FGIC joins other bonds insurers in credit downgrade
by Gill Montia
Financial Guaranty Insurance Company (FGIC), the world’s third-largest bond insurer, has had its credit rating downgraded.
Moody’s has downgraded FGIC Corporation, including Financial Guaranty Insurance Company and FGIC UK Limited to A3, from Aaa.
As with its competitors, Ambac, MBIA and MBAC, the insurer is facing a rise in claims resulting from the US sub-prime mortgage crisis.
FGIC insures about $314 billion of debt and Moody’s estimates that it could face sub-prime mortgage bond claims of $9 billion, meaning the company’s reserves are around $4 billion short.
FGIC is now separating out its business to protect its low-risk portfolio, which guarantees local government bonds used to finance infrastructure projects. These are valued at around $220 billion.
Both FGIC and other bond insurers are working to raise new capital as the US housing market and broader economic outlook continued to deteriorate.
Radian Group, which insures partial repayment of mortgages in the event of a default, recorded a $618million loss in the fourth-quarter of 2007, compared with a profit of $158.4 million in the same period of 2006.
In related news, Countrywide, America’s largest mortgage lender, reported record highs for foreclosures and late payments in January.
During the month it funded $21.9 billion of home loans, 6% less than in December and 41% down on January 2006.