Insured Home Mortgage Defaults Rise 22 Percent in September 2007
Defaults by U.S. homeowners with private mortgage insurance jumped by 22 percent last month after house prices fell the most in at least six years, an industry report said.
The number of insured borrowers more than 60 days late on their payments climbed to 54,699 in September from 44,791 a year earlier, according to monthly data from the Washington-based Mortgage Insurance Companies of America. The defaults represented a 4.9 percent increase from a revised August number, while 2.9 percent fewer loans returned to good standing.
A surge in home foreclosures is sapping profit at mortgage lenders and insurers including MGIC Investment Corp., the biggest, and No. 2 PMI Group Inc., which this month reported their first quarterly losses as public companies. Home buyers who don’t have a 20 percent down payment buy so-called private mortgage insurance, adding to their monthly mortgage bill, to protect lenders from losses if the borrower defaults.
“Things are going from bad to worse,” said Ajay Rajadhyaksha, head of fixed-income strategy in New York at Barclays Capital Inc. “`Overleveraged borrowers are meeting falling home prices.”
Home prices in 20 U.S. metropolitan areas dropped 4.4 percent in the 12 months that ended August, the most since 2001, according to data from the S&P/Case-Shiller home-price index. Falling home prices make it harder for borrowers to refinance and for lenders to recover their loans in a foreclosure.
September Deterioration
“The speed and the depth of the deterioration we saw in the third quarter, and in particular the month of September, was greater than we had expected,” said PMI Chief Executive Officer Stephen Smith in a conference call yesterday after reporting a net loss of $86.8 million.
Total U.S. losses, including money set aside for future claims, increased fivefold to $348.3 million in the third quarter, the Walnut Creek, California-based insurer said yesterday.
PMI rose 5 cents to $16.78 at 10:34 a.m. in New York Stock Exchange composite trading. The stock has dropped about 65 percent this year. MGIC, based in Milwaukee, rose 27 cents to $19.44, and is down about 69 percent from its Dec. 31 close.
Industry-wide, defaults in August were revised to 52,129 from 58,441, the association said.
Even as claims soar, mortgage insurers are selling more coverage as lenders seek to lower their risk and make their loans more attractive to investors. Association members issued policies to 151,355 homeowners last month, 59 percent more than during the previous September.
Lenders often require homeowners to buy private mortgage insurance if they contribute less than 20 percent in cash for a home purchase, have poor credit or provide limited documentation in applying for their loan.
The association’s data is drawn from six of the seven biggest U.S. mortgage insurers, excluding only Philadelphia-based Radian Group Inc., the third-largest, which isn’t a member of the association. MGIC, based in Milwaukee, sold shares to the public in 1991. PMI followed four years later.
Defaults on Insured Home Mortgages Rise 22 Percent
By Josh P. Hamilton and Erik Holm | Bloomberg News