A report critical of MGIC Investment Corp. sent a chill through the mortgage insurance sector last week.

On Wednesday, Morgan Stanley Dean Witter analyst Kenneth A. Posner downgraded MGIC, the largest mortgage insurer, to "neutral." Mr. Posner said increased price competition and slower growth in the fourth quarter were the main reasons for his downgrade.

MGIC's stock fell nearly 8% from a high of $71.1875 on Tuesday to $65.5625 Friday. The report dragged down the stock prices of the other four publicly mortgage traded mortgage insurers as well.

Amerin Corp. was hit hardest; its stock plunged nearly 10% last week, from $30 to a Friday close of $27.0625. Triad Guaranty Corp.'s stock fell almost 4%, from $39 on Wednesday to $37.5 Friday.

CMAC Investment Corp. fell nearly 4%, from $66.125 to $63.6875 on Friday, and PMI Group's shares dropped only 2%, from $75.375 on Tuesday to $74.0625.

But other analysts said Mr. Posner's report was alarmist. Edwin Ciskowski, an analyst with SunTrust Equitable Securities, Nashville, said the recent slowdown in insurance-in-force growth is not surprising, as fewer people buy homes in the fourth quarter.

Also, falling rates and rising home values have let many people refinance, getting a lower loan to value ratio and eliminating the need for mortgage insurance.

Mr. Ciskowski said the slowdown in insurance growth is temporary and probably will not have hurt MGIC's earnings.

"MGIC will see its growth slow a little in this quarter, but given that it is a marketing juggernaut, it is probably not a good idea to bet against them," Mr. Ciskowski said.

Mr. Posner cited rumblings that smaller companies are cutting prices trying to grab more market share. He said larger insurers such as MGIC and PMI would be hurt by not engaging in a price war.

"It is always harder for larger companies to defend market share when smaller companies are cutting prices," Mr. Posner said.

Critics say such products as captive reinsurance, pool insurance, and contract underwriting hurt mortgage insurers because they yield lower returns than primary insurance does.

Mark L. Constant, an analyst with Merrill Lynch & Co., said insurers can afford to offer such products because their overall earnings growth has far exceeded that of mortgage lenders.

Besides Mr. Posner's report, investors also may have been concerned about plans in Washington to expand the FHA mortgage insurance program. Senate hearings began last week about a proposal to increase the limit on FHA insured loans to $227,150.

The mortgage insurance industry opposes President Clinton's plan to expand the FHA program, because an increase in the loan limit for FHA mortgage insurance could make government insurance a more attractive alternative to private mortgage insurance, some say.

"Certainly mortgage insurers don't want to encourage any acceleration of competition from the government sector; few capitalists do," Mr. Constant said.

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