Mortgage Insurers Face More Challenges

The outlook for private mortgage insurers for 2009 remains negative as they will have to deal with loans they underwrote in 2007, a report from Fitch Ratings, New York, declares. The 2007 vintage, "a low point in mortgage underwriting discipline," the rating agency said, represents 30% of the industry's risk in force. Furthermore, the business underwritten in the early part of last year has similar characteristics to that 2007 book and is likely to have a similar performance. The business written in the second half of 2008 is expected to perform better than the first half business as a result of tighter underwriting standards. Fitch also said capital constraints remain the most acute problem facing the surviving mortgage insurers. "Mortgage insurers face a real risk of breaching regulatory capital limits, which will likely limit the industry's ability to take advantage of new and potentially more profitable business to offset challenges in legacy portfolios. For certain standalone MIs, holding company liquidity may be at risk from lending covenants tied to net worth and risk-to-capital," said Roger Merritt, Fitch managing director.