The fortunes of the lenders' mortgage insurance sector may be on the wane.Combined underwriting profits for the two largest mortgage insurers - Genworth and QBE LMI - were A$228 million in the year to June 2012, down from $381 million in 2011.The Australian Prudential Regulation Authority released company-level data on the general insurance industry last week that provides a rare insight into the sector.Meanwhile, Moody's Investors Service released its updated methodology for rating mortgage insurers during the same week.The updated methodology introduces a new rating factor called Housing Market Attributes that allows an assessment of the state of local housing markets. In addition, Moody's has revised its capital adequacy metrics, so as to cap insurance financial strength ratings, and has recalibrated the rating score-card.As a result of these changes, Moody's says that established mortgage insurers with sound credit profiles will fall into the A range. Australian mortgage insurers, currently on review for a possible downgrade, will probably fall into the low A range.This implies that the Aa3 and A1 ratings assigned QBE Lenders' Mortgage Insurance Limited and Genworth Financial Mortgage Insurance Pty Ltd are facing multi-notch downgrades. This will have flow-on effects for the subordinated tranches of residential mortgage-backed securities rated by Moody's.Moody's expects to conclude the review of Australian mortgage insurers early next year.