Subprime Fallout Spreading to Private Mortgage Insurers
Private mortgage insurance companies could become the next casualties of the subprime mortgage meltdown.
According to CreditSights, the near- to intermediate-term outlook for the mortgage insurance industry is extremely negative. “Losses will continue to mount and recent debt and equity performance has all but shut off access to the capital markets,” CreditSights says in Mortgage Insurance Mayhem. “Specifically, we believe that Radian Guaranty (the primary mortgage insurance operating subsidiary of Radian Group) is likely to be the next company to trip the regulatory risk-to-capital ratio of 25x, which we think would send the company into runoff mode.”
Although CreditSights believes that MGIC (NYSE: MTG) and PMI (NYSE: PMI) are marginally better off than Radian, “they too are likely to push up against regulatory risk limits by the end of the year.”
Default trends in the private mortgage insurance market remain alarming.
Standard & Poor’s does not think that the mortgage insurers problems will have much impact on municipal housing finance agencies. “In fact, we believe that the majority of indentures could cover losses without any payment from an MI provider,” S&P says in a new Credit FAQ on the topic. One exception is the California housing agency CRHMFA FH-1 senior (AA) and subordinate (A) bonds, which have been placed on CreditWatch with negative implications. The loans in this indenture are 100% conventionally insured through Radian Guaranty Inc. (A/Watch Neg) with an additional pool policy from Radian.”
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