Mortgage Insurers' Troubles May Worsen

The US mortgage insurance industry’s troubles are not over and may get worse before they improve, according to Fitch Research. In a special on mortgage insurer delinquencies, Fitch makes the following key observations:

• The 2007 vintage insurance in force (IIF) displays significantly higher levels of first- year delinquencies than the 2006 and 2005 vintages, each of which displayed successively higher first-year delinquencies than the prior vintage.
• The composition of 2007 vintage origination contained a significantly greater proportion of loans with initial loan-to-value (LTV) ratios in the 95%−100% range than prior years’ originations. This was largely attributed to the decline in originations of simultaneous-second, or “piggyback”, mortgages in 2007. This category of loans from the 2007 vintage has performed poorly and has contributed to increased delinquency levels in the 2007 book.
• The second-year delinquency rate of the 2006 vintage was significantly higher than that of the 2005 vintage at the corresponding point in time, and on average exceeded the 2005 vintage third-year delinquency rate.

While steps have been taken by the industry to improve the prospects of future business, Ftch says its analysis indicates that “the mortgage insurance industry’s troubles are not over and may, in fact, get worse before they improve.”

In Fitch’s view, 2007 will likely prove to be one of the worst underwriting years in the modern history of the U.S. mortgage industry.

Fitch puts the industry’s “risk in force”-to-capital ratio at 13.3%, ranging from 11.7% for PMI (NYSE: PMI) to 20.5% for Triad Guaranty (NASDAQ: TGIC), which has fallen out of compliance with Fannie Mae (FNM) and Freddie Mac (FRE) requirements.

Fitch’s findings echo those of CreditSights, which recently called the outlook for the mortgage insurance industry “extremely negative.”

Fitch’s Special Report, Delinquencies and Losses Are Up, is available for purchase.

Comments

[gabeborenstein]

This is basically a useless research that would have had some value in mid 2007 ,with the market on the high.
By 2006 data had shown that 20% of all the homes sold were financed by the subprime mortgages.At that point in time the pending housing market debacle was no longer a question but a reality.The impact on the institutions granting the mortgages was clear .Predicament of the mortage insurers was obvious.I have issued a warning about the potential debacle in early 2007.I do not recall FITCH ,MOODY nor S&P moving drastically to lower the rating of the mortgage insurers .Now ,that the Treasury and the FED have shown determination to prevent a major institutional failures because of the sequential and unpredictable economic impact,we are subjected to this type of research.The recent action by the FED and the Treasury (for good or the bad)significantly reduces the the implied statistical risks to the mortgaqe insurers.Let's focus on the recovery ahead and express some optimism.
It appears that the broadly defined financial sector is in good hands .Volatility is likely to continue.