Moody’s Investors Service has put lenders’ mortgage insurers (LMI) on review for a possible downgrade.

It has placed QBE Lenders’ Mortgage Insurance and Westpac Lenders’ Mortgage Insurance on review and extended its review of Genworth Financial Mortgage Insurance.

The review coincides with the ratings agency updating its residential loss model.

Moody’s LMI Lead Analyst Ilya Serov says the review reflects the firm’s concerns about the housing market and will focus on the sufficiency of capital levels if the market enters an extended downturn.

“Although we expect the Australian housing market to remain relatively stable, our latest modelling indicates that potential losses in the case of an unexpectedly severe downturn would challenge these companies’ capital levels,” he said in a statement.

“Mortgage insurers are exposed to higher loan-to-value mortgages and would bear the heaviest losses in such a scenario.”

Moody’s has updated its model to increase default probability and assumptions on house price stress, which are likely to reduce LMIs’ capital cushions.

Mr Serov notes that Australian mortgage insurers are some of Moody’s highest-rated financial institutions but he says house prices and household debt levels remain at historic highs.

Rival ratings agency Standard & Poor’s in April forecast a stable outlook for the LMI sector.