S&P Downgrades On 5 US Mortgage Insurers; Outlook Negative

Standard & Poor's Ratings Services cut the ratings on five U.S. mortgage insurers, bringing two of them to the doorstep of junk territory, amid bigger-than-expected losses and expectations that unemployment will continue to rise through the second quarter of next year.The credit ratings company said the outlook for the mortgage insurers is negative, mostly to reflect the potential for increased losses because of the weak economy.S&P in October put seven mortgage insurers on watch for downgrade, saying claims appeared to be coming in worse that the company expected. On Tuesday, it announced the ratings cuts to the mortgage-insurance arms of Old Republic International Corp. (ORI), Radian Group Inc. (RDN), Genworth Financial Inc. (GNW), PMI Group Inc. (PMI) and United Guaranty Residential Insurance Co.Republic Mortgage Insurance Co., a unit of Old Republic, was cut three notches to BBB-, the doorstep of junk territory while Genworth Mortgage Insurance Corp. was cut two steps to BBB-. The PMI and Radian units were lowered one notch further into junk at B+ while United Guaranty was cut one step to BBB.S&P analyst Ron Joas said the economy has had a "more significant adverse impact" on most mortgage insurers than it expected in April, when it conducted it last extensive review of the sector."At that time, we had expected that mortgage insurers would likely report losses through 2010 and possibly into 2011. However, we'd also expected some loss mitigation beginning in the second half of 2009 and continuing into 2010," he said. Though there have been signs the economy is stabilizing, "we believe the recovery will be sluggish," with unemployment estimated to peak at 10.4% in the middle of next year and foreclosures to continue rising. However, S&P noted that mortgage-modification programs also have been gaining traction.The reviews on the two other companies part of the sector study, CMG Mortgage Insurance Co. and the California Housing Loan Insurance Fund, aren't complete. S&P said they should be "soon."Shares of all four of the publicly traded insurers were higher amid a broad market advance.-By Tess Stynes, Dow Jones Newswires
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