Future imperfect

7 September 2007 By Antony Currie Follow @AntonyMCurrie

The housing crisis ought to play to the mortgage insurer s strengths. Instead, Radian is being punished for its boomtime expansion. Its merger with MGIC is off, and any more ratings downgrades could scare off customers and hit earnings.

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Mortgage insurer MGIC called off its merger with Radian this week. The value of the deal had halved to $2.4bn since it was announced in February.

After the merger was called off, Fitch downgraded Radian's credit rating. Radian requested Fitch withdraw its ratings altogether, a move rejected by the agency. Moody's placed the insurer on downgrade watch, while Standard & Poor's had already done so last month. If Radian's mortgage insurance unit's rating falls to singleA, Fannie Mae and Freddie Mac may not be able to continue doing business with the firm both require insurers to have at least a doubleA rating.

Mortgage insurers guarantee payments on loans in return for a fee. Radian and others also insure more complex debt products.

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