Fitch Ratings, in a move likely presaging pending downgrades, said Monday (registration req’d) that it had placed nearly every major mortgage insurer on negative ratings watch. In particular, Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co. and Radian Guaranty Inc. saw their insurer financial strength ratings affected, while Genworth Mortgage Insurance Corp. and its affliates were the only major insurer to have ratings affirmed. Citing marked deterioration in performance for mortgages backed by subprime and reduced or limited documentation (Alt-A) borrowers, Fitch said that it expects the mortgage insurance industry as a whole to absorb significantly greater claims and losses for loans originated in the 2005-2007 vintages.
“A number of the major players in the industry will need to raise significant additional equity in the near future or risk having their ratings downgraded,” Fitch said Monday afternoon. Count MGIC’s mortgage insurance operations, currently rated ‘AA’, among that group. The nation’s largest mortgage insurer, with risk in force net of reinsurance of $53.5 billion at the end of the third quarter, was deemed to have higher exposure to soft housing markets and riskier product classes via its bulk and pool business lines. Fitch said that if the insurer does not raise new capital to maintain its rating, it would likely see a one-notch downgrade. Both PMI and Radian suffered from the same capital shortfalls in Fitch’s modeling, and as a result both are likely to see their insurer ratings downgraded without additional capital, the agency said. The two companies maintained net risk in force of $67.9 billion at the end of the fourth quarter. PMI, in particular, is being dragged down by its ownership interest in troubled bond guarantor FGIC Corp (click here for HW’s coverage of FGIC). PMI said last week it could not report its fourth quarter results until the monoline completes its own financials. Fitch warned that PMI may see a two-notch downgrade without a capital stengthening plan over the next several months. Genworth, however, avoided a potential ratings downgrade — the lone affirmation among the insurers tested by Fitch. The rating agency cited “conservative underwriting” as a strong factor in the affirmation, although it expects the company to be negatively affected overall by the U.S. mortgage market slump. Fitch did not specify the amount of additional capital needed at the affected firms, nor the timeline by which it expects any capital to be raised. Calls to the agency for comment were not returned by the time this story was published. For more information, visit http://www.fitchratings.com. (Update 1: adds in graphic and list; adds in discussion of Genworth) Disclosure: The author held no positions in any insurer mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
