WALL STREET – Fitch Ratings downgraded CMG Mortgage Insurance Co. yesterday four notches, to "BBB" from "A+," on increasing prime delinquencies and their potential impact on capitalization on the mortgage insurer for credit unions.
The company’s ratings outlook remained “Negative.”
The ratings agency also said more capital is unlikely to come from either of CMG's parent companies, PMI or CUNA Mutual Insurance Society, which it said "constrains the ability of CMG to write new, high-quality business."
Fitch said although new business has suffered across the board for mortgage insurers, CMG's ability to write new business has been limited by its increasing risk-to-capital ratio, which was 16.8 to 1 at the end of the third quarter. The unit's current ownership agreement provides for a capital call to its two parents if the ratio reaches 19 to 1, Fitch said.
The ratings agency added that although CMG's primary default rate has increased, it remains "well below" its peers – stronger performance Fitch attributes partly to CMG's role in a specific niche, working with credit unions.
Primary new insurance written was $489 million for the third quarter of 2009, compared to $1.5 billion for the third quarter of 2008.
The “Negative” outlook reflects continued uncertainty with respect to the mortgage insurance industry in general, Fitch said. In the case of CMG, a further downgrade could result should delinquencies increase significantly beyond their current levels, or if material operational interruptions are experienced in an event where PMI enters runoff.
Joe Dillon, senior vice president and general manager for CMG, expressed confidence in the company’s strength even after the Fitch downgrade. "Despite challenging times for the mortgage industry, CMG MI exhibits the best-performing portfolio for the private mortgage insurance industry in the United States," said Dillon in a statement. "Fitch acknowledges that we continue to out-perform our peers, thanks to the high quality of credit union originations. We appreciate our customers’ support and we will continue to be a reliable counterparty, as well as one of the highest rated private mortgage insurers in the United States."
