S&P Takes Action On MIs

Standard & Poor's (S&P) Ratings Services has placed its ratings on several U.S. mortgage insurance groups and their core and dependent foreign subsidiaries on CreditWatch with negative implications. These groups are Old Republic, PMI, Radian, Genworth, United Guaranty, CMG Mortgage and California Housing Loan Insurance Fund (CAHLIF).

S&P didn't included Mortgage Guaranty Insurance Corp. (MGIC) in this action because of the rating actions the agency took on Oct. 19, downgrading MGIC to B+.

‘The CreditWatch placements reflect our view that macroeconomic conditions may have become more difficult for the mortgage insurers since we last conducted an extensive review of the sector in April,’ says S&P credit analyst Ron Joas.

At that time, S&P expected that mortgage insurers were likely to report losses through 2010 and possibly into 2011. However, the agency also expected some mitigation of losses beginning in the second half of 2009 and continuing into 2010.

S&P further believes recent results from MGIC and Old Republic International Corp.'s (ORI) mortgage insurance group may be indicative of an elongation of the loss cycle and that mortgage insurers are experiencing a sharper and more rapid transition of delinquencies into prime books of business than originally expected.

The CreditWatch placements also reflect S&P's expectation that those mortgage insurers that have not already reported their third-quarter earnings are likely to report lower results than the company's forecasts, reflecting this deterioration.

MGIC reported a loss ratio of 331% for the third quarter, compared with a loss ratio of 222% in the second quarter, owing to a significant increase in the delinquent loan inventory caused, in part, by a sharp
transition of delinquencies into prime loans. Similarly, ORI's mortgage segment reported an increase in its loss ratio to 214% for the third quarter, up from 198% in the second quarter, because of an increase in delinquency rates.

Claims payments remain below S&P's expectations as a result of the backlog of foreclosures and the moratoria that had been implemented earlier in the year.

SOURCE: Standard & Poor's


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