U.S. News

Cost to Insure Countrywide, Bear Stearns Debt Jumps


The cost to insure the debt of mortgage lender Countrywide Financial and U.S. brokers with exposure to mortgages, including Bear Stearns, surged on Monday.

Credit default swaps on Countrywide's home-loan unit Countrywide Home Loans, its most actively traded swap, rose by around 100 basis points to 445 basis points, or $445,000 per year for five years to insure $10 million in debt, according to data from CMA DataVision.

Debt-protection costs of Countrywide, the largest U.S. mortgage lender, have doubled from 210 basis points on Thursday, on accelerating concerns about profits as mortgage borrowers struggle with payments.

Mortgage Burn: Financial Firms

American Home Mortgage Investment, once the 10th largest home lender in the United States, filed for bankruptcy protection on Monday.

Last week, Countrywide posted a 33 percent decline in quarterly profit and slashed its 2007 forecast as more homeowners fell behind on payments.

Credit default swaps on mortgage insurer Radian Group also leaped 100 basis points on Monday, to around 500 basis points.

Radian's credit default swap spreads have more than doubled from around 182 basis points last Monday, as concerns about home loans grew, and on increasing speculation that Radian's planned merger with MGIC Investment may fall through.

Bear Stearns' credit default swap spreads also widened around 40 basis points to 200 basis points.

Warren Spector, Bear Stearns' co-president and co-chief operating officer, resigned on Sunday, two days after the bank said in a conference call that it was weathering the worst storm in the financial markets in more than 20 years.

Mortgage Burn: Homebuilders

Lehman Brothers' swaps were around 25 basis points wider at 155 basis points, and Goldman Sachs' swaps were around 15 basis points wider at 106 basis points, according to data provided by CMA DataVision.

Credit default swaps on U.S. home builders were also pushed wider in line with weakness in mortgage-related debt.

The cost to insure the debt of D.R. Horton, Lennar and Toll Brothers all rose by around 30 basis points -- to 410 basis points, 261 basis points and 265 basis points respectively -- CMA data showed.

Swap spreads on KB Homesand Meritage Homes also were around 40 basis points wider, at 545 basis points and 725 basis points, respectively.