Standard & Poor's last week placed the BBB-plus rating of bond insurer Radian Asset Assurance Inc. on negative CreditWatch, a move linked to the action it took on the ratings of parent Radian Group Inc. and its subsidiaries as well as four other mortgage insurers.
The negative watch status for the industry players reflects the worsening economic conditions that have emerged since August, when Standard & Poor's last reviewed the U.S. mortgage insurance sector. It has increased its projections for the peak unemployment rate during the current recession to 7.9% from 6.6%, and revised upwards its expectations for peak-to-trough declines in homes prices.
The firms could also face difficulties raising new capital to refinance debt maturities, meeting their borrowing covenants, and maintaining "appropriate capitalization to remain going concerns," the rating agency said.
Standard & Poor's placed on negative watch the ratings of Radian Group, MGIC Investment Corp., PMI Group Inc., and Genworth Mortgage Insurance Corp. Analysts will conduct a two-part review, first re-evaluating the companies' net loss costs for their insured loan portfolios - taking into account the "greater anticipated benefits of reinsurance" - and then undertaking a sector-wide review that takes into account the companies' fourth-quarter results and the macroeconomic conditions.
The agency plans on completing the review in mid-March.
"As a result of today's CreditWatches, Standard & Poor's expects most mortgage insurers will ultimately be downgraded, and some of the downgrades will be more than one notch," it said.
The rating agency will evaluate the impact the negative watch status of Radian Asset will have on any obligation it guarantees. Standard & Poor's may place some ratings on CreditWatch, but it will not lower them, it said.
Radian Group earlier this year transferred Radian Asset Assurance to mortgage insurance subsidiary Radian Guaranty Inc. Radian Asset has stopped writing business for the "foreseeable future" and will instead contribute capital to the mortgage insurer, the company said.
