November 19, 2007 / 6:53 PM / 12 years ago

Countrywide shares plunge as default swaps surge

NEW YORK (Reuters) - Countrywide Financial Corp.’s CFC.N shares plunged and the cost to insure its debt surged on Monday as concerns about losses by subprime mortgage borrowers sent mortgage-related companies on a new leg lower.

Shares of Countrywide, the largest U.S. mortgage lender, fell more than 12 percent to $10.52, the lowest in five years.

The cost to insure the debt of its home loan unit jumped almost 30 percent to 787 basis points, or $787,000 per year for five years to insure $10 million in debt, according to Markit Intraday.

New credit concerns were raised on Monday after Goldman Sachs analysts downgraded Citigroup (C.N) shares to “sell” from “neutral” and said the bank may have to write off $15 billion over the next two quarters as mortgage losses reduce earnings.

Major U.S. mortgage financiers Fannie Mae FNM.N and Freddie Mac FRE.N were also under pressure on concerns over risky residential mortgages.

A Credit Suisse research report on Monday said Freddie Mac may report a loss of between $1 billion and $5 billion on its subprime “AAA” portfolio.

This month Fannie Mae also attributed $670 million in credit loss reserves to charge-offs taken as it purchased troubled loans out of mortgage bond trusts.

Options used to protect against share price falls at Countrywide were also active on Monday.

“Countrywide puts are very active,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. “People are buying puts, anticipating that the downward trend will continue.”

Reporting by Karen Brettell and Doris Frankel; Editing by James Dalgleish

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