Time to sell mortgage insurers. While I agree that the exposure is "limited" it at least acqnoledges that the risk is significant. Insurers will naturally hike insurance rates for mortgages. This means that costs go up, and less financing takes place, etc... the sentiment is not positive so everyone will be a little more risk averse after the shock.
UPDATE 1-Mortgage insurers say subprime exposure limited
Recasts with comments by mortgage insurers)
By Ed Leefeldt
NEW YORK, March 14 (Reuters) - The two largest U.S. mortgage insurers said they have limited exposure to borrowers with poor credit histories after their stocks took a plunge on Wednesday on concerns the subprime meltdown could claim more companies.
"Our inventory of loans in the subprime market that are delinquent has declined year over year," said Michael Zimmerman, vice president of investor relations at Mortgage Guaranty Insurance Corp. (MTG.N: Quote, Profile , Research), the largest U.S. mortgage insurer.
Glen Corso, head of public policy at PMI Group (PMI.N: Quote, Profile , Research), the second-largest, said only 8 percent of its company's portfolio was at risk in the subprime market, down from 11 percent three years earlier.
Their shares fell after National City Corp. (NCC.N: Quote, Profile , Research), the No. 9 U.S. bank, said a large part of its second mortgage portfolio was covered by two mortgage insurers, whom it did not identify.
"The mortgage insurers are taking a beating, because a big subprime lender to the industry is saying, 'Don't worry, we have a high level of mortgage insurance,'" said Ed Groshans, an insurance analyst with Fox Pitt, Kelton. "The implication is that the losses these guys are taking will be passed through."
Shares in Mortgage Guaranty Insurance Corp. closed down 1.5 percent at $56.65 after dropping to as low as $54.59 earlier. PMI was 1 percent lower at $42.29 after falling as low as $40.69.
CHICKENS AT HOME ROOSTING
In a regulatory filing, National City said a $2.2 billion portfolio of second mortgages was covered by two different carriers, one of which had been paying and the other of which had been "rejecting a meaningful number of claims." It said it may "pursue legal remedies against the carrier."
Radian Group (RDN.N: Quote, Profile , Research), the third-largest mortgage insurer, could not be reached for comment. Its shares fell 1.65 percent to $53.17.
Chris Winans, a spokesman for American International Group Inc. (AIG.N: Quote, Profile , Research), which also has a mortgage insurance arm, said "the issue referred to by National City does not involve us." AIG is the world's largest insurer.
Mortgage Guaranty Insurance and PMI both said mortgage insurers were initially hurt by a trend of securitizing subprime mortgages rather than insuring them. In a securitization, loans are bundled into bonds and sold in the capital markets, often to hedge funds and mutual funds.
If the loans fail, the lower tranches of the securitization are not paid interest and, in some cases, principal.
"The competition led to lower growth for the mortgage insurers, because securitizing was cheaper than insurance," said Zimmerman. "But now the chickens have come home to roost."
Fitch Ratings said, however, that guarantors of mortgage-backed securities also are likely to withstand problems in the subprime market, because their exposure is small relative to capital and earnings.
The U.S. mortgage meltdown, which began in February, has broadened as investors fear that subprime lenders, who make loans to people with poor credit histories, will run out of cash.
New Century Financial Corp. (NEWC.PK: Quote, Profile , Research), the largest independent subprime lender, has already been delisted from trading on the New York Stock Exchange and has received a grand jury subpoena in a federal criminal probe.
For more about the subprime mortgage crisis, see [ID:nN14246848] |
