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, major U.S. mortgage guarantors, have more than doubled in the past three months.

With claims on mortgage-guarantee insurance probably rising even as the economy returns to growth, is investors' bullishness justified? After all, companies of every stripe connected to the housing industry have lost serious money, and people who have struggled to pay their home loans will succumb to defeat if they lose their jobs and use up savings.

That means mortgage insurers ought to be the last place to put your money, right? Yet the reality is different. Yes, MGIC stiffed debenture holders, for the second time in six months, on an interest payment just over a week ago. The price of the stock dropped.

The company's attitude seems to be cavalier. And calculated to show that MGIC knows no fear when faced with junior debt holders. More than that, this continues the in-your-face approach companies have taken with debt holders. Some, like

General Motors

, really stuck it to bond investors, effectively reducing their position behind other creditors.

Still, FBR Capital Markets' Steve Stelmach raised MGIC's stock-price target to $13 from about $8.30. SNL Financial reports that the reason given was that no credit had been given to the positive residual value of the "old" book of business once losses have been accounted for. Defaults continued to rise through July for the mortgage-guarantee market, even as new business continued to fall. This is more evidence that insurers should be in real trouble. But are they?

Looking at cash flow, MGIC's dried up in the second quarter with a $205 million decrease in cash and cash equivalents. But MGIC was holding over $1 billion. That makes it even odder that the company would delay any interest payments to debenture holders. Maybe MGIC allocated that cash for settlements. Maybe the key to understanding MGIC lies in the reserves. At over $6 billion, if policy reserves are more than adequate, could there be some real value left to unlock?

Radian, in the same period, had a drop of $12 million to $65 million. Radian appears to be in worse shape than MGIC. Its policy reserves are $4.4 billion and, like MGIC, significantly higher than in previous years. Unlike MGIC, Radian posted a profit last quarter. Although both had improved results, the $327 million gain on securities for Radian was the difference between breakeven and profit. There was $272 million in unrealized gains on derivatives.

Maybe Radian's surprising realization shouldn't be so unexpected. Is it not entirely possible that, even as the markets crashed, insurers wrote losses based on best estimates of the expected carnage? If the worst fears don't come to pass, there could be a lot of writedowns to be unwritten and loss reserves to be released. As with the losses, for many companies that won't make any difference to cash flow. But it will make significant differences to profits and, consequently, book value.

And it is in book value that Radian and MGIC have shown themselves to be worth a look for investors. Even after the meteoric rise of the past few months, the price-to-book value of MGIC is 54% and Radian's is 48%. Radian also has continued to pay a dividend, unlike other insurers including rival

PMI Group

( PMI).

As third-quarter results are released it will be critical for MGIC and Radian to show improvement. The numbers will be examined for signs that justify Radian's expectations of reduced losses this year. Will the results confirm the feeling that, despite continued losses due to the mortgage crisis, the reaction was too pessimistic and good profits will soon be returning? The alternative wouldn't bode well for either MGIC or Radian. This uncertainty continues to justify the "sell" rating assigned by Ratings.

Reported by Gavin Magor in Jupiter, Fla.

Gavin Magor joined Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.