Mortgage Insurers Downgraded
A number of mortgage insurers had their financial strength ratings downgraded by Moody’s Investor Service late Wednesday.
“Everything is bleeding together,” said Rob Haines, an analyst with research firm CreditSights, pointing to a broad decline in mortgage insurance stocks after Moody’s Investors Service downgraded mortgage insurance units at AIG, PMI Group Inc. and Mortgage Guaranty Insurance Co.
Coming on the heels of market concerns on the solvency of Fannie Mae and Freddie Mac, this is not a good time for mortgage insurers or the mortgage market in general. The worst housing slump since the Great Depression has no end in sight as more bad news seems to come every week.
The likely outcome will be a rise in premiums as insurers’ attempts to raise additional capital to cope with rising foreclosure and default rates will be hampered by the credit downgrades. Even the investment grade rated debt of the two government sponsored agencies are trading as if their ratings were significantly lower.
Until the market receives a definitive signal on the likelihood of a government bailout if things grow worse for the two mortgage agencies, you can expect the negative outlook to continue for all mortgage related insurers. Although it is doubtful the government would let them fail, investors are remaining cautious and the stock of the mortgage insurers have faltered as a result.
