Mortgage insurance companies will be affected "negatively in the years ahead" by continued weakness in the mortgage markets, especially with the poor performance of loans to subprime and alternative-A borrowers, according to a commentary from Fitch Ratings. Specifically, Fitch cites concerns about the book of business for loans originated between 2005 and 2007. "[A] greater percentage of these delinquent borrowers will end up in foreclosure in the years ahead, which will translate into higher claims and losses over this time period," the rating agency said. "Negative net income will have a significant impact on the MIs' ability to internally build their capital bases over the next few years, which is of particular concern given the likely costs and/or challenges to raising external capital in this depressed market environment." While all the MIs Fitch rates have been affected by the poor mortgage market, Fitch noted that the extent of the trouble varies by company, "as each insurer has differing levels of exposure to product sectors (i.e., prime, subprime, reduced documentation, alt-A, or negative amortization), have participated in certain business segments to varying degrees, and have different organizational structures, with some benefiting from diversified parent companies or from MI operations based in international markets."

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