Mortgage insurance stocks have been a rollercoaster ride in recent days amid speculation that some may be going out of business while others would be poised to take over entire markets. Good news from bond insurers led to broad increases yesterday, but bad news beat PMI stocks back down to reality today. The mortgage meltdown is far from over and the future of these companies remains uncertain.

MGIC Investment Corporation (NYSE: MTG) shares hit a 15-year low after dropping more than 30 percent today. The nation’s largest mortgage insurance company announced that paid losses could reach $2 billion this year as it struggles to accurately forecast its losses amid the mortgage meltdown. The company is struggling with not only a dramatic increase in delinquencies, but also an increase in the cost of each claim as fewer delinquent homeowners are resuming payment.

Home buyers typically purchase mortgage insurance from companies like MGIC when they put down less than 20 percent of their home’s value, which makes most of their customers those with exotic mortgages (the ones that don’t require huge down payments). MGIC said it had 107,120 delinquent loans by the end of 2007, which is a 16,000 loan increase from the end of the third quarter. Clearly, there is still trouble in the housing market that is only likely to continue.

The PMI Group, Inc. (NYSE: PMI), another major provider of private mortgage insurance, also saw its shares decline more than 15 percent today after the bad news from MGIC. Interestingly, the stock soared yesterday after bond insurers Ambac and MBIA announced that they don’t expect to pay as much as they expected in claims and that the value of their assets is far higher than the market initially believed. Unfortunately, this may not ring so true for mortgage insurers as compared to bond insurers.

In the end, the mortgage markets are still in freefall as foreclosures continue to rise and delinquencies continue to increase. Mortgage insurance companies made the mistake of insuring risky loans with exotic mortgages, and that decision is likely to cost them going forward. Nobody knows the extent of the damage yet, but it may be wise to stay away from these companies for now!

Related Companies
Radian Group Inc. (RDN)
Triad Guaranty Inc. (TGIC)
The PMI Group, Inc. (PMI)