Downgrade Hits Mortgage Insurers
07/25/07 - 12:14 PM EDT
Laurie Kulikowski
Shares in mortgage insurers got hit Wednesday after a downgrade.
Steve Stemlach, an analyst at Friedman Billings Ramsey Group, cut his ratings on PMI Group(PMI Quote - Cramer on PMI - Stock Picks), MGIC Investment(MTG Quote - Cramer on MTG - Stock Picks) and Radian Group(RDN Quote - Cramer on RDN - Stock Picks) to market perform from outperform. He cited valuation concerns and "expectations for a longer-than-expected downturn in the credit cycle and a more severe level of losses owing to diminishing loss-mitigation opportunities." Shares of the group fell 1% to 2%. "The recent spate of mortgage originators backing away from various affordability products will also put a negative bias on credit costs in the near term, although the longer-term implications are positive for the industry," the analyst wrote. Mortgage insurers provide coverage to lenders and borrowers in case of loan default or event that would cause a credit loss. In the latest hit to the mortgage industry, Countrywide Financial(CFC Quote - Cramer on CFC - Stock Picks), the largest independent mortgage company, warned on Tuesday that rising delinquencies and defaults were spreading beyond the subprime industry into some so-called prime mortgage categories. The Calabasas, Calif.-based lender's CEO, Angelo Mozilo, also said he doesn't see a housing recovery until 2009. The news sent the stocks of mortgage lenders falling Tuesday. Shares of IndyMac(IMB Quote - Cramer on IMB - Stock Picks), Accredited Home Lenders(LEND Quote - Cramer on LEND - Stock Picks), Fremont General(FMT Quote - Cramer on FMT - Stock Picks), NovaStar Financial(NFI Quote - Cramer on NFI - Stock Picks) and American Home Mortgage(AHM Quote - Cramer on AHM - Stock Picks) dropped. Earlier this year, dozens of firms that grant mortgages to consumers with poor credit histories experienced mounting losses from a rise in delinquencies and defaults on loan payments. The lenders were also hurt by lower demand from brokerage firms that bought the subprime loans and securitized them with the intention of re-selling them to investors. Investors have been backing away from the risky investments after seeing that borrowers are having difficulty repaying their loans.
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