Defaults on Insured Mortgages Rise 37pc
January 31, 2008 - Defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, an industry report today showed, as the U.S. housing slump deepened to the worst in a quarter century.
The number of insured borrowers falling more than 60 days late on payments jumped to a record 64,384 last month from 46,921 in December 2006, according to the Washington-based Mortgage Insurance Companies of America. Defaults increased 5.5 percent from November, the prior high.
A surge in home foreclosures is sapping profit at lenders and the insurers that protect them from borrower defaults. Banks have reported $146 billion in asset writedowns and credit losses on securities linked to U.S. mortgages since the beginning of 2007, according to Bloomberg data. MGIC Investment Corp., the largest U.S. mortgage insurer, said fourth-quarter claims rose sevenfold to $1.3 billion.
“The stress continues to increase on the mortgage insurers,” David Havens, a credit analyst at UBS AG in Stamford, Connecticut said in an interview before the data were released. “It’s going to be a tumultuous year.”
Home prices in 20 U.S. metropolitan areas dropped for the 11th consecutive month in November, declining 7.7 percent from a year earlier, according to the most recent S&P/Case-Shiller home-price index. Lower values hurt the ability of borrowers to refinance or lenders to recoup their investment in a foreclosure.
The number of delinquent insured mortgages that returned to good standing fell to 34,813 in December from 37,137 a month earlier, according to the report.
Foreclosure Rates
Foreclosure rates rose 75 percent in 2007 as a record number of adjustable-rate loans to borrowers with weak or limited credit histories reset at higher rates, according to RealtyTrac Inc.
The Federal Reserve yesterday cut its benchmark interest rate by half a point to 3 percent, eight days after an emergency three-quarter point reduction, as the central bank responded to the housing and credit crisis with the fastest easing of monetary policy since 1990.
MBIA Inc., the world’s largest bond insurer, said it lost a record $2.3 billion in the fourth quarter, after a slump in the value of subprime-mortgage securities it guarantees. Without more capital, the Armonk, New York-based company may follow No. 2 Ambac Financial Group Inc. and others in losing AAA ratings, affecting $652 billion of securities MBIA insures.
Firms including Standard & Poor’s and Fitch Ratings have lowered their claims-paying ability ratings for mortgage insurers or said they face possible downgrade. Lower ratings may force the companies to add to reserves for claims.
PMI, Radian
MGIC, based in Milwaukee, and its two largest rivals, PMI Group Inc. and Radian Group Inc. reported their first quarterly losses as publicly traded companies in the July-through- September period. MGIC, Walnut Creek, California-based PMI and Philadelphia-based Radian have all plunged more than 70 percent in the past 12 months.
MGIC gained 38 cents, or 2.2 percent, to $17.53 at 10:47 in New York Stock Exchange composite trading. Radian fell 1 percent, and PMI lost 0.8 percent.
Even as losses mount, mortgage insurers’ sales are climbing as lenders require more borrowers to buy the coverage. The association’s members wrote 141,588 policies for homeowners last month, up 57 percent from a year earlier.
The trade group’s data understate the total number of defaults as they are drawn from six of the seven biggest U.S. mortgage insurers, excluding non-member Radian.
Defaults on Insured Mortgages Rise 37%, Report Shows
By Josh P. Hamilton | Bloomberg