Moody’s Downgrades Two Mortgage Carriers

Moody’s Investors Service has downgraded mortgage insurers Triad Guaranty Insurance Corp. and Republic Mortgage Insurance Company, concluding that the financial strength of both is questionable.

The rating service late Friday reduced the insurance financial strength of Triad to “B1” from “Baa3” and downgraded Republic to “A1” from “Aa3.”

Moody’s said Triad is entering into runoff as of July 15 after Freddie Mac suspended the carrier from writing business as an approved mortgage insurer.

The insurer’s “insured portfolio has deteriorated meaningfully,” Moody’s said, and its capital ratio “is currently in breach of regulatory limits.”

Its negative rating outlook “reflects the potential for further adverse developments,” the rating service added.

Moody’s said its action on Republic reflected the company’s deterioration in capital adequacy and medium-term profitability prospects.

While demand for new business has improved, the rating service said of Republic that it is concerned with the exposures that originated prior to 2008 that have “eroded capitalization, and those exposures remain vulnerable to further economic deterioration.” The outlook on the company is negative.

While it is concerned with the deterioration in the insured portfolio, the insurer’s “risk to capital ratio is currently well within regulatory limits.” It also said its parent company, Old Republic International Corp., “has both the ability and the willingness to increase RMIC’s capital resources to levels consistent with single-A metrics in the near term.

Mortgage and guaranty insurers have been rocked by the subprime mortgage crisis that has produced deep losses for the insurers who insured the loans. Many of the larger affected insurers such as Ambac and MBIA have countered downgrade actions by saying they have the capital capacity to withstand the losses.