Bruce Krasting in a Seeking Alpha article highlights the S&P action and the effect on Fannie and Freddie:
“There are six principals in the MI business. Here is what S&P had to say about them:
- AIG -United Guaranty Residential Insurance Co to ‘BBB+’ from ‘A-’ .
- Radian Guaranty Inc. to ‘BB-’ from ‘BBB+’.
- PMI Mortgage Insurance Co. (PMI) to ‘BB-’ from ‘A-’.
- Genworth Mortgage Insurance Corp. (GMICO) to ‘BBB+’ from ‘A+’.
- Mortgage Guaranty Insurance Corp.’s (MGIC) ‘BB” ratings were affirmed.
- Republic Mortgage Insurance Co. to ‘A-’ from ‘A’.
FHFA and the Agencies have played fast and loose with their own rules governing activities with the PMI providers. The revised ratings by S&P and other ratings agencies will make it impossible for this to continue.
At some point in the next six months the GSE’s will need more capital. Congress will have to approve at least an additional $200 billion. Having a hand out while at the same time breaking reasonable credit guidelines that result in taxpayer losses and more foreclosures will make the next round of capital for the GSE’s a harder sell. “
The $200B going to the GSE’s in the next 6 months will be to raise loss provisions on already impaired loans due to the reduction in the cushion from PMI companies. The reality is that there are more impaired loans to come. We think the $200B will be at least doubled.
