Monoline Downgrade Soup: Fitch Hits MGIC, PMI Group

So now you can add MGIC and PMI Group to the pile (thanks to Fitch):

Fitch Ratings on Thursday downgraded MGIC Investment Corp. and PMI Group, noting it has become much more pessimistic on its outlook for the mortgage insurance sector. Fitch lowered Mortgage Guaranty Insurance Corp.'s insurer financial strength to A+ from AA and MGIC Investment's long-term issuer rating to BBB+ from A. The ratings will remain on rating watch negative, indicating that further downgrades may be in the offing. Fitch also cut PMI Mortgage Insurance's rating to A+ from AA and PMI Group's long-term issuer rating to BBB+ from A. The outlook on PMI and PMI Mortgage Insurance is negative.

S&P downgraded Ambak and MBI earlier. Not bad for one day. Interestingly, Ambak and MBI had already been downgraded by Fitch about a month ago, which means that presumably many folks out there holding securities rated by the two largest monolines have broken the magic "2 out of 3 ratings agencies must approve" covenant. We may see considerable forced selling from here (though its likely many stodgy holders of these monoline-insured securities have already sold them to more speculative parties).

Further, MBIA and Ambac are showing signs of fatigue from fighting to keep their Aaa's from Moody's, in response to that company's negative remarks yesterday:

The world's largest bond insurers, which have raised $4.1 billion combined in the past six months, said they won't seek more capital after New York-based Moody's yesterday said the most likely result of its examination would be a downgrade of the companies' top insurance financial strength rankings.

...

Moody's decision is ``liberating'' for Ambac, and may enable it to consider more options such as returning capital to shareholders, Doug Renfield-Miller, an executive vice president at the company, said at an investor conference.

MBIA may start a new insurance business with $900 million it raised in February, Brown said. Ambac shareholders have suggested the company stop writing new business and enter a ``run off,'' where it winds down as policies mature, Renfield-Miller said.

It seems only yesterday Fitch was the only company with the cojones to downgrade the monolines -- with MBIA frantically asking them to please stop doing so (Fitch decided to continue rating them for free). Almost makes us nostalgic.

Interestingly, MBIA and Ambac insiders have been spotted buying shares, possibly explaining some of the levity in the face of the bad news. Is this an attempt to rescue their stocks, or a genuine show of good faith and belief in positive prospects?