill Lynch & Co. analyst Kenneth Bruce. "Bankruptcy seems a likely course of action."

Many subprime lenders are being forced to buy back loans at a loss, and several have quit the business or have gone bankrupt in the last three months.

Ready for the other shoe? Subprime lender Fremont blows up, internal memo leaked?

Here's the news on Friday that sent the stock plummeting (again):

Fremont General Corporation to Exit Sub-Prime Residential Real Estate

Fremont General Corporation, a nationwide real estate lender doing business primarily through its wholly-owned industrial bank, Fremont Investment & Loan ("FIL"), today announced that it intends to exit its sub-prime residential real estate lending operations.

And here's the leaked internal email (may or may not be legit - we'll see tomorrow) that hit the internets tonight (note - I have no FMT position):

From: Brian Daily
Sent: Sun 3/4/2007 4:22 AM
To: *Tampa 2 Office; *Tampa 1 Office; *ResRe Tampa 1 AE
Subject: Fremont ceasing doing business.

Teams,It is with great regret that I must inform you that Fremont Investment and Loan will cease funding loans and doing business. At 12:35 (pst) Saturday, Fremont General received notice from the FDIC that they are not permitting any more loans to be funded by Fremont. In short, our funding available was terminated by the Federal Home bank.

The suddenness of the change and the shift from our communication literally less then 24 hours previously simply perplexes me. However, this simply validates the volatility on our business.

None of us in Hawaii realized or appreciated the gravity of the situation we were facing. There are many questions that many of you have. There is a conference call that will be conducted on Monday that will answer many of these questions that you will have.Jerry Casanova will be able to communicate with you more specifics on Monday morning. Please show up for work to receive these instructions.

I will be leaving the meeting here in Hawaii early and attempting to return to the office sometime on Monday.In order to assist our clients with some instructions-

Given the sheer size and significance of the unregulated credit derivative markets, this is the kind of stuff that capital market crashes are made of

From Doug Kass at thestreet.com comes this article on what's going on in the credit markets. Yes, 99% of people in America don't know, don't care and don't want to be bothered with all this financial mumbo jumbo CDO credit risk subprime blather...

But oh, how they will be bothered. How they wish they had paid attention.

The credit spigot is being turned off. No more cash-out refis. No more cash-back-at-close flips. No more Hummer H2s. No more trips to Greece. No more no-money-down-do-doc-interest-only loans. No more bidding wars on condos. And no more price appreciation on homes.

Damn this has all been prewritten, so there should be no surprises for HP'ers. It's like we have the playbook. And actually, we do.

The Next Shoe to Drop?

With the contagion that started in subprime mortgage lending now spreading to other mortgage tranches, as reported here, the next shoe to drop might well be in the broader securitization market.

Not only will older, less-protected packaged securitizations and other derivatives decline in price in a readjustment, but the entire credit securitization chain will become less profitable to industrial companies, mortgage lenders, banks and brokerages.

Consider what has occurred and is now occurring in subprime. The prices of mortgages are rising as the originations become less profitable for the financial intermediaries that serve the market. In turn, housing affordability worsens, delinquencies and foreclosures rise, housing inventories build further, and home prices drop in the second leg down for residential real estate.

This is the vicious cycle and contagion in credit markets.

Now I am hearing stories of plunging demand for CDO tranches and sponsors taking large fee-haircuts before deals can be sold. It is in the mixed asset class of CDOs where the contagion of subprime might soon spread as buyers recoil from sharper-than-anticipated losses in the mortgage market.

Credit spreads are flying open and the vicious cycle of credit has begun as the evaluation of risk is reassessed.

Given the sheer size and significance of the unregulated credit derivative markets, this is the kind of stuff that capital market crashes are made of.

Give us your top five housing crash short plays

Here's my five

Countrywide (CFC)

Accredited Home Lenders (LEND)

Fisrt Fed Financial (FED)
Fannie Mae (FNM)

Homebuilders Index (XHB)

Of course, shorting is a very dangerous game - you can lose everything, especially if you take out put options (which I prefer to shorting). But with the writing on the wall, ask yourself, if you're in the market, why not make money off of companies with bad business models or terrible future prospects? Why be long 100% of the time with the rest of the sheeple?

Note: I'm short CFC and LEND today

Shhh... don't look now, but I think it's all falling apart now...

The Great Unwinding, as foretold, is finally here.

Get ready.

Bank's mortgage warning could be bad sign

Just as investors were settling into the comfort of a Goldilocks economy, they are getting a whiff of cold porridge.

HSBC Holdings, a huge British-based bank, alarmed the market this week with the type of news some analysts feared would arise throughout the hot housing market of recent years.

The HSBC announcement also reflected concerns about home equity loans, and adjustable rate mortgages that are repriced with interest rates that some homeowners cannot afford. With defaults on loan payments rising, HSBC is setting aside 20 percent more money than previously thought necessary to cover loans that might not be repaid, putting the total at more than $10 billion.

The news was especially unsettling to bond investors in the subprime market.

"When one of the largest banks in the world adjusts for defaults, it causes you to worry and wonder if maybe this is going to be worse than we expected," said Bryan Whalen, managing director of Metropolitan West Asset Management. "You wonder who's next, whether this will snowball and get bigger," with more lenders encountering trouble.

Because of that uncertainty, investors in the riskiest of mortgage securities--those rated BBB-minus--were demanding a 16 percent higher yield than the previous day, Whalen said.