weekend commentary - private mortgage insurers taking big lumps ...
... which means that, at the rate mortgage defaults are rising, PMI + MGIC + Radian are headed for bankruptcy due to rapidly rising insurance claims. If (or more likely WHEN) that happens, count on an across the board requirement for 20% down payments plus closing costs on any new real estate loans ! In the meantime, count on vastly increased price premiums / interest rates on 'silent second' mortgages issued to cover the gap between the buyer's actual down payment and the 20% down payment requirement enforced by primary mortgage lenders.
(snip)"Defaults on Insured Mortgages Increase 30 Percent (Update4)
By Hugh Son and Josh P. Hamilton
Sept. 28 (Bloomberg) -- More American homeowners are missing mortgage payments, pushing defaults on privately insured home loans up 30 percent last month from year-earlier levels, according to a trade group.
Borrowers more than 60 days behind rose to 58,441 in August, Washington-based Mortgage Insurance Companies of America said today on its Web site.
The report bolsters data that show the worst U.S. housing slump in 16 years may be getting deeper. Foreclosures set a record in the second quarter, according to the Mortgage Bankers Association, and last month lenders sent a record 108,716 notices of default, auction or repossession, RealtyTrac Inc. reported. Fannie Mae Chief Executive Officer Daniel Mudd said yesterday the slump will last beyond 2008, increasing credit losses.
``These defaults are a lagging indicator, so they're probably going to get worse from here,'' said Michael Darda, economist at Greenwich, Connecticut-based equity trading firm MKM Partners LP.
Mortgage insurers, which reimburse home lenders when borrowers don't pay, have stumbled in stock market trading as the record defaults increased claims. MGIC Investment Corp., the largest U.S. mortgage insurer, lost about half its value this year. PMI Group Inc., the second-largest, lost more than 30 percent. Third-ranked Radian Group Inc., the insurer whose acquisition by MGIC was scuttled, has fallen almost 60 percent.
MGIC fell 11 cents to $32.56 today in 2:03 p.m. New York Stock Exchange composite trading. PMI declined 8 cents to $32.80 and Radian climbed 7 cents to $23.11.
Risk and Reward
Lenders often require homeowners to buy private mortgage insurance if they contribute less than 20 percent in cash for a home purchase. The report said 197,169 U.S. borrowers used the coverage in August, 15 percent more than in July.
Insurers are selling more coverage as lenders seek to lower their risk and make loans attractive to investors. Policies sold to homeowners surged 66 percent to $23.8 billion last month over the year-earlier period, the mortgage insurance trade group said. "(snip)