S&P cuts Radian Group's counterparty credit rating

Radian Group's counterparty rating was cut to "BB+" from "BBB." The "BB+" rating is considered one notch below investment grade.

S&P also cut the counterparty and financial strength ratings of Radian's operating subsidiaries to "BBB+" from "A." The new ratings for the subsidiaries are still considered investment grade.

Radian 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.

The outlook on Radian's ratings is negative. A negative outlook means there is a 33 percent chance of a downgrade over the next two years.