NMI Holdings Inc (NMIH)

[Mikey Mike]

Moody's Maintains Positive Outlook on Mortgage Insurers

The outlook for the US private mortgage insurance industry over the next 12 to 18 months remains positive, according to "US Mortgage Insurers: Positive Outlook as Industry Increases Capitalization, Legacy Losses Diminish," the latest industry update from Moody's Investors Service.

"In 2015, private mortgage insurers will continue to strengthen their regulatory and economic capital profiles to meet new capital requirements imposed by Fannie Mae and Freddie Mac," said Brandan Holmes, a Moody's vice president. "Stronger capitalization is credit positive and will improve the insurers' resilience as counterparties and therefore the value they offer to housing market participants."

The private mortgage insurers reported a significant improvement in profits for 2014 and are likely to grow profits further in 2015, owing to a steady decrease in new delinquencies as legacy loans burn out and to the growth in profitable post-2008 insurance-in-force that is beginning to generate meaningful earned premiums. In addition, improving US employment trends and moderate house price appreciation will continue to create favorable conditions for the industry.

Core mortgage originations are still below historical levels, and could pressure the insurers' volume of new insurance written, but the constraining factors -- such as the slow rate of household formation, the shift towards rentals, stagnant wage growth and limited access to mortgage credit -- will also continue to recede, with the resulting pent-up demand for housing driving further growth.

On the negative side, the industry could face intensifying competition, with financial strength and balance sheet capacity re-emerging as critical factors, especially if private-label issuance picks up. In addition, as currently drafted, the higher capital requirements could make earning the cost of capital difficult and hurt profitability, particularly for insurers with significant pre-2009 legacy exposures. Other potential negatives include a deterioration in the US economy, owing to, for example, fallout from economic instability in other parts of the world; or a weakening of the private insurers' franchises resulting from Fannie Mae or Freddie Mac-related reform that diminishes the role for private mortgage insurance.

http://www.streetinsider.com/Credit+Ratings/Moodys+Maintains+Positive+Outlook+on+Mortgage+Insurers+(RDN)+(ORI)+(AGO)/10316093.html