S&P Downgrades Four Mortgage Insurers

Citing a worse-than-expected housing slump and concerns over rising unemployment that could lead to more defaults, Standard & Poor's Ratings Services slashed its credit rating on four U.S. mortgage insurers: MGIC Investment Corp's arm, Old Republic International Corp, PMI Group Inc., and Radian Group Inc.  
 
Most companies will not generate an underwriting profit until 2010 the credit agency said, putting pressure on their capital. The downgrades may prevent some insurers from doing business with Fannie Mae (and Freddie Mac), according to the S&P.  
 
"The downgrades reflect weaker-than-expected results for the fourth quarter of 2007 and the continued deterioration in key variables that influence claims for mortgage insurance," Standard & Poor's credit analyst James Brender said in a report.  
 
Home prices are expected to decline according to the agency 20 percent from the peak in 2006 compared with an 11 percent drop it projected last November. It also sees unemployment rising to 5.8 percent in 2009. Because of the deteriorating housing and job markets, mortgage insurers' operating results for 2008 and 2009 will be worse than expected, Standard & Poor's said.  
 
The rating firm cut MGIC's and Radian's counterparty credit rating to 'BBB' from 'A-', and the counterparty credit and financial strength ratings on the companies' mortgage insurance subsidiaries to 'A' from 'AA-'.  
 
PMI's counterparty rating was cut to 'BBB+' from 'A', while the counterparty credit and financial strength ratings on its subsidiaries were lowered to 'A+' from 'AA'.  
 
Old Republic's counterparty rating was cut to 'A' from 'A+', and the counterparty credit and financial strength ratings of its main subsidiaries were cut to 'AA-' from 'AA'.  
 
Fannie Mae and Freddie Mac, the largest providers of financing for U.S. home mortgages, will decide whether the mortgage insurers are still eligible to insure loans that purchased by the two government sponsored enterprises (GSEs), the agency said.