Fitch: 2007 Worst Underwriting Year For Mortgage Insurers

A rating firm reported today that 2007 will probably add up as one of the worst underwriting years in the modern history of the U.S. mortgage industry.

Fitch Ratings, in an update to its June 2007 finding “Across the Board Delinquencies Are Up,” said the mortgage insurance industry, despite steps to improve business prospects, is not over its troubles and they may, in fact, get worse before they improve.

Its report concluded that the mortgage insurance industry “will continue to post significant losses well into 2009.”

The firm’s examination of mortgage insurer delinquencies uses data and analysis that extends mortgage insurance origination and performance trends with the benefit of a further year of loan-level data.

Fitch said for a number of key mortgage insurers last year was a year of rapid growth, and this 2007 vintage will increasingly account for losses in 2008 and 2009 that will stress the mortgage insurers' balance sheets over the intermediate term.

“The mortgage insurance industry underestimated both the scope and severity of the decline in residential mortgage markets that became increasingly acute in 2007.

“Initial industry optimism over increased demand and better premiums in early 2007 reversed over the second half of the year, and by the early fourth quarter the industry was significantly tightening underwriting guidelines to limit damage from ongoing poor mortgage origination standards and the prospect of substantial and widespread housing price declines,” the report said.

But industry changes did not go into complete effect until this year and mortgage insurers are now burdened with a large 2007 vintage book of underperforming business,” Fitch found.

Today's Fitch Special Report, “Delinquencies and Losses Are Up,” is now available on www.fitchratings.com under the following page headers: Financial Institutions > Insurance > Special Reports.