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CREDIT CRISIS STINGS MORTGAGE INSURERS

Increased foreclosures are hurting the firms, leading to tighter standards for insurance.

Mounting losses and the threat of credit-rating downgrades are hitting another obscure corner of the insurance industry - mortgage insurance - and adding to strains on the housing market.

Rising claims on policies mortgage insurers sold during the housing market boom are hitting hard. MGIC Investment Corp., a Milwaukee firm that is the largest mortgage insurer in the country, said this week it posted a $1.47-billion loss in the fourth quarter. A much-smaller rival, Triad Guaranty Inc., based in Winston-Salem, N.C., this week reported a $75-million quarterly loss.

Investors have punished the stocks the past year, sending the shares of some down 90 percent.

But the insurers are not in danger of going bust, and their travails aren't causing widespread problems in the financial system. They are getting help, in the form of higher rates, tighter underwriting standards and, on Thursday, a move by Freddie Mac that should allow them to rebuild capital.

The problems are forcing mortgage insurers to adopt stricter standards. MGIC, for instance, won't insure borrowers who won't put down at least 5 percent in Arizona, Florida, California and Nevada and major metropolitan areas in many other states. The change is in effect in Florida and California and will take effect elsewhere in March.

The result is that those who have trouble scraping together a down payment - typical mortgage-insurance customers - could find it harder to purchase a house. The tightening is "another thorn in the consumers' side," says Ivy Zelman, chief executive of Zelman & Associates, a housing research firm.

Mortgage insurers sell policies that promise to repay a certain percentage of the loan, usually 25 percent to 35 percent, if the borrower defaults. Lenders often want borrowers who can't make a customary down payment, usually 20 percent, to buy the insurance. Freddie Mac and Fannie Mae, which buy many of the nation's mortgages from lenders, rely on the insurers to cover part of their risks for loans that total 80 percent or more of a home's estimated value.

With more homes going into foreclosure, mortgage insurers are seeing losses mount. Falling home prices make the situation worse, because it becomes harder to recover losses from the sale of a foreclosed house.

Thursday, in a demonstration of concern about the insurers, Freddie Mac said it will suspend its policy of imposing tighter capital requirements and other restrictions on mortgage insurers if their ratings are cut below double-A or the equivalent. Ratings services have said a number of the mortgage insurers face downgrades.

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