Mortgage insurers lifted, But Default Fears Persist

--Mortgage insurers, which promise to help repay home loans if borrowers can't, have a lot riding on a key question surrounding yesterday's sharp interest-rate cut: Will it be enough? --Those losses could be stanched if more borrowers are able to stay in their homes and keep making payments. Mortgage insurers could also benefit if the rate cut boosts the economy and holds down unemployment, which has traditionally been one of the driving factors in claims for the industry. --Investors cheered the Fed's move, lifting the stocks of two of the nation's largest mortgage insurers, MGIC Investment Corp. and PMI Group Inc., nearly 14%. Still, PMI shares are down 85% since June and MGIC's shares have fallen 75% since then. Unlike bond insurers, the mortgage insurers don't pose a risk to the overall financial system. --And if the mortgage market and the economy don't pick up, the possibility of ratings downgrades looms over the industry -- a threat that is likely to grow if the downturn is deep and protracted. --Freddie Mac and Fannie Mae both typically want borrowers to have mortgage insurance if the borrowers put down less than 20% of a home's purchase price. The policies guarantee repayment of the mortgage up to a certain level.