At any rate, we're going to start right in with Countrywide Financial (CFC). I wrote some about it in the third quarter letter to shareholders. Things change daily in the mortgage world these days though, so here is a summary of where we are and how we got where we are and what we plan to do going forward.
With Countrywide we really focused on credit; knowing that there were a lot of mortgages held at the bank, that they were holding residuals from securitizations, that they had a pipeline that held lots of mortgages in between the time of origination and the time they were sold. We stress-tested the portfolio and I think we've really been pretty much on target so far about their exposure to credit losses.
What we did not pay enough attention to was the exposure to liquidity problems. I think we've known for a long time that there was trouble brewing in the mortgage world, and that it would not be at all surprising to have a liquidity crisis like 1998. We've talked about it over and over, but we really thought that with Countrywide's management sounding very bearish for the last year or two and seemingly well aware of what was going on, we underestimated the extent that they kept on pushing through the spring and into the summer for more and more market share so when the window shut, they had short-term credit exposure.
http://weitzfunds.com/documents/november2007transcript.asp
With Countrywide we really focused on credit; knowing that there were a lot of mortgages held at the bank, that they were holding residuals from securitizations, that they had a pipeline that held lots of mortgages in between the time of origination and the time they were sold. We stress-tested the portfolio and I think we've really been pretty much on target so far about their exposure to credit losses.
What we did not pay enough attention to was the exposure to liquidity problems. I think we've known for a long time that there was trouble brewing in the mortgage world, and that it would not be at all surprising to have a liquidity crisis like 1998. We've talked about it over and over, but we really thought that with Countrywide's management sounding very bearish for the last year or two and seemingly well aware of what was going on, we underestimated the extent that they kept on pushing through the spring and into the summer for more and more market share so when the window shut, they had short-term credit exposure.
http://weitzfunds.com/documents/november2007transcript.asp
