Fitch Ratings has placed the insurer financial strength ratings of three mortgage insurers on Rating Watch Negative, citing concerns regarding deterioration in several mortgage asset classes beyond the subprime mortgage sector.
“While initially the current situation was impacted mainly by the subprime mortgage sector, deterioration has begun to spill over to other mortgage asset classes, such as adjustable-rate, negative amortizing, reduced documentation (Alt-A), and second-lien mortgages,” Fitch said in a statement.
As a result, Fitch has placed on Rating Watch Negative the “double-A” IFS ratings of Mortgage Guaranty Insurance Corp. (MGIC), the “double-A-minus” IFS ratings of Radian Guaranty Inc., and the “double-A” IFS ratings of PMI Mortgage.
In addition to PMI Mortgage Insurance Co. and its operational affiliates, the long-term issuer ratings of The PMI Group Inc. (TPG) and PMI Capital I were placed on Rating Watch Negative.
Fitch said the rating actions on PMI reflect the rating agency's view on ultimate loss expectations for the mortgage insurer.
“Adding to the overall concern is the potential for further negative pressure on earnings for TPG related to its significant investments in financial guaranty insurers FGIC Corp. and Ram Holdings Ltd.” Fitch said that PMI's rating could drop by up to two notches if it fails to “engage in a capital enhancement plan to bolster the company's financial position over the next several months.”
For MGIC, Fitch said that the company “maintains relatively higher exposure to soft markets and riskier product classes through its bulk and pool business lines relative to most of its competitors, and Fitch believes these products are likely to perform considerably worse than recent history.”
MGIC Australia's “double-A” IFS ratings, as well as the “A” long-term issuer rating of MGIC Investment Corp. were also placed on Rating Watch Negative.
Fitch said the actions on the IFS ratings of Radian Guaranty Inc. and its operational affiliates, and the long-term issuer ratings of Radian Group Inc., reflect Fitch's updated view on ultimate loss expectations.
“This revised view also factors in the implications to the consolidated Radian Group Inc. given the company's exposure to subprime mortgages through its structured mortgage insurance business line, as well as Radian Group's exposure to net interest margin and second-lien mortgage insurance,” said Fitch.
The rating agency noted that Radian Group may be lowered by one notch if it does not obtain additional capital resources over the next several months.
Fitch has also revised the rating outlook of CMG Mortgage Insurance Company to negative from stable and affirmed CMG MI's “double-A” IFS rating.
Additionally, while Fitch said that it took no rating action on Triad Guaranty Insurance Co., the ratings remain on Rating Watch Negative, and Fitch said it believes Triad does not currently maintain the capital to sustain its “double-A-minus” rating.
“Absent obtaining additional capital resources within a short time frame, it is likely that Fitch will lower the ratings of Triad and Triad Guaranty Inc. several more notches, with the IFS rating possibly falling below the “A” category,” Fitch said
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