Financial Guys? What ever happend to Private Mortgage Insurance in the defaults

[Hugh R]

Got to thinking, I used to have required PMI until I had something like 20% equity in my home. With all the defaults, didn't PMI kick in for all those mortgage defaults? I never heard anything about it. Was it not required with the "Stated Income", "No Money Down", "Interest-Only loans" of the last five years, which got us into many of these financial problems? Any input from any realtors, bankers, loan officers, escrow agents?

[WilsonTC]

AUGUST 5, 2009, 3:49 P.M. ET 2nd UPDATE: Radian Sees Bottom In Mortgage Insurance Losses

By Lavonne Kuykendall Of DOW JONES NEWSWIRES

Mortgage insurer Radian Group Inc. (RDN) on Wednesday provided fresh evidence of a possible turnaround for an industry that's been buffeted by the housing downturn of the past two years.

The Philadelphia company swung to a $231.9 million profit in the second quarter, blowing away expectations thanks to hedging gains and lower-than-expected claims by policy holders. The company cut its claims payments guidance for the year and said it is in good shape to continue writing business.

Sanford A. Ibrahim, Radian's chief executive, said business written in 2008 and after "represents a turning point for our book." Efforts to reduce losses in older vintage policies were also producing results, he said during a conference call with analysts.

The rosier outlook from Radian, coming along with news of an overall increase in new mortgage applications, sent shares of mortgage insurers soaring Wednesday. Radian shares were up 76% at $6.45 recently, while MGIC Investment Corp. (MTG) rose 19.4% to $8.54. Triad Guaranty Inc. (TGIC), which reports its results Friday, rose 47.5% to $1.49.

Mortgage insurers, which cover potential losses on loans to borrowers who can't come up with a 20% down payment, suffered in the past year from skyrocketing claims and credit-rating downgrades that limited their ability to write new business. As delinquencies and defaults increased and new business opportunities slowed, mortgage insurers took steps to reduce their exposure to risky policy holders.

The optimism from Radian comes at a time when there are increasing signs of stability in the housing market. Mortgage applications filed last week rose a seasonally adjusted 4.4% from the week before, as rates on fixed-rate mortgages dropped, the Mortgage Bankers Association said Wednesday. The four-week moving average for all mortgages was up 1.2%.

Nonetheless, Radian's return to profits and positive outlook stand in contrast to other mortgage insurers. MGIC reported a second-quarter loss of $339.8 million earlier this month and said delinquencies were increasing. Old Republic International Corp. (ORI) reported a $15.8 million loss, saying that recovery would be a slow process.

Radian has concentrated on writing business for prime credit quality business, and Ibrahim said new business is performing well. In the second quarter, Radian had a 25% market share of new business, helped along by the troubles of some competitors, he said.

"This illustrates our success in transforming our mortgage insurance business away from a legacy strategy," Ibrahim said. He estimated that about 27% of the company's primary risk in force comes from the well-performing 2008 and 2009 vintage years. The vast majority of new coverage it wrote in the quarter was on mortgages made with at least a 5% down payment.

Radian's $231.9 million profit, equal to $2.82 a share, compared with a year-earlier loss of $392.5 million. The latest results included hedging gains of $272.3 million, pushing revenue to $577.4 million, a 58% jump from a year ago. Analysts polled by Thomson Reuters expected a loss of $1.58 a share on revenue of $284 million.

Loss provisions fell 78% to $132.8 million. First- and second-lien claims were $167.7 million, far below expectations of about $300 million. The company expects claims of $275 million to $300 million for the third quarter, and again cut its full-year estimate to about $1.1 billion.

Radian cut some risk through a July deal to commute, or cancel, some guarantees it wrote for bond insurer Ambac Financial Group Inc. (ABK). Radian said it is pursuing more commutation deals, which could free it from even more potential losses.

[Rick Lee]

When I was in the subprime biz, we didnt' require PMI on any loans, not 100%, not stated, not No-Doc. Seems to me, the folks who had PMI before the subprime boom would have been able to drop it as soon as their equity got to 20%. And that probably happened pretty quickly once the market heated up.

[island_dude]

Originally Posted by Rick Lee

When I was in the subprime biz, we didnt' require PMI on any loans, not 100%, not stated, not No-Doc. Seems to me, the folks who had PMI before the subprime boom would have been able to drop it as soon as their equity got to 20%. And that probably happened pretty quickly once the market heated up.

The banks aren't eager to drop PMI even if you are well above the 20%. They make it a lot of work get rid of it, and many of the consumers don't even bother trying (mostly laziness I bet).

I wonder what the terms are on the policies for default. When the payments stop, so do their premiums. Does this mean that if the policy is in default, they don't pay out?

[john70t]

No. The private insurance companies were allowed to crimminally defraud their homeowning customers again.

Just like the Florida huricains, the California fires/earthqaukes, and the Louisiana flooding the private companies didn't pay a dime. Stock prices secured.

Don't worry, the Federal government paid for it all.

[Rick Lee]

John, do you have any evidence of that? I'd love to read about it.

[john70t]

[Sorry for the PARF- Rick, it's probably not in the FoxNews archives, but a brief search online should find everything you need. Google "flooding" and "AIG bailout". Should be a start for the research.]


The fact is millions of Americans paid money for Mortgage Insurance, which was never paid....

[Rick Lee]

Flooding and the AIG bailout have nothing to do with PMI. In fact, even the three years I spent doing A paper mortgages, I never did one that required PMI. Maybe it's common in some parts of the country, but I haven't seen it too much. If you need PMI, you're usually better off just going FHA, which is what just about all my borrowers did who didn't have 20% to put down. Buyers usually make the PMI payments, but the lenders are the ones insured by it. So no buyer is getting the shaft if a PMI company denies a claim. The lender is getting the shaft. But the buyer would have stopped making payments long before it got to that. I haven't heard of that happening. So if you have evidence of it, please share. Otherwise, I suggest you get a clue before posting about something you know nothing about.

[legion]

Originally Posted by john70t

No. The private insurance companies were allowed to crimminally defraud their homeowning customers again.

Just like the Florida huricains, the California fires/earthqaukes, and the Louisiana flooding the private companies didn't pay a dime. Stock prices secured.

Don't worry, the Federal government paid for it all.

You have absolutely no idea what you're talking about.

[Hugh R]

Thanks for the info guys. I was just curious. The last time I took out a mortgage was 12 years ago and I had to have PMI on a then Jumbo, $330K. I dropped it eventually when I bought down my jumbo from the proceeds from a rental. I don't think I looked at FHA, maybe I did, I don't remember.

So bottom line is that PMI insurer's didn't end up paying off, the went BK or something? I would have thought that PMI insurers sold all their obligations as credit swaps and such in bundled packages.

[Rick Lee]

Originally Posted by Hugh R

So bottom line is that PMI insurer's didn't end up paying off, the went BK or something? I would have thought that PMI insurers sold all their obligations as credit swaps and such in bundled packages.

Maybe, but I haven't read anything on or seen any evidence of that yet. I don't think PMI is very common and it certainly wasn't with subprime, aka the most problem-prone, loans.

80-10-10 and 80-15-5 loans got popular in the late 90's and really cut into the PMI market. I mean, why would you pay a monthly PMI premium, which doesn't build equity and isn't tax deductible, when you could pay a piggy back second, which does build equity and is tax deductible? And if your credit wasn't good enough for a piggy back loan, then you'd have been better off going FHA and, in the early 2000's, subprime.

When I was in the A paper biz, thes PMI reps called on our office all the time. They'd bring us breakfast, lunch, sponsor happy hours, etc. I felt sorry for them because I just couldn't find a need for their product and never once had a borrower for whom PMI made sense. I think the one loan I did that probably had a lender-paid PMI policy was a 100%, oddball investor, single loan. Back then that required a min. 700 FICO and had a rate high enough to cover the PMI.

I'd love to read about what's become of them since subprime is gone, conventional and FHA are tougher, etc. But again, if a PMI company ever denied a claim, it didn't affect the homeowner. It affected the lender.

[therotman]

PMI was very rare in the market during the up years. 100% loans with no income verification was considered safe when homes were appreciating. The other option was 80/20 1st/2nd mortgages where the first did not require it because of the 80% LTV and the 2nd did not because it was a home equity loan (aka insane).

Opps.

The new/current subprime requires PMI. I'm refering to FHA loans, which are almost no money down loans given to borrowers with shaky credit history in declining real estate markets. Would you lend these borrowers money? Not a chance. Is your government? Yup.

[RANDY P]

PMI pays out in the evidence of defaults so it's not a coverage that the homeowner benefits from. If the house goes back and a loss occurs then the lender gets paid.

MGIC one of the largest PMI insurers just stopped issuing policies till hopefully next year- the reason being is they are so f'd up with claims they hope to start a new company - a fresh start.

The significance of that is - if they all start to tumble then there will be NO way to get a loan without 20% down if you don't go FHA or VA.

Lots and lots of people will get hurt.

rjp

[Rick Lee]

Originally Posted by therotman

The new/current subprime requires PMI. I'm refering to FHA loans, which are almost no money down loans given to borrowers with shaky credit history in declining real estate markets. Would you lend these borrowers money? Not a chance. Is your government? Yup.

Well, I have a FICO well into the 700's, 13 yrs. of perfect mortgage history and - ta da - I'm about to get an FHA loan. Yeah, I'm a real deadbeat. FHA loans have Mortgage Insurance Premium (MIP), not Private Mortgage Insurance (PMI). And it's partially refundable when you refi out of FHA or even streamline refi into another FHA with a perfect payment history. Yeah, I did that once or twice with my first house.

There's nothing new about FHA. I think it's been around since the New Deal. If anything, FHA suffered a serious decline when subprime got big. I'd say they're a pretty good deal these days. Without them the real estate crash would last a LOT longer while people save up 10-20% for a conventional loan down payment. That might not be a bad thing. But a lot my cash is tied up in my Virginia house now, where I did put 20% down, but can no longer tap because it's now an investment property. So I need to go FHA. Pretty sure their money is safe with me.

[therotman]

Originally Posted by Rick Lee

Well, I have a FICO well into the 700's, 13 yrs. of perfect mortgage history and - ta da - I'm about to get an FHA loan. Yeah, I'm a real deadbeat. FHA loans have Mortgage Insurance Premium (MIP), not Private Mortgage Insurance (PMI). And it's partially refundable when you refi out of FHA or even streamline refi into another FHA with a perfect payment history. Yeah, I did that once or twice with my first house.

There's nothing new about FHA. I think it's been around since the New Deal. If anything, FHA suffered a serious decline when subprime got big. I'd say they're a pretty good deal these days. Without them the real estate crash would last a LOT longer while people save up 10-20% for a conventional loan down payment. That might not be a bad thing. But a lot my cash is tied up in my Virginia house now, where I did put 20% down, but can no longer tap because it's now an investment property. So I need to go FHA. Pretty sure their money is safe with me.

MIP is the government version of PMI.

I'm not saying FHA is new, it's just a current continuation of subprime lending. The are a good deal to borrowers, not to the people who back the loan. FHA died when you could get a loan at 100% LTV with no PMI. Now you can't so the same risks are going on with FHA loans.

Would you lend me 97% of the value of a house I didn't even live in where values are declining? No, and I wouldn't lend it to you either. Even if your credit score came back at 851.

[Rick Lee]

Personally, I don't think the gov't. should have ANYTHING to do with encouraging people to buy houses and that includes the home mortgage interest deduction. But as long as it's there and my tax dollars are subsidizing it, I'll take advantage of it for myself and, as a good citizen, will pay my obligations on time and not become part of the problem. Just sayin' there are plenty of folks who are excellent credit risks, regardless of LTV. I'm one of them. My house in VA sank in value for a while to well below my min. 20% equity level. I didn't walk away from it. There's a saying in the biz - good loans stay good, shaky loans get worse. The same goes for borrowers.

[therotman]

Originally Posted by Rick Lee

Personally, I don't think the gov't. should have ANYTHING to do with encouraging people to buy houses and that includes the home mortgage interest deduction. But as long as it's there and my tax dollars are subsidizing it, I'll take advantage of it for myself and, as a good citizen, will pay my obligations on time and not become part of the problem. Just sayin' there are plenty of folks who are excellent credit risks, regardless of LTV. I'm one of them. My house in VA sank in value for a while to well below my min. 20% equity level. I didn't walk away from it. There's a saying in the biz - good loans stay good, shaky loans get worse. The same goes for borrowers.

I'd get an FHA loan too if the circumstances alligned that way for me. Nothing wrong with getting them. The fact that they are offered is the problem. Some lenders are requiring 70% LTV in declining markets where FHA will give loans at 96.5% LTV! Crazy.

[onewhippedpuppy]

Originally Posted by Rick Lee

80-10-10 and 80-15-5 loans got popular in the late 90's and really cut into the PMI market. I mean, why would you pay a monthly PMI premium, which doesn't build equity and isn't tax deductible, when you could pay a piggy back second, which does build equity and is tax deductible? And if your credit wasn't good enough for a piggy back loan, then you'd have been better off going FHA and, in the early 2000's, subprime.

Bingo. When I was loan shopping a few years ago, Countrywide tried to sell me an 80/20. No PMI there. What a joke that place was.

[Rick Lee]

Originally Posted by onewhippedpuppy

Bingo. When I was loan shopping a few years ago, Countrywide tried to sell me an 80/20. No PMI there. What a joke that place was.

An 80/20 was not a bad deal at all for a qualified borrower. It's far better than paying PMI. Would you rather lose your own 20% down payment in a declining market or lose the bank's?

[onewhippedpuppy]

Originally Posted by Rick Lee

An 80/20 was not a bad deal at all for a qualified borrower. It's far better than paying PMI. Would you rather lose your own 20% down payment in a declining market or lose the bank's?

Except that the 20% was at double the rate of the 80%. No thanks. We ended up with an in-house local bank loan and couldn't be happier. The rate might be slightly higher but there's no PMI, if I ever have issues the bank president knows me by name. No dealing with call centers in India or having my loan sold every year.

In regards to "losing" the 20%, that's not how I operate. If that house was worth XXX dollars to me a few years ago, why would it not be worth the same amount to ME today? You're only upside down if you sell, and you're rather foolish to sell right now. It's not much of an issue here anyway, the Wichita market is pretty stable.