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CDS Flow Summary - Mortgage woes leave ResCap, GMAC limping
Informa Global Markets - CDS Morning Insight (US) (March 14, 2007)

Another tumble in share prices for mortgage lender Accredited Home Lenders Holding Co and a delisting of New Century Financial Corp on the NYSE compounded the blows being heaped on other lenders. This combined with an aggregate rise in foreclosures and delinquency rates for the month out of the MBA to hurt ResCap and by association GMAC.

Default in ResCap gapped out another 10 basis points to 170/175 on active trade from 160/165 as the mortgage scare had many CDS participants taking a dim view of the whole mortgage sector and the possibility of a liquidity crunch. Countrywide Home Loans also extended in trade seen out to 68/70 from 61 Monday. Countrywide's CEO Angelo Mozilo said the markets effectively were overreacting though subprime mortgage defaults will continue to rise. CDS dealers say today's performance did give rise to the belief that banks were pulling back on lending, which does not bode well at this time of a housing downturn. The mortgage scare, nevertheless, led some to believe that these loans could have been mispriced everywhere. Still, Goldman's robust profit was not a good example of any contagion as it reported a jump in net income to USD3.2bln, though its CDS widened to 30/34 from 28/32.

The move to the new roll for the CDS indices next week also weighed on the sector today. CDS participants are long risk and roll plays are also factoring in, says one trader. Typically, ahead of a roll, single name CDS constituents are sold in preparation of protection buying on the new Index series, which traditionally is wide to the outgoing Index.

GMAC's earnings were not particularly favorable, though it will receive USD1bln in cash this quarter from General Motors. Its 2006 operating earnings excluding items, though, were USD2bln versus USD2.7bln. GMAC had some disheartening words on ResCap saying mortgage pressure is constraining near-term results. Roughly 19% of ResCap's loans were nonprime in 2006. Default in GMAC extended to 160/175 from 145/150. General Motors widened to 415/425 from 375/380. Ford Motor Co extended to 600/610 from 530/540.

Homebuilder CDS were also wider due to the debacle filtering into mortgage lenders. DR Horton extended to 80/83, while Lennar is at 65/69 from 56/60.

In other activity, toy maker Toys R Us was at a mid of 445 from 416/425. New takeover firm TXU Corp was at 184/189 from 190/196.

Kathleen Fitzpatrick Hoffelder



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