Tuesday, January 1, 2008

Defaults on Insured Mortgages Rise 35% to Record in US

by Josh P. Hamilton and Erik Holm

Dec. 31 (Bloomberg) -- Defaults on privately insured U.S. mortgages rose 35 percent in November to a record, an industry report today showed, adding to evidence the U.S. housing slump is deepening.

The number of insured borrowers falling more than 60 days late on payments jumped to 61,033 last month from 45,325 in November 2006, according to data from members of the Washington- based Mortgage Insurance Companies of America. The missed payments, often a prelude to foreclosure, represented a 2.9 percent increase from October.

``This is another data point that suggests that the mortgage insurers are in for a tough slog for 2008,'' said David Havens, a credit analyst at UBS AG in Stamford, Connecticut. ``Continued deterioration is likely to spur higher claims. And higher claims activity may result in some companies needing to raise money.''

Home prices fell 6.1 percent in 20 U.S. metropolitan areas in October, according to S&P/Case-Shiller. Mortgage insurance compensates lenders for losses on bad loans as falling home prices make it harder for borrowers to refinance.

MGIC Investment Corp., the largest U.S. mortgage insurer, and No. 2 PMI Group Inc. reported losses in the July-through- September period, their first unprofitable quarter as public companies. MGIC sold shares to the public in 1991, PMI in 1995.

MGIC, PMI

MGIC has said it won't be profitable until 2009. The Milwaukee-based company rose 58 cents, or 2.7 percent, to $22.43 in New York Stock Exchange composite trading at 4:10 p.m. It has lost 64 percent of its market value this year, the ninth-worst performance in the Standard & Poor's 500 Index. Walnut Creek, California-based PMI climbed 2 cents to $13.28 and is down 72 percent in 2007.

Radian Group Inc., the third-largest, slipped 2 cents to $11.68. The Philadelphia-based company is down 78 percent this year.

Rating companies including Standard & Poor's, Moody's Investors Service and Fitch Ratings have lowered their claims- paying ability ratings for mortgage insurers or said they face possible downgrade. Lower ratings may force insurers to add to reserves for claims.

``It's a rough world out there,'' said James Brender, an analyst at S&P in New York. ``There's no reason to be optimistic for the first half of 2008. It will be at least 18 months until there's a chance of stabilized ratings on the three we have on negative outlook: Radian, PMI and Republic,'' a unit of Chicago- based Old Republic International Corp.

Bond Insurers

Bond insurers including MBIA Inc. and Ambac Financial Group Inc. are struggling to maintain credit ratings needed to guarantee debt after losses on mortgage-backed bonds they covered. Fitch has given MBIA and Ambac less than six weeks to each raise $1 billion or face loss of their AAA ratings.

MBIA on Dec. 10 said it will get $1 billion from private- equity firm Warburg Pincus LLC to bolster its capital and Ambac took out reinsurance on $29 billion of securities it guarantees.

``The mortgage insurers can probably attract capital, but it would come at a painful level'' of cost, Havens said.

Mortgage insurance sales are surging even as claims soar because lenders want to lower their risk and increase their loans' appeal to investors. The association's members issued 153,865 policies to homeowners last month, up 67 percent from a year earlier.

The trade group's data are drawn from six of the seven biggest U.S. mortgage insurers, excluding only Radian, which isn't a member.

To contact the reporters on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.net ; Erik Holm in New York at eholm2@bloomberg.net

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