Executives with Genworth Financial Corp. (GNW) are working with Moody's Investors Service as the ratings giant considers a possible downgrade of the financial firm's U.S. mortgage insurance unit, as well as its holding company's senior unsecured debt rating.

The review period, which technically began in June, has been extended as the insurer's leadership battles through a tough regulatory and economic landscape, while trying to write new business and raise capital.

Despite facing a downgrade threat from Moody's, Genworth says the spin-off or run-off of its private mortgage insurance unit is not necessary at this time.

"We are acting with focus and urgency and believe that the actions we are pursuing will improve returns, strengthen the company's financial position, support a stronger credit profile and drive greater value for our shareholders," said Genworth Cheif Executive Martin Klein.

Genworth's quick reaction is in response to a Moody's report on $4.3 billion in debt tied to Genworth and its mortgage insurance business.

Genworth's holding company and its MI unit have been on ratings review since June 27 and continue to struggle in a market where long-term stability rests on the company's ability to raise capital without cutting into future earnings, Moody's noted.

The ratings giant added in a Friday report that "delinkage from the mortgage insurance unit" is one of the factors that could lead to a reconfirmation of the company's current ratings. But Genworth nixed the idea, saying its "does not believe a run-off, sale or spin-off of that business" is the best option for shareholders today.

Moody's, on the other hand, cited the failure to delink the mortgage insurance unit from the holding company as one of the factors that could lead to ratings downgrades. Another factor would be a failure to raise capital.

Several developments could help the insurer maintain its current ratings. One of them being the roll out of a solid, regulatory framework and a clear place for MI insurance in the lending market, as well as improvements in mortgage delinquency rates and cures, Moody's said.

Genworth's Baa3 senior debt rating is just above junk status, while the mortgage insurance unit's Ba1 rating is at the lowest possible investment grade rating.

kpanchuk@housingwire.com