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

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

The ratings were dropped to B1 from Ba3.

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

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

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

Furthermore, while new business is of high average quality and written at a higher premium level, Fitch says it represents “a fraction” 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 of the third quarter of 2011 that its policyholder position exceeded the minimum required by its state insurance regulator, the Wisconsin Office of the Commissioner (OCI) by only $50 million.

A waiver requirement from the OCI that allows MGIC to continue writing business despite a potential breach of the regulatory capital requirements is set to expire on Dec. 31, 2011 Moody's adds. MGIC also has agreements with the Government-Sponsored Enterprises under which MIC can write business in jurisdictions where MGIC cannot, as long as MGIC has obtained the OCI waiver. The Fannie Mae agreement expires on Dec. 31, 2011 and the Freddie Mac agreement expires on Dec. 31, 2012.

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Moody&rsquo;s Downgrades Mortgage Guaranty Insurer MGIC

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