More Moody's Rating Downgrades

Highlights include Moody's Corporation (MCO - Analyst Report), Radian Group Inc. (RDN - Snapshot Report), Mortgage Guaranty Insurance Corp. (MTG - Analyst Report), Genworth Mortgage Insurance Corp (GNW - Snapshot Report) and PMI Group (PMI - Analyst Report).

Moody's Investors Service (MCO - Analyst Report) has downgraded the ratings on a number of mortgage insurers, in view of another difficult year with continued losses and capital constrains.

Mortgage insurers provide insurance against default for low down-payment loans (also called high loan-to-value [LTV] loans -- typically a down-payment of less than 20% of a home's value). These insurers have been facing increased losses over the past more than one year now, as the housing values have continued to decline, leading to increased defaults by the borrowers and even moreso by the borrowers who had low down-payments on the house.

Further, the capital levels have depleted as a result of rising losses and have led to rating downgrades, which further result in higher costs or loss of business. Moreover, as the housing prices are not expected to bottom out anytime soon, we suspect that these insurers will continue to be under severe pressure in the coming several quarters.

In particular, Moody's slashed the ratings of Radian Group Inc. (RDN - Snapshot Report) and Mortgage Guaranty Insurance Corp. (MTG - Analyst Report) to junk status. The ratings of Genworth Mortgage Insurance Corp. (GNW - Snapshot Report) and United Guaranty Mortgage Indemnity Co. were also downgraded, but they remain investment grade.

The insurance financial strength rating of PMI Group's (PMI - Analyst Report) US mortgage insurance operations was downgraded to "Ba3" from "A3" and the PMI's European mortgage insurance operations rating was downgraded to "B1" from "A3," as well. Both the ratings are speculative grade. PMI has not yet announced its 4Q08 results release date. Ahead of the results, we are maintaining our Sell recommendation on PMI.

Read the full analyst report on MCO

Read the full analyst report on MTG

Read the full analyst report on PMI