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Mortgage Insurers Staggering

As the markets reel from renewed credit concerns, most of the mortgage insurers and mortgage bond insurers are taking yet another huge tumble.

Mortgage insurers like PMI Group (PMI), MGIC Investment (MTG - Get Report) and Radian Group (RDN - Get Report) are all posting year-to-date declines of over 70%, with share prices in the single digits fast approaching. Mortgage insurance policies are paid out to mortgage lenders when borrowers default on their debt.

Goldman Sachs' Andrew Brill cut his price targets for MGIC, PMI and Radian Friday, adding more pressure to the stocks. PMI and Radian were still in the red at midafternoon, even as the broad market recovers from the morning's swoon.

"With credit fundamentals continuing to erode quickly and no visibility to when and at what level losses stabilize, we continue to believe it is premature to be bullish," writes Brill, adding that he believes losses will continue for mortgage insurers into 2009.

The problem is that mortgage insurers' and bond insurers' business models are tied to all the disintegrating elements that characterize this credit crunch -- homeowners defaulting on loans and ratings agencies, Moody's Investors Service and Standard & Poor's with diminishing credibility for giving their stamp of approval to mortgage-backed securities and derivatives.

For the mortgage insurers themselves, origination is down, and defaults are up. Indeed the residential real estate market is in recession, with home prices off nearly 20% in two years. Earlier this week, the S&P/Case-Shiller home price index showed that home prices in the country's 10 largest cities fell 5% in August, the largest annual decline since the recession of 1991.
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