Financial markets were unhappy on Thursday, primarily due to reports that subprime contagion had spread to Europe. One can only imagine what the mood will be like on Friday, when investors digest the latest SEC filing from Countrywide, the United States' biggest mortgage lender.
Countrywide talks tough throughout -- the weak will perish in the ongoing shakeout, but Countrywide will feast on the corpses of its imploding competitors and emerge stronger than ever before. Still, if I was a hedge fund investor with exposure to securities tied to Countrywide-originated loans, I imagine I'd be shivering at some passages in the filing, including one sentence that the Wall Street Journal's James Hagerty saw fit to highlight:
We believe we have adequate funding liquidity to accommodate these marketplace changes in the near term; however, the secondary market and funding liquidity situation is rapidly evolving and the potential impact on the Company is unknown.
How the World Works was also taken by Countrywide's bristling at the political climate.
Furthermore, proposed local, state and federal legislation targeted at predatory lending could have the unintended consequence of raising the cost or otherwise reducing the availability of mortgage credit for those potential borrowers with less than prime-quality credit histories. This could result in a reduction of otherwise legitimate nonprime lending opportunities. In addition, there may be future local, state and federal legislation that restricts our ability to communicate with and solicit business from current and prospective customers in such a way that we are not able to originate new loans or sell other products at current profit margins.
In other words, politicians want to stop mortgage lenders from continuing the sleazy practices that got us into this mess. This might hurt our business.