Report Expresses Concern about MI Stocks.(mortgage insurance)

New York -- A research report from Sanford C. Bernstein & Co. finds potential downside for mortgage insurance stocks, especially if home prices start to decline.

Analysts Jonathan Gray and Adam Weinrich downgraded two mortgage insurers they cover, Radian Group and PMI Group, to "market perform" from a previous rating of "outperform." The analysts also reduced earnings-per-share estimates, citing "sluggish volume growth" in the mortgage insurance business and increased losses resulting from regional downturns in home prices.

The Wall Street firm had previously reduced its rating on the nation's largest mortgage insurer, MGIC, to "market perform" a year ago.

The mortgage insurance industry finds itself in something of a quandary, according to the report.

"The MIs need lenders to become frightened of credit loss on home loans once again in order to revive their market share and volume growth. Unfortunately, the triggering event would likely be declines in home prices, and this will sap investor enthusiasm," the analysts wrote.

The report finds few other bright spots in the universe of mortgage stocks, citing challenges such as rising interest rates, lower mortgage volume, increased competition and the potential for home price corrections in some markets. At the same time, the ...