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Defaults on insured mortgages set record

January 01, 2008|Josh P. Hamilton and Erik Holm | Bloomberg News

Defaults on privately insured U.S. mortgages rose 35% in November to a record, an industry report showed Monday, adding evidence about the depth of the U.S. housing slump.

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% 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 in Stamford, Conn. "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% 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 third-quarter losses, their first unprofitable quarter as public companies. MGIC sold shares to the public in 1991, PMI in 1995.

Milwaukee-based MGIC has said it would not return to profitability until 2009. It lost 64% of its market value in 2007, the ninth-worst performance in the Standard & Poor's 500 Index. MGIC rose 58 cents Monday to $22.43.

Walnut Creek, Calif.-based PMI, which was down 72% in 2007, climbed 2 cents to $13.28. Radian Group Inc., the third-largest, slipped 2 cents to $11.68. The Philadelphia-based company was down 78% last 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, 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 said Dec. 10 that it would get $1 billion from private-equity firm Warburg Pincus to bolster its capital. Ambac took out reinsurance on $29 billion of securities it guarantees.

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