MGIC, Radian Close to the Edge: Is It Safe?

NEW YORK (TheStreet) -- Shares of MGIC(MTG Quote) and Radian(RDN Quote), major U.S. mortgage guarantors, have more than doubled in the past three months.

With claims on mortgage-guarantee insurance probably rising even as the economy returns to growth, is investors' bullishness justified? After all, companies of every stripe connected to the housing industry have lost serious money, and people who have struggled to pay their home loans will succumb to defeat if they lose their jobs and use up savings.

That means mortgage insurers ought to be the last place to put your money, right? Yet the reality is different. Yes, MGIC stiffed debenture holders, for the second time in six months, on an interest payment just over a week ago. The price of the stock dropped.

The company's attitude seems to be cavalier. And calculated to show that MGIC knows no fear when faced with junior debt holders. More than that, this continues the in-your-face approach companies have taken with debt holders. Some, like General Motors, really stuck it to bond investors, effectively reducing their position behind other creditors.

Still, FBR Capital Markets' Steve Stelmach raised MGIC's stock-price target to $13 from about $8.30. SNL Financial reports that the reason given was that no credit had been given to the positive residual value of the "old" book of business once losses have been accounted for. Defaults continued to rise through July for the mortgage-guarantee market, even as new business continued to fall. This is more evidence that insurers should be in real trouble. But are they?