Bloomberg News

New Mortgage Insurance Policies Fall to Record Low (Update2)

December 01, 2008

The number of private mortgage insurance policies sold in October reached a record low as the U.S. housing downturn persisted and companies selling coverage tightened standards amid continuing losses.

Homeowners with new policies fell to 42,167, a 76 percent decline from the same month a year earlier and the lowest since 2001, when the Mortgage Insurance Companies of America changed the way it reports its statistics, according to data released by the Washington-based trade group today. Mortgage insurance pays lenders when homeowners default, and is typically required when a borrower puts down less than 20 percent on a home.

“They’ve tightened their underwriting standards and they can’t go out and write a ton of new businesses because they’ve put aside so much capital” to pay claims on policies sold in prior years, said Michael Grasher, an analyst at Piper Jaffray & Co. in Chicago. “You don’t want to get too cute and start writing a bunch of new business until it’s clear how that’s going to work out.”

Mortgage insurers have faced mounting losses this year as a record number of homeowners proved unable to keep up with payments. The number of homeowners who defaulted on privately insured mortgages reached 80,071 in October, almost twice the number who caught up on their house payments and the most since the trade group changed its methodology for tallying the figures in April.

MGIC Investment Corp. (MTG:US), the largest U.S. mortgage insurer, fell 69 cents, or 25 percent, to $2.03 at 4:15 p.m. in New York Stock Exchange composite trading. No. 2 PMI Group Inc. fell 37 cents, or 22 percent, to $1.30. The two companies have lost about 90 percent of their market value in the past year and have reported net losses in five consecutive quarters.

Home Sales Fall

Another mortgage insurer, Triad Guaranty Inc. (TGIC:US), stopped selling policies in July after capital to fund claims from new business ran short.

Mortgage insurers have tightened underwriting standards and raised prices this year to counter the losses. Existing home sales fell 1.6 percent in October from the same period a year earlier, further limiting the number of potential new customers.

Until last year, private mortgage insurance had been among the most profitable types of coverage sold by insurers. From 2004 to 2006, members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar they collected in premiums. In contrast, auto insurers made less than 5 cents on every dollar in 2006, according to AM Best Co.

In 2007, the mortgage insurers spent $1.54 on claims and expenses for every dollar they collected in premiums as U.S. home foreclosures climbed.

Radian, Triad

The trade group’s figures on delinquencies aren’t comparable to any month prior to April because a lender changed the way it calculates defaults that month. Triad, the smallest of the companies that provide data to the group, stopped supplying information on its existing customers in July.

The figures have also excluded Philadelphia-based Radian Group Inc. (RDN:US), the third-largest mortgage insurer, since 2003. Radian rejoined the group Nov. 1, said Jeff Lubar, a spokesman for the trade association.

To contact the reporter on this story: Erik Holm in New York at

To contact the editor responsible for this story: Rick Green at

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Companies Mentioned

  • MTG
    (MGIC Investment Corp)
    • $9.31 USD
    • 0.06
    • 0.64%
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