Defaults on Insured Mortgages Rise 38pc in February 2008
March 31 2008 - Defaults on privately insured U.S. mortgages rose 38 percent in February for the 14th straight month as record U.S. foreclosures forced the industry to reimburse lenders for more bad loans.
Insured borrowers falling more than 60 days late on payments rose to 60,911 last month from 44,111 a year earlier, according to the Washington-based Mortgage Insurance Companies of America. Mortgage insurers pay lenders when borrowers default and foreclosure fails to cover costs.
The new data show the housing slump that sapped economic growth and brought some credit markets to a near halt may be getting deeper. The U.S. lost jobs for a third month in March, economists estimated, as homeowners cut back spending amid the declining value of their properties. The tightening job and credit markets made it harder for consumers to pay their debts.
“Without question, in 2008 these companies are going to lose money,” said Michael Grasher, an analyst with Piper Jaffray & Co. in Chicago who tracks the mortgage insurers. “We’ll likely see better statistics in the months ahead because of government intervention.”
President George W. Bush said last week the government will expand efforts to help homeowners avoid foreclosure. Support is growing among policy makers, including Federal Reserve Chairman Ben S. Bernanke, to urge lenders to write down the principal on loans to keep homeowners from abandoning their properties.
Foreclosures Surge
U.S. home foreclosure filings soared 60 percent and bank seizures more than doubled in February from the same month last year as adjustable mortgage rates rose and property owners were unable to sell or refinance, according to RealtyTrac Inc., which sells foreclosure data. Home lenders typically require borrowers who put down less than 20 percent to buy mortgage insurance, which helps banks recovers its costs when loans sour.
The value of individual mortgages newly insured increased in February to $19.1 billion, 51 percent higher than a year earlier, as lenders sought protection against further losses. The mortgage insurers say they’ve tightened underwriting standards and raised prices as demand for the coverage grows.
Radian Group Inc., the No. 3 mortgage insurer, said March 27 that its primary subsidiary would no longer cover loans where borrowers don’t provide proof of income or assets, citing “poor loan performance.” MGIC said last month it is pulling back in states most affected by the housing slump, including California and Florida, and will offer fewer policies to homebuyers lacking top credit scores.
“The portfolios they are developing now are of a very, very high quality, and it’s business that’s going to be around for five or six years,” Grasher said in an interview.
MGIC, PMI
MGIC Investment Corp., the largest U.S. mortgage insurer, last week raised $848 million selling stock and convertible debt after a record fourth-quarter loss forced it to raise capital to avoid a downgrade of its claims-paying ability. The Milwaukee- based company lost $1.47 billion in the fourth quarter.
No. 2 PMI Group Inc., based in Walnut Creek, California, and Radian, based in Philadelphia, have also said they are seeking to raise capital. The companies risk downgrades after losses drained capital, Fitch Ratings said last month. All three insurers said they stopped selling coverage to the riskiest borrowers.
The Mortgage Insurance Companies of America 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.
MGIC rose 61 cents, or 6.1 percent, to $10.65 at 11:42 a.m. in New York Stock Exchange composite trading. PMI gained 5 cents to $5.92, while Radian slipped 9 cents to $6.64. Each plunged more than 80 percent in the past twelve months.
Defaults on Insured Mortgages Rise 38% in February
By Josh P. Hamilton and Erik Holm | Bloomberg