Moody’s Slashes Mortgage Insurers

Moody’s Investors Service announced on Friday sweeping downgrades among top U.S. mortgage insurers as delinquencies and foreclosures remain at historic high levels and the capital of these institutions is challenged. Moody’s downgraded PMI Mortgage Insurance Co. to Ba3 from A3, demonstrating a belief at the rating agency that “the franchise value among mortgage insurers generally has deteriorated in recent months, placing additional pressure” on the ratings of these companies, Moody’s said. Moody’s also slashed Radian Group Inc.‘s (RDN) primary mortgage insurance subsidiaries to Ba3 from A2. “Radian’s risk-adjusted capital adequacy remains under significant pressure in light of large incurred losses to date and rapidly escalating delinquency counts, as well as the meaningful uncertainty regarding the ultimate severity and duration of the current down cycle in housing fundamentals, and the resulting impact on ultimate claims,” analysts at Moody’s said in a press statement regarding the downgrade. Mortgage Guaranty Insurance Corp. (MGIC) also suffered a downgrade to Ba2 from A1 on the heels of a drop in new business volume as the company conserves capital, according to Moody’s. The agency also predicted that “without additional capital injections in the near term, it is possible that [MGIC] could breach maximum statutory risk to capital guidelines over the next twelve to eighteen months, which may impact the company’s ability to write new business in the absence of regulatory forbearance,” analysts said in the press statement. Genworth Mortgage Insurance Corp.‘s downgrade to Baa2 from Aa3 also came Friday after parent company Genworth Financial Inc. (GNW) reported in early February total company loss of $321 million — or 74 cents per share — in the fourth quarter. Moody’s analysts expressed some concern for the company’s losses, saying “were losses to be in excess of current expectations, the company could breach maximum statutory risk to capital guidelines within the next two years….” United Guaranty Residential Co. — and its subsidiary United Guaranty Mortgage Indemnity Company, which together are the main mortgage insurance companies of American International Group (AIG) — also experienced a downgrade to A3 from Aa3. Moody’s said although it still considers the capital adequacy as befitting an Aa rating category, the downgrade “considers other factors such as the diminished franchise value and the likelihood of sustained losses for several years and the support provided by AIG.” Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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