Here comes the new week!

Promise guys - this is not an "April Fools" joke.

Last Friday we had two bombshells of announcements in the Mortgage Sector - Indymac Bank (NDE) announced that their General Counsel was leaving and Countrywide (CFC) announced that two directors were resigning, one immediately.

Now directors do leave and counsel does resign from time to time. But let's examine this just a bit.

First, Countrywide. The announcement hit the newswire not only after the close of business but after the close of extended hours trading - at nearly 8:00 PM ET! In the announcement one of the two (Kathleen Brown) resigned immediately, while the other (Michael Dougherty) has "decided not to stand for re-election."

Of note is that neither of the resigning directors made a personal statement, nor, does it appear, that the company intends to replace them.

The second, IndyMac Bank, was even more puzzling. According to the firm's press release the company said that Mr. Hughes decision to leave was made "several months ago". Well, doesn't anyone find it curious that for a planned departure several months prior wouldn't give the company due time to find - and announce - his replacement? After all, the position of General Counsel is quite an important one in most firms!

One must wonder - all these departures with no statement by the person(s) leaving, and, in all three cases, no named replacements?

To add a bit of background to this, on Friday M&T Bank announced that it recently had to pull a bond tranche offering because "fewer bids than normal were received and pricing was lower than expected." Buffett's Berkshire Hathaway holds the largest outside shareholding stake in the firm. This announcement smells a lot like "we couldn't sell the loans for more than we had in them, so we decided that rather than lose the money now we'd take the risk they won't default and hold them ourselves." If true, it may be the start of what many (myself included) have predicted - that credit spreads and market conditions have made essentially all low-documentation loans radioactive to the point that nobody will buy them for more than they cost to originate.

If this is in fact the case then every single mortgage lender who has offered low or no-documentation loans in the past year, or who offer them today, is likely to find themselves with a severe liquidity problem. For those issuers who have significant concentration of these loans this market development may be severe enough to threaten continuing operations!

While smelling dead fish does not decisively mean that indeed there is dead fish inside that mullet wrapper, more often than not when you unwrap it guess what you're gonna find?

Anyone remember Enron and Mr. Skilling's departure - for "personal reasons" - shortly before that company blew up?

Labels: CFC, mortgage space, NDE, Stink of dead fish