Fitch to Update U.S. Mortgage Insurance Capital Model to Reflect Recent Default Experience.

NEW YORK -- Effective today, Fitch Ratings Mortgage Insurance (MI) group has announced that it will be incorporating several enhancements to its existing proprietary MI capital model reflecting the rapidly changing mortgage environment being experienced in the U.S. Some of these updates also correspond to recent revisions that were made by Fitch's U.S. Residential Mortgage-Backed Securities (RMBS) group in its mortgage default and loss model, known as ResiLogic (see separate release dated Aug. 6, 2007.)

The revisions to the U.S. MI capital model will be mainly centered on increasing the expected default probability used to model the existing mortgage insurance-in-force (IIF) exposure at each company, reflecting changes that have taken place more recently in the U.S. mortgage markets. Consistent with recent enhancements made to the ResiLogic model, Fitch will increase the default probability in its MI capital model by 20%. Fitch believes this higher assumed default rate will better incorporate the risks inherent in the U.S. mortgage market, such as greater deterioration in home prices and significantly poorer performance of loans with certain characteristics.

Fitch will also be applying a more significant capital charge to all illiquid equity investments held within the investment portfolios of the MI companies. Going forward, the capital charge for illiquid assets, such as investments in subsidiaries or equity investments in unrelated third party entities will be increased to 100%. Previously, Fitch had been applying a lower capital charge against these assets. The updated charge reflects the potential challenges in extracting liquidity from such investments during periods of financial stress. The impact of this change will vary by company, with several of the MI companies being relatively unaffected.

Fitch notes that since the updated default rates will produce greater gross capital charges for most MI companies, the nature of any reinsurance arrangements will take on greater importance in the overall model results going forward. To the extent a MI company has reinsurance in place to absorb modeled losses; the model will now be recognizing a greater level of reinsurance credit as a partial offset to the higher level of gross losses. This reinsurance credit may be most noteworthy for excess-of-loss captive mortgage reinsurance coverage held in trusts for the benefit of each primary MI company.

Fitch views the revisions announced today as an interim step in its development of an updated U.S. MI capital model, and believes that the revisions reflect a timely reaction to recent events. Ultimately, Fitch intends to provide further upgrades to its U.S. MI capital model, with the expectation of migrating to a platform that more closely mirrors the dynamic ResiLogic model of the agency's RMBS group.

Fitch is in the process of updating all MI companies' capital model results with the revised model enhancements for the period ending Dec. 31, 2006, and will announce results of this analysis shortly. In the near future, Fitch will also be producing capital model results for each rated company's insured portfolio as of the period ending June 30, 2007.

Under Fitch's updated MI model, there is a potential that some of the MI companies rated by Fitch will no longer maintain the necessary level of capital expected for their given ratings level. Fitch does not anticipate a significant number of rating actions related to these revisions, and where actions are ultimately taken, based on Fitch's preliminary analysis it is expected that any downgrades will be limited to only one notch. As discussed previously, Fitch has stated that the MI industry has historically maintained an abundant level of excess capital given their respective rating levels. That said, with today's announced revisions to the U.S. MI model, the perceived level of excess capital for the U.S. MI companies will be noticeably reduced on a go-forward basis.

Fitch will be reviewing the ratings of any company affected by the model revisions and expects to provide updates to the market within the next two weeks.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.