Fitch: Mortgage Insurance Exposure to Credit Risk Grows.

While the market has worried about the performance of subprime loans originated in 2006, analysts at Fitch Ratings say the concerns may extend to earlier origination vintages as well.

And that will put continued pressure on the mortgage insurance industry, which provides first-loss coverage on low-downpayment loans. The MI firms are particularly vulnerable if problems in the subprime sector spill over into higher-credit-quality segments of the market, which comprises the bulk of the loans with MI coverage. Fitch analysts told MSN that they do not yet see any real evidence that major credit deterioration is seeping up into the prime and near-prime credit spectrum. But the more the weakness in the housing environment persists, the greater the likelihood that subprime problems could seep into other parts of the market, said Thomas Abruzzo, one of the Fitch analysts who worked on the report.

Fitch predicts that the mortgage insurers will see losses rise from the historically low levels of recent years, reflecting higher overall delinquency rates for recent vintages, fewer refinancing opportunities for troubled borrowers, diminished home-equity buildup and higher average loan balances.

Fitch said it believes the industry will be able to manage these difficulties without rating implications "over the intermediate term," but said some companies may be better positioned to weather the storm than others.

"A lot of it is going to do with what kind of credit the companies exposed themselves to," Mr. Abruzzo said.

He said the firms with the least exposure to nontraditional products might be best prepared to weather the storm.

The rating agency noted that as an industry, borrowers with FICO scores below 629 only account for about 13% of mortgage ...