The U.S. mortgage insurance industry’s troubles are not over and may, in fact, get worse before they improve, says Fitch Ratings.

In a special report released today, Fitch notes that for a number of key mortgage insurers last year was a year of rapid growth. However, this business will increasingly account for losses in 2008 and 2009, and that will stress the mortgage insurers’ balance sheets over the intermediate term.

“The mortgage insurance industry underestimated both the scope and severity of the decline in residential mortgage markets that became increasingly acute in 2007,” Fitch said.

“Initial industry optimism over increased demand and better premiums in early 2007 reversed over the second half of the year, and by the early fourth quarter the industry was significantly tightening underwriting guidelines to limit damage from ongoing poor mortgage origination standards and the prospect of substantial and widespread housing price declines,” it added.