Analyst Worries About MIs' '08 Business

Standard & Poor's credit analyst James Brender is expressing concerns not only about private mortgage insurers' troubled 2005-2007 books of business, but about the 2008 vintage as well. Mr. Brender says he thinks the 2008 business could be unprofitable because of falling home prices at a time when MIs are writing a high percentage of business with loan-to-value ratios over 95%. In a conference call conducted by UBS, Mr. Brender said these loans represent 40% of new insurance written for some MI companies, which he said shows a breakdown in risk management. It is because of the collapse of the piggyback market that the loans are coming to the MIs, and the companies should have taken an appropriate risk tolerance for this factor, he said. The MIs need to develop a process to help determine appropriate risk tolerances when new products come on the market, Mr. Brender said. He added that while the MIs will have to both improve risk management procedures and raise capital, improving risk management is more important. S&P can be found online at http://www.standardandpoors.com.