NEW YORK, NY, Sept. 9, 2008--Standard & Poor's Ratings Services today said the announcement by the U.S. Treasury that Fannie Mae and Freddie Mac (collectively, the GSEs) have been placed into conservatorship creates some concerns for the mortgage insurance industry, but we do not consider the downside risk to be significant enough 
to justify any rating actions at this time.(The GSEs were placed into conservatorship by their regulator, the Federal Housing Finance Agency, or FHFA.)
Throughout the current downturn, the GSEs have shown a willingness to work with mortgage insurers when ratings fell below 'AA-'.
The GSEs do not impose any additio
nal restrictions on the four companies rated below 'AA-' (Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co., Radian Guaranty Inc., and Republic Mortgage Insurance Co.) other than requiring a remediation plan to address the issues that resulted in Standard & Poor's downgrading them
to below 'AA-'.
nal restrictions on the four companies rated below 'AA-' (Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co., Radian Guaranty Inc., and Republic Mortgage Insurance Co.) other than requiring a remediation plan to address the issues that resulted in Standard & Poor's downgrading them
to below 'AA-'. Three private mortgage insurers have ratings of 'AA-' or higher--CMG Mortgage Insurance Co., Genworth Mortgage Insurance Corp., and United Guaranty Residential Insurance Co.
We view the GSEs' current treatment of mortgage insurers that were downgraded below 'AA-' as a significant positive to those companies' competitive position. Therefore, the GSEs' management teams represent a risk, because those teams could pursue a different strategy for dealing with mortgage in
surers.
surers. (Republic Mortgage Insurance Co. headquarters building, Chicago, middle right photo)
The GSEs' new management teams' options for handling their r
elationships with mortgage insurers range from suspending their eligibility to sell loans to the GSEs to imposing the restrictions the GSEs have always had for type II mortgage insurers, which are those rated below 'AA-'.
elationships with mortgage insurers range from suspending their eligibility to sell loans to the GSEs to imposing the restrictions the GSEs have always had for type II mortgage insurers, which are those rated below 'AA-'. If a GSE suspends a mortgage insurer's eligibility to sell loans to that GSE, the mortgage insurer's ability to write new business would be severely limited.
Conversely, being designated a type II mortgage insurer by a GSE would probably not have a meaningful impact on that mortgage insurer's competitive position.Type II mortgage insurers are 
not allowed to cede business to a captive reinsurer owned by a lender, and type II mortgage insurers must comply with additional ratios and restrictions.
not allowed to cede business to a captive reinsurer owned by a lender, and type II mortgage insurers must comply with additional ratios and restrictions. Neither the U.S. Treasury nor the FHFA has taken any actions to suggest a change in the GSEs' counterparty credit policies toward mortgage insurers. Although we believe the risk of an unfavorabl
e outcome is greater for those rated below 'A' than for those rated at or above that level, we do not expect a change in mortgage insurers' abili
ty to insure loans sold to the GSEs.
e outcome is greater for those rated below 'A' than for those rated at or above that level, we do not expect a change in mortgage insurers' abili
ty to insure loans sold to the GSEs. The U.S. Treasury has said there will be no changes to the GSEs' charters. The imposition of caps on the GSEs' investment portfolio does not pertain to mortgage insurers' core business of insuring loans sold to the GSEs.
Mortgage insurers are providing capacity to the mortgage markets that is critical in today's environment. Therefore, it seems unlikely th
at the GSEs' new management would take actions that disrupt that capacity.
at the GSEs' new management would take actions that disrupt that capacity. In addition, Standard & Poor's views the recent increase in the unemployment rate as very unfavorable to mortgage insurers. When we reviewed mortgage insurers in August 2008, our forecasts assumed the unemployment rate would rise to 6.2% in 2009.
The unemployment rate spiked to 6.1% in August 2008. Higher unemployment historically has led to more claims f
or mortgage insurers. Therefore, if we significantly raise our assumption for unemployment in 2009, that likely would lead to a material increase in our projections for mortgage insurers' losses in 2009 and 2010.
or mortgage insurers. Therefore, if we significantly raise our assumption for unemployment in 2009, that likely would lead to a material increase in our projections for mortgage insurers' losses in 2009 and 2010. Then, we might also view it as appropriate to take rating actions. However, it is important to note that the monthly unemployment rate can be volatile and subject to revisions.
For more information, visit http://www.standardandpoors.com/.
Media Contact: Jeff Sexton, New York, (1) 212-438-3448
Media Contact: Jeff Sexton, New York, (1) 212-438-3448 Analyst Contacts:
James Brender, New York (1) 212-438-3128
Rodney A Clark, FSA, New York (1) 212-438-7245
James Brender, New York (1) 212-438-3128
Rodney A Clark, FSA, New York (1) 212-438-7245
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