Fitch this week followed through on its warning of last month and cut Republic Mortgage Insurance Company's insurer financial strength rating down to junk levels.
The mortgage insurer's weak capital levels, continued operating losses and uncertain business prospects prompted the move. RMIC now has a 'BB' IFS, two notches down from 'BBB-.'
Despite the downgrade, the share price of Republic's parent company hardly budged on Thursday.
Fitch said RMIC's delinquent risk-in-force is greater than its total capital resources, which is comprised of policyholder surplus, contingency reserve and the loss and loss adjustment expense reserve.
Furthermore, the risk-to-capital ratio of 28.4:1 is above the statutory limit that some states have of 25:1. But RMIC, like most of the MI industry has obtained waivers from regulators regarding compliance with that standard. Otherwise, in those states, it would not be allowed to write new policies.
Although, as an alternative, Fannie Mae and Freddie Mac will allow RMIC to write new business out of a subsidiary, Republic Mortgage Insurance Co. of North Carolina, which has a 23.3:1 risk-to-capital ratio.
RMIC is a subsidiary of the publicly traded Old Republic International Inc. Fitch said the parent company is apparently unwilling to provide the level of support needed for a higher rating.
In its report on RMIC, Fitch included a note about private mortgage insurance not being included in the initial proposal for a qualified residential mortgage. Fitch said the exclusion likely would not have an immediate effect on the mortgage insurers because GSE loans will be exempt from the risk retention rule while Fannie Mae and Freddie Mac are in conservatorship.
"However, if the GSEs are wound down over the longer term, the exclusion of mortgage insurance from the QRM definition could significantly impact new business volumes, in Fitch's view.
Fitch further believes that the significant levels of rescissions and claim denials over the last several years have had a negative impact on the relationship between the mortgage insurers and the mortgage lenders they serve.
