Mortgage Insurers Suffer Big Losses

From the Washington Post:

Those losses have also dinged their relationships with mortgage-financing giants Fannie Mae and Freddie Mac, which the insurers depend on for business.

The mortgage insurance industry is dominated by a half-dozen large firms that insure loans when a buyer makes a down payment of less than 20 percent of a home’s purchase price. If the borrower defaults, the insurers pay the lender a portion of the loss. Insurers "are a relatively unknown portion of the mortgage market, but could be another wrinkle for mortgage lending," said Steve Stelmach, an industry analyst with Friedman, Billings, Ramsey Group.

Challenges facing the industry are significant. Shares of Radian Guaranty, Triad and PMI Mortgage Insurance have lost 90 percent of their value in the past year. Milwaukee-based Mortgage Guaranty — the industry’s largest player — lost $97.9 million during the second quarter, but its $4.2 billion in reserves is enough to pay claims and pursue new business, said vice president Mike Zimmerman. The industry is also tightening its standards to avoid more losses on new loans. For a while, it seemed private mortgage insurers could become obsolete. Facing competition, the industry began to provide insurance for subprime loans bundled by lenders and sold to investors, analysts said. The mortgage-finance giants often buy loans with a less than 20 percent down payment and then offset the risk with an insurance policy.

A strong relationship with Fannie Mae and Freddie Mac is critical to the industry’s survival, Cecala said. 

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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