Weiss: Mortgage Insurers Barely Make the Grade

With decisions by state regulators to close mortgage insurance practices for ""PMI Group"":http://www.pmi-us.com/, pending the company's ability to meet capital requirements, mortgage insurers continue to fall under scrutiny as a troubled industry. ""Weiss Ratings"":http://weissratings.com/ recently ""listed"":http://weissratings.com/ratings/u-s-mortgage-guaranty-insurance-companies.aspx 34 of the nation's largest insurers, warning that the companies may see darker times as payouts to mortgage lenders continue to weaken their capital reserves.

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""Mortgage insurers are in trouble,"" the Weiss report begins. It cites $2.4 billion in losses that hit the industry last year, and suggests that these losses ""threaten to destroy the mortgage insurance business that is dominated by six groups.""

The agency assessed the financial strength of various mortgage insurers by pooling information from their collective financial statements. Grading by earnings, changes in capital, and net income for the past two years, the agency assigned grades A through E, with A signifying the overall robustness of a company's capital and E signifying very weak reserves.

The verdict? Tellingly, not one of the 34 insurers graded by Weiss made the A-list, while several, including ""CMG Mortgage"":http://cmgmortgage.com/, ""Genworth Residential"":http://www.genworth.com/content/home.html, and ""United Guaranty"":http://www.ugcorp.com/ made Bs and B-minuses. Five companies received Cs, while a whopping 14 made Ds. Three insurers rounded out the list with Es.

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Those companies with the weakest capital reserves ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô Pennsylvania-based ""Radian Mortgage"":http://www.radian.biz/page?name=HomePage, Florida-based ""Republic Mortgage"":http://www.republic-mortgage.com/, and Illinois-based ""Triad Guaranty Insurance Corp."":http://www.triadguaranty.com/ ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô played bad hands with their net income results over 2010 and 2011. According to Weiss, Radian saw declines from $1 million in profits to $60 million in losses, while Republic Mortgage posted $1.7 million in losses and Triad noting $147 million in losses over 2011.

Speaking to _MReport_, Gavin Magor, a financial analyst with Weiss, chalks up continuing weakness in financial reserves to the financial crisis. With mortgage lenders under pressure from suits involving defaulting borrowers, he says, mortgage insurers have been paying out too much.

""They've gone through their accepted claims, their expected claims,"" Magor says. ""They're starting to lose their capital at greater rates. It's unsustainable.""

Commenting on distress seen by the PMI Group, which Arizona authorities ordered to close down mortgage insurance operations in lieu of depleted capital reserves, he says that ""companies like PMI├â┬ó├óÔÇÜ┬¼├é┬ª may have to completely reconsider their ability to issue any policies in the future.""

He says that PMI faces a difficult situation, one which raises doubts over whether it can continue to issue new mortgage insurance policies.

How will a flailing mortgage insurance industry impact the housing economy, mortgage lenders, and borrowers in general?

""As soon as there is a demand for mortgage insurance, there may not be the insurance to back up"" claims, Magor says. This would ""have an negative effect on the markets,"" he adds.

The report by Weiss seems to spell out the trouble that may await. With ""no sign of improvement in the economy for the remainder of the year, it appears that the $2.4 billion in losses mortgage insurers suffered will be matched in 2011,"" it said.