Despite some risks ahead for the nation’s mortgage insurance companies, the industry’s outlook has improved considerably as market conditions have turned more favorable.
The outlook for U.S. mortgage insurers has been raised to positive. The upgrade reflects improved financial performance in the sector, declining delinquencies and stronger regulatory capital.
The outlook for mortgage insurance firms was upgraded from a negative outlook that was implemented in March of last year.
The improved outlook was discussed in a report from Moody’s Investors Service.
Behind the more favorable outlook is the beginning of a recovery from the low point established during the financial crisis, Brandan Holmes, co-author of the report said. He pointed to improvement in general macroeconomic conditions, including housing fundamentals.
Moody’s said that new business has been rising for M.I. companies as delinquencies continue a slow decline. In addition, new capital injected into the industry as well as acquisitions and new entrants have resulted in higher industry-wide capital levels — though many insurers have a relatively weak credit profile and some will need to further recapitalize.
“Improvements in the U.S. economy and housing market will continue to drive lower delinquencies in legacy books,” the ratings agency predicted. “This, and profitable post-2008 new business, will boost financial performance and profitability.”
Rate increases at the Federal Housing Administration, delays in reforming Fannie Mae and Freddie Mac, and an uptick in household formation are additionally expected to support demand for private mortgage insurance.
Among the risks Moody’s sees facing the sector are a lack of clarity about the role of private mortgage insurance in a reformed mortgage market.
In addition, significant exposure to legacy portfolios still exists.
