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MI Firms Confront More Risk Woes

Last year, Fitch Ratings here declared, "Will likely prove to be one of the worst underwriting years in the modern history of the U.S. mortgage industry." The company made the statement in a report where it downgraded the insurer financial strength ratings of a pair of mortgage insurers.

In its report, Fitch discussed some of the trends affecting the overall mortgage industry, including poor underwriting by lenders, home price declines and the increased willingness of borrowers willing to walk away from their homes and fraud.

"It appears the MIs' underwriting processes were ineffective in identifying and protecting against these risks as the industry aggressively courted new business throughout 2007. As a result, these companies' insured portfolios are now heavily concentrated with 2007 vintage mortgage loans, many of which are very high loan-to-value (greater than 95%) and/or were underwritten to borrowers who provided limited or no documentation," said Fitch.

On the good news side, Fitch said potential claims on some 2007 and even 2006 originated business could be moderated because the policies may be determined to be ineligible to be paid. The MIs could also benefit from captive reinsurance arrangements. Profitability for the MIs is not likely to return until late 2009, or more likely, Fitch said, 2010. Among the actions taken by Fitch is a reduction in the insurer financial strength ratings of PMI Mortgage Insurance Co., Walnut Creek, Calif., from AA to A+, a drop of two notches. It also cut the IFS of Republic Mortgage Insurance Co., Winston-Salem, N.C., from AA to AA-. Changes echo downgrades made by S&P in April. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/