Private Mortgage Insurers In Trouble

Jan 5th, 2008 @ 2:25 PM by Alden Smith

Bloomberg reports that a recent study shows the number of US mortgages going into default has risen by 35%, a new record.  The report covers people who are at least 60 days late on mortgage payment, which is a warning sign of foreclosure.  Statistics gathered by the report shows that in November, those 60 days late on mortgage payments was 61,033, up from 45,325 a year ago. It places many of the top private mortgage insurers in a difficult position. This data comes from Mortgage Insurance Companies of America. It gives further evidence that the fallout from the mortgage meltdown has farther reaching effects.

The Players

Some of the private mortgage insurers that are in trouble because of this are MGIC Investment Corp., PMI, Radian, and Republic. MGIC reported losses in July through September, as did PMI.  The companies are being dinged because of the heavy losses from foreclosure resulting in more claims from the lender.  Because private mortgage insurance is designed to protect the lender, not the home owner, it is obvious that with a higher rate of defaults, the more claims will be made against the insurer.

From Wall Street

Trickle down from this is seen on the Street, where ratings services are showing concerns about the biggest insurers.  MGIC has lost 64% of its market value this year alone. They report that they will not be profitable until 2009.  PMI, based in California, has lost 72% of its market value in 2007, and Radian Group, Inc, another big player in the mortgage insuring market, has dropped 78%.

The Bond Insurers

Bond insurers are also taking a hit.  MBIA Inc. and Ambac Financial Group Inc are having a rough time holding their credit ratings, and have been warned by Fitch Rating that unless they increase liquidity, their AAA rating on the Street is in jeopardy.  It seems everyone is getting bit by this debacle.

There is no easy cure.  I read in a recent article that the markets must sort themselves out and that the best process is to let the chips fall where they may.  One has to wonder if these top players might not fall by the wayside in the process.