MI Cure Improvement Likely Temporary, Analysts Predict.

ARLINGTON, VA -- Modest improvement reported in the cure rate for home loans with mortgage insurance is likely temporary, according to analysts at Friedman Billings Ramsey.

The analysts believe the underlying home loan credit trends remain negative for the mortgage insurance industry. Moreover, they are skeptical of the notion that MI companies will benefit from loan modifications designed to avert foreclosure.

Citing data compiled by the Mortgage Insurance Cos. of America, FBR analysts Steve Stelmach and Paul Miller wrote in a recent research note that the August improvement may be an aberration in the trend toward greater defaults relative to cures, which translates into deterioration in home loan credit quality.

"The monthly improvement belies the longer-term trend," they wrote.

"We expect cure ratios will continue to weaken as we enter the seasonally weak months of the year."

The industry does benefit from the longer-term trend of higher insurance-in-force, but the benefits of that growth won't start to bolster the performance of mortgage insurance companies until the second half of 2008, the analysts believe.

"We remain cautious on the space given the significant credit headwinds, but for long-term investors (with time horizons beyond the next year) it may be time to start doing dome homework on the space, as current valuations could prove attractive once we get beyond the current credit squeeze," the stock analysts said.