NU Online News Service, Nov. 2, 2:23 p.m.EST

Moody's Investors Service has downgraded the insurance financialstrength rating of Mortgage Guaranty Insurance Corporation (MGIC),citing “material deterioration in the insurer's regulatory capitalposition, large current and projected claims payments, and modestnew business production.”

The ratings were dropped to B1 from Ba3.

Moody's also affirmed the Ba3 rating of MGIC subsidiary MGICIndemnity Corporation (MIC), but revised the outlook tonegative.

“With continued stress in the US mortgage market, MGIC is likelyto see further deterioration in its regulatory capital position,”says Moody's.

Moody's says MGIC is currently paying approximately $725 millionof claims per quarter, and paid claims “are likely to decrease onlymodestly in 2012 and 2013 as the large volume of severelydelinquent loans…enters foreclosure.

Furthermore, while new business is of high average quality andwritten at a higher premium level, Fitch says it represents “afraction” of the volume the company wrote previously, and covers“only a modest portion of losses from older vintages.”

According to Moody's, MGIC recently announced that at the end ofthe third quarter of 2011 that its policyholder position exceededthe minimum required by its state insurance regulator, theWisconsin Office of the Commissioner (OCI) by only $50 million.

A waiver requirement from the OCI that allows MGIC to continuewriting business despite a potential breach of the regulatorycapital requirements is set to expire on Dec. 31, 2011 Moody'sadds. MGIC also has agreements with the Government-SponsoredEnterprises under which MIC can write business in jurisdictionswhere MGIC cannot, as long as MGIC has obtained the OCI waiver. TheFannie Mae agreement expires on Dec. 31, 2011 and the Freddie Macagreement expires on Dec. 31, 2012.