Smart Borrower Blog

More Woes In The Financial Sector

Mar 13th, 2009 @ 3:53 PM by Alden Smith

Mortgages insurer MGIC investment Corporation took a hit this week from Fitch Ratings on Thursday.   The company’s operating subsidiaries are also on a negative watch.

MTG currently carries a “BBB-” rating, the lowest that is considered investment-grade.   If the insurer is downgraded to junk status, it would hamper their ability to generate new business.

The rating from Fitch indicates increasing financial pressure on the company and the mortgage insurers sector as a whole.

Since the collapse of the mortgage market in the middle of 2007, this sector has taken a bad beating.   Business has dried up because the sale of homes and availability of credit has disappeared.   As more homeowners default on their mortgages, there has been a sharp rise in claims payments.

NBC nightly news reports that the financial sector will see more failure by the end of the quarter because of the amount of toxic mortgages that will have to be written off.   Everywhere you look, banks and lenders are taking a hit.

Proof of this lies in finger-pointing by a large investor in Banc of America.   Finger Interests, an investment firm in Houston, is calling for the ouster of BOA CEO Ken Lewis.   The Finger group holds approximately 1.5 million shares of BOA.   Much of the blame pointed at Lewis is due to the acquisition of Merrill Lynch & Co..   I’ve reported on the bonus debacle that went on at Merrill Lynch before BOA’s takeover.   Many questions have been raised about that situation.   It will be interesting to see where the Finger campaign goes.

It is my belief that until some of these situations has been rectified, that the market will continue on the direction it is now upon.   Until we see more transparency in both the banking and financial industry, and more watchdog capabilities put in place by the government, the situation will basically remain the same.   This is not a time in our nation’s troubles for these things to happen.   President Obama, I believe, is taking a good stand.   It remains to be seen whether the House or Senate will cooperate with and back him.   In the interim, all we can do is sit on our wallets, hunker down and cover our heads.   I sincerely believe that eventually things will sort themselves out.   I am by no means a Pollyanna, but wise enough to know that the American people have had their fill.