PMI Companies Get Downgraded
We've Nattered before how when the PMI co's go BK, the lenders lose the net under their highwire act and real estate prices will collapse.
Last week, Triad Guaranty, a mortgage insurer, said that it may not be able to raise enough money to keep selling policies.
Triad fell 8.4% today and is down 95% in 12 months.
The three largest U.S. mortgage insurers, MGIC, Radian and PMI declined more than 75% in the past year
as they posted record losses on costs to reimburse lenders that made bad home loans.
Today, MGIC Investment Corp. -3.6%, PMI Group -12%, and Radian Group -10%,, dropped after S&P cut their credit ratings
and said they may lose money through next year. Radian & MGIC was cut from A to AA-; PMI was cut from A+ to AA.
S&P also said that it lowered its counterparty credit rating or on mortgage insurer Old Republic International,
a subsidiary of AIG to A from A+; ability to pay claims was lowered to AA- from AA.
The downgrades incorporate expectations for unemployment to rise no higher than 6%, and a 20% drop in housing prices from their peaks,
with greater declines expected in the hardest-hit states including California and Florida,
S&P credit analyst James Brender:
"The downgrades reflect weaker-than-expected results for Q407 and the continued deterioration in key variables that influence claims for mortgage insurance.
Now, we believe median home prices will decline 20% from the peak in 2006. By contrast, the forecasts we used in November 2007 assumed a decline of 11%.
We expect the capital adequacy ratios to decline in 2008 because of operating losses.
Some companies will likely need to raise additional capital to support their current level of new business
because claims from existing business will deplete some capital.
S&P estimates that firms now rated below 'AA-' accounted for 58% of the industry's flow market share in 2007.
The other mortgage insurers do not have the capital to absorb all of this volume."
The fall out... Looking forward to today... Freddie Mac in February suspended its requirements that eligible insurers be rated at least AA-.
FHLMC said the three insurers must submit plans within 90 days on how they expect to restore their ratings.
Old Republic had no comment. Radian said it may sell stock, seek a capital infusion or sell its financial guarantee subsidiary.
"PMI has significant financial resources to pay insurance claims on defaulted loans," Chairman Steve Smith said in a statement.
MGIC last month raised about $848 million selling stock and convertible debt after a record fourth-quarter loss.
"We do not expect the ratings changes to impact MGIC's business relationships."
S&P Powerpoint Presentation for Today's Rating Teleconference.
Hattip to Bloomberg and Reuters.
Last week, Triad Guaranty, a mortgage insurer, said that it may not be able to raise enough money to keep selling policies.
Triad fell 8.4% today and is down 95% in 12 months.
The three largest U.S. mortgage insurers, MGIC, Radian and PMI declined more than 75% in the past year
as they posted record losses on costs to reimburse lenders that made bad home loans.
Today, MGIC Investment Corp. -3.6%, PMI Group -12%, and Radian Group -10%,, dropped after S&P cut their credit ratings
and said they may lose money through next year. Radian & MGIC was cut from A to AA-; PMI was cut from A+ to AA.
S&P also said that it lowered its counterparty credit rating or on mortgage insurer Old Republic International,
a subsidiary of AIG to A from A+; ability to pay claims was lowered to AA- from AA.
The downgrades incorporate expectations for unemployment to rise no higher than 6%, and a 20% drop in housing prices from their peaks,
with greater declines expected in the hardest-hit states including California and Florida,
S&P credit analyst James Brender:
"The downgrades reflect weaker-than-expected results for Q407 and the continued deterioration in key variables that influence claims for mortgage insurance.
Now, we believe median home prices will decline 20% from the peak in 2006. By contrast, the forecasts we used in November 2007 assumed a decline of 11%.
We expect the capital adequacy ratios to decline in 2008 because of operating losses.
Some companies will likely need to raise additional capital to support their current level of new business
because claims from existing business will deplete some capital.
S&P estimates that firms now rated below 'AA-' accounted for 58% of the industry's flow market share in 2007.
The other mortgage insurers do not have the capital to absorb all of this volume."
The fall out... Looking forward to today... Freddie Mac in February suspended its requirements that eligible insurers be rated at least AA-.
FHLMC said the three insurers must submit plans within 90 days on how they expect to restore their ratings.
Old Republic had no comment. Radian said it may sell stock, seek a capital infusion or sell its financial guarantee subsidiary.
"PMI has significant financial resources to pay insurance claims on defaulted loans," Chairman Steve Smith said in a statement.
MGIC last month raised about $848 million selling stock and convertible debt after a record fourth-quarter loss.
"We do not expect the ratings changes to impact MGIC's business relationships."
S&P Powerpoint Presentation for Today's Rating Teleconference.
Hattip to Bloomberg and Reuters.
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