Rating Agencies Pressure Insurers with Downgrades.

New York -- A pair of rating agencies have taken a critical eye towards the companies that make up the private mortgage insurance business.

The report from Fitch Ratings placed its hardest hits on the four standalone mortgage insurers. It strongly makes the point that those in the mortgage insurance industry will need to raise substantial amounts of capital or risk suffering a ratings downgrade.

Meanwhile, Standard & Poor's credit analyst James Brender comments in his report that the company has concerns, not only about the troubled 2005 through 2007 vintages, but the 2008 book of business as well. He thinks this vintage could be unprofitable because of falling home prices and a high percentage of business with loan-to-value ratios over 95%.

In a subsequent conference call conducted by UBS, Mr. Brender elaborates these "superhigh" LTV loans are being booked at a time when house prices are still falling. For some MI companies, these loans were 40% of new insurance written. It shows a breakdown in risk management at some of the MIs.

It is because of the collapse of the piggyback market these loans are coming to the MIs, and the MIs should have taken an appropriate risk tolerance for this factor.

In the past this was true for other products as well. They need to come up with a process when new products come on the market to help determine appropriate risk tolerances.

Mr. Brender added that while the MIs would have to improve risk management procedures and raise capital, in his view the concentration on improving risk management was more important.