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According to a new release from Fitch Ratings, the housing market continued strong profitability in the face of a slowing economy in 2023 has led Fitch Ratings to revise its 2024 sector outlook for U.S. mortgage insurers to neutral from deteriorating, according to Fitch’s outlook report for the sector.
“We expect unemployment to rise modestly next year, which will likely lead to an equivalent rise in borrower defaults,” said Senior Director Chris Grimes. “However, strong borrower credit characteristics and favorable home equity build-up for the majority of homeowners should moderate the frequency and severity of ultimate mortgage insurance claims.”
With a recession looking less likely, national home prices will remain generally stable in 2024. “New mortgage borrowers will continue to face affordability challenges from high interest rates, though strong demand for housing and constrained inventory with many current borrowers locked in to low interest rate mortgages will help to curb broad pricing declines,” said Grimes.
Utilizing traditional reinsurance and mortgage insurance-linked notes (MILN) to manage capital and reduce aggregate risk will be a key strategy for mortgage insurers. After falling out of favor in late-2022, five of the six U.S. mortgage insurers have issued MILN transactions in 2H23 totaling roughly $1.4 billion of reinsurance limit and private mortgage insurer eligibility requirements capital support. With more new business being written across the industry, Fitch expects that MILN transactions will continue to be issued in 2024.
