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Home lenders continue to fall as investors balk at defaults

Countrywide Financial Corp. and New Century Financial Corp. led shares of mortgage companies down for a third day as rising defaults drove the perceived risk of owning bonds backed by “subprime” loans to a record high.

Subprime loans that have gone bad are at their highest level in at least six years, according to a Friedman, Billings, Ramsey Group report. The U.S. Mortgage Bankers Association said payments were late on almost 13 percent of subprime loans in the third quarter of 2006, and Bear Stearns Cos. President Warren Spector predicted last week problems will get still worse this year.

“There’s just a lot of uncertainty,” said Richard Eckert, an analyst at Los Angeles-based Roth Capital Partners. “The market reacts a lot more hostilely to uncertainty than it does to bad news.”

Shares of other subprime specialty lenders including Fieldstone Investment Corp., NovaStar Financial Inc. and Accredited Home Lenders Holding Co. each slid more than 4 percent. Investors have sheared more than 40 percent this year from the value of New Century, Fieldstone and NovaStar.

Countrywide shares have declined about 4 percent in 2007, and IndyMac Bancorp Inc., the second-biggest independent mortgage lender, has tumbled almost 20 percent.

New Century said Feb. 7 it probably lost money in the last quarter and will need to restate 2006 earnings, and the company won’t make as many loans this year as it had previously forecast.

Accredited Home is scheduled to report earnings Wednesday.

The perceived risk of owning subprime mortgage bonds rose to a record for a third day, as measured by an index of credit-default swaps tied to the bonds. The ABX index of 20 BBB- rated bonds sold in the second half of 2006 fell to 83 from 85.22 on Feb. 9, according to Barclay’s Capital.

The level is the lowest since the index was created Jan. 18, and stands 15 percent below the end of its first day of trading, according to data compiled by Markit Group Ltd.

“It seems a little overdone,” said Marcus Klug, managing director of Omicron, a unit of Credit Agricole SA, France’s second-biggest bank by assets. Klug’s fund manages 2.5 billion euros of CDOs and mortgage-backed securities.

The perceived risk of owning Countrywide’s bonds rose to the highest in more than three months. The cost of credit-default swaps based on $10 million of its bonds rose to $34,500 from $29,000 on Feb. 9, according to derivatives broker Phoenix Partners Group in New York.

An increase in the contracts, used to speculate on a company’s ability to repay its debt, indicates deterioration in the perception of credit quality.

The contracts have risen 50 percent from $23,000 on Feb. 7, Phoenix data show.