PMI Group's ratings cut by Standard & Poor's

S&P cut PMI Group's counterparty rating to "BBB-" from "BBB+." The counterparty and financial strength ratings of its operating subsidiaries were cut to "A-" from "A+." All the new ratings are still considered investment grade.

All the new ratings were also placed on a negative credit watch. S&P said in a statement it will either lower the ratings another notch or affirm them and assign a negative outlook within the next month.

A negative outlook is a long-range view on the ratings.

PMI Group's ratings were cut as part of broader downgrades of mortgage insurers. S&P cut the ratings after revising lower its forecast for declines in the S&P/Case Shiller Home Price Index, rising unemployment and projected claims payments for 2008 vintage mortgages.

S&P now projects the home price index will fall 29 percent from its peak to its trough. The ratings agency previously projected it would fall 20 percent.

Rising unemployment, which S&P believes is a significant driver of mortgage defaults and thus claims payments, also will hinder mortgage insurers' ability to generate a profit.

Based on continued weakness in the housing market and recent data on early payment defaults, S&P increased its claim rate estimate for 2008 vintage mortgages to 7 percent from 6.5 percent. Insurers pay out claims on mortgages when customers default.

S&P did note it believes mortgage insurers' near-term ability to pay claims remains strong.