by Calculated Risk on 12/19/2009 12:11:00 AM

From the WSJ: Down-Payment Standards Eased

Earlier this month, MGIC removed New Orleans, Dover, Del., Akron, Ohio, and four other areas in Ohio from its list of restricted markets. ...

Under the looser requirements, a borrower with a credit score of 680 or higher in New Orleans, for instance, can finance up to 95% of a home's value. Before the change, a borrower who wanted to finance that much of a home's value would have needed a credit score of at least 700.

In September, Genworth Financial Inc. winnowed its list of declining and distressed markets to five states: Arizona, California, Florida, Michigan and Nevada.

The changes are small. As the article notes, this is due to slightly improved markets and an attempt to regain market share from the FHA.

I wonder if this is related - just two weeks ago: Wisconsin Regulator Approves MGIC Regulatory Cap Waiver Thru 2011 (ht jb)

Mortgage insurance giant MGIC Investment Corp. (MTG) announced, Thursday, that the Office of the Commissioner of Insurance for the State of Wisconsin approved the company’s revised business plan and agreed to waive minimum regulatory capital requirements until Dec. 31, 2011.

by Calculated Risk on 8/25/2009 06:46:00 PM

From Matt Padilla at the O.C. Register: Housing demand could snag on mortgage insurance

Matt quotes an article from the National Mortgage News:

The GSEs can purchase single-family mortgages with loan-to-value ratios higher than 80% only if the homebuyer gets mortgage insurance. The FHFA Mortgage Market Note issued a few days after Mr. Lockhart’s departure projects that the demand for such high LTV loans could hit $230 billion in 2009. The ability of the MIs to meet that level of demand is “remote,” FHFA report says. “The industry’s ability to build and maintain sufficient capital to meet the needs of the enterprises over the short term without some federal assistance or an infusion of private capital is unclear,” the report concludes.
emphasis added

Another goverment program?

by Calculated Risk on 3/12/2009 05:20:00 PM

A couple of mortgage insurer stories ...

From the WSJ: MBIA's Split of Businesses Raises Ire of Banks, Hedge Funds

Representatives of about 15 financial institutions will meet Thursday with New York State Insurance Superintendent Eric Dinallo to complain about MBIA Inc.'s decision to split its bond-insurance unit into two companies...

The group includes many banks that feel disadvantaged by MBIA's move last month to separate its municipal-bond insurance business from its commitments to insure mortgage-backed bonds and other structured securities. The banks are counterparties to MBIA on derivatives called credit-default swaps that were written on securities they own ... These institutions were left holding contracts with a financially weaker insurer when MBIA transferred about $5 billion in capital from its main unit to another company that guarantees only U.S. municipal bonds.

And from Dow Jones (no link): MGIC Dn 35% As Payment-Deferral Points To Liquidity Issues

MGIC Investment Corp. ... said in a late-Wednesday regulatory filing it deferred its interest payment on some debentures by 10 years.

The filing, which revealed MGIC is likely having liquidity issues ...

... Fitch Ratings put its credit ratings on MGIC and two of its units on watch for possible downgrade Thursday. ... Mortgage insurers such as MGIC cover potential lender losses on loans to borrowers who can't come up with a 20% down payment. The sector continues to struggle with soaring claims and declining new business ...

Actually the mortgage insurers were lucky - they were cut out of the worst deals because Wall Street happily securitized 100% financing with 2nds and no MI. But the losses are still piling up. And so are the counterparty risks ...

by Calculated Risk on 2/17/2009 10:51:00 AM

Tanta used to joke "It's not a real estate bust until a mortgage insurer goes down". Of course Triad went down last year ...

From the WSJ: Moody's Slashes Ratings on Mortgage Insurers (ht Shnaps)

Ratings on MGIC Investment Corp. and Radian Group Inc. were cut Friday several notches to junk status because of what Moody's called deterioration in their franchise value, the likelihood of sustained losses for several years and substantially limited access to capital.

Moody's said MGIC's losses in the past year are putting "meaningful capital strain" on the company, which could breach maximum statutory risk to capital guidelines in the next 12 to 18 months without additional capital injections.

It downgraded the insurance-financial-strength ratings of MGIC units seven notches to Ba2, or slightly speculative, and MGIC's senior-debt ratings seven notches to B2, or speculative.
...
The rating agency also cut the insurance-financial-strength ratings of Radian's mortgage-insurance units seven notches to Ba3 and the insurance unit's insurance-financial-strength rating six notches to B1.

The mortgage insurers were cut out of the worst deals (lucky for them!), because Wall Street happily securitized 100% financing with 2nds and no MI. But the losses are still piling up.

by Calculated Risk on 1/28/2009 10:13:00 PM

Genworth sent out a notice of tighter guidelines for mortgage insurance today effective Monday February 2nd. Some of the changes are pretty significant.

As an example, loans over $417K in California are ineligible for MI. Period. The same with attached housing in Florida - ineligible.

Here are some of the rules:

Underwriting Guideline Changes – Effective February 2, 2009

• Minimum Credit Score = 680
• Maximum Debt to Income (DTI) = 41% regardless of AUS or Submission Channel
• High Cost Loans (> $417,000) Minimum Credit Score = 740

o Loan amounts > $417,000 in CA – Ineligible

• Cash Out Refinance – Ineligible
• Second Homes – Ineligible
• Manufactured Homes – Ineligible
• Construction to Permanent – Ineligible

Declining/Distressed Markets Changes – Effective February 2, 2009

• Minimum Credit Score = 700

o AZ, CA, FL, NV = 720 (as per existing guidelines)

• Maximum Debt-to-Income = 41% regardless of AUS or submission channel
• Additions to our Declining/Distressed Markets List

o 17 states added in their entirety
o 69 MSA/CBSA added
o Please see Attachment A for a complete list of new markets

You can see the old rules and guidelines here. You can type in your zip code and "discover if the property is in a Declining/Distressed Market". (I think this is the old rules and will change on Monday)

Here is the current list of distressed markets. This included the following entire states: Arizona, California, Connecticut, Delaware, Florida, Michigan, Nevada, and New Jersey.

The mailing today added many more MSAs and the following additional entire states: Colorado, Maine, New Hampshire, Rhode Island, Wisconsin, Hawaii, Maryland, New Mexico, Utah, Idaho, Massachusetts, Ohio, Vermont, Kansas, Minnesota, Oregon, Washington.

Just more tightening ...

by Calculated Risk on 12/03/2008 11:51:00 AM

I've heard from industry insiders (not confirmed) that Fannie Mae is putting a limit on the debt service-to-income (DTI) ratio of borrowers regardless of the Automated Underwriting System (AUS) decisions for loans requiring mortgage insurance (Loan-to-value (LTV) > 80%). This is apparently due to pressure from the mortgage insurers (MIs).

These are essentially caps on DTI. Previously the max was determined by the AUS.

For conforming loans in stable markets (as defined by MIs), the DTI limit is 45% when PMI is required (LTV > 80%). For expanded approval loans in stable markets, the DTI limit is 41%.

In soft markets, the max DTI is 41%. Previously this could be exceeded if approved by DU/LP (Desktop Underwriter Version 7.0® / Loan Prospector® ).

This raises a great point. The MIs were locked out (luckily for them) of many of the worst loans, because Wall Street securitized 2nds instead of using MI. Now that MI is needed again for loans with LTVs greater than 80%, the MIs once again have a say in the underwriting process.

I'm sure Krugman would respond with YHTMAAAIYP.

by Calculated Risk on 6/05/2008 08:00:00 PM

From MarketWatch: Fitch downgrades MGIC Investment, PMI ratings

Fitch Ratings on Thursday downgraded MGIC Investment Corp., noting it has become much more pessimistic on its outlook for the mortgage insurance sector. ... Fitch also cut PMI Mortgage Insurance's rating ...

Didn't Tanta once say it won't feel like a real housing bust until at least one mortgage insurer goes bankrupt?

by Calculated Risk on 4/25/2008 11:10:00 AM

Here are a few comments from the Genworth conference call.

First, look at the significant change in their outlook for house prices and unemployment:

“First, U.S. housing market conditions have worsened and liquidity remains constrained. At year-end, we shared the view with many in the market that the magnitude of the house price declines from the peak in Q4 2005 would be 13% to 15%. Based on what we have seen to date, we now expect the decline to be in the 20% to 25% range with significant regional variation. Second, our outlook for U.S. unemployment worsened from 5% in December to closer to 6% by year-end 2008. In addition, the probability that we will see a recession in the U.S. is now higher; however, it is unclear whether the downturn will be mild or more severe.”
emphasis added

On Alt-A and A minus delinquencies:

“This quarter, we saw a significant deterioration in the 2007 flow book with 2007 reserve increases accounting for more than half of the build in total loss reserves. Delinquencies remain concentrated in alternative products like Alt-A and A minus, as well as in high loan balance states, particularly in Florida . If this adverse early development of the 2007 book continued over multiple years, we could see lifetime losses with certain lenders exhaust captive coverage, particularly those with relatively higher concentrations of Alt-A and A minus product and exposure to high loan balance states. However, it is too early to make such a determination and we are monitoring the situation while actively working on loss mitigation.”

In response, they have raised their prices:

“In addition, we announced yesterday a 20% price increase on our flow mortgage Insurance product.”

by Tanta on 2/14/2008 11:38:00 AM

While we're on the subject of mortgage insurance:

WINSTON-SALEM, N.C., Feb 13, 2008 /PRNewswire-FirstCall via COMTEX/ -- Triad Guaranty Inc. today reported a net loss for the quarter ended December 31, 2007 of $75.0 million compared with net income of $8.1 million for the same quarter in 2006. . . .

Mark K. Tonnesen, President and Chief Executive Officer, said, "The trends we encountered in the third quarter accelerated in the fourth, especially the rise in defaults in locations where home prices are under pressure. While the total portfolio default counts increased 38% during the quarter, in California and Florida, default counts rose a combined 85%. The rapid and significant deterioration in the housing markets and its effect on our portfolio performance has prompted us to implement various measures reflected in our underwriting standards, capital management, loss mitigation and expense management."

Mr. Tonnesen continued, "During the fourth quarter, we took a leadership role in our industry by tightening underwriting guidelines. Our new guidelines, which address loan to value limitations, credit scores and loan documentation, and incorporate volume limitations in distressed markets, led to our reduced fourth quarter production and are expected to further limit production in 2008. The Company has developed and is actively pursuing a plan to manage and enhance its capital resources. Although, at this time, we can give no assurance that we will be able to successfully implement our plan, we realize these efforts are critically important to the future of Triad Guaranty. Thus, enhancing capital resources is a top priority. Capital management dictated our decision during the quarter to withdraw from Canada and contribute this capital to our U.S. insurance subsidiary." . . .

Net losses and loss adjustment expenses of $191.7 million for the fourth quarter of 2007, compared to $106.8 million for the third quarter of 2007 and $41.3 million for the fourth quarter of 2006, reflect the substantial changes that have occurred in the mortgage and housing markets during the second half of 2007 and especially during the fourth quarter. Net losses and loss adjustment expenses for the fourth quarter of 2007 include a reserve increase of $150.7 million compared to $76.6 million and $23.3 million for the third quarter of 2007 and the fourth quarter of 2006, respectively. Paid claims totaled $36.3 million in the fourth quarter of 2007, compared to $28.5 million for the third quarter of 2007 and $16.6 million for the fourth quarter of 2006.

Average severity on Primary paid claims was $41,600 in the fourth quarter of 2007, up from $36,900 in the third quarter of 2007 and $28,100 in the fourth quarter of 2006. The average severity on Modified Pool paid claims in the fourth quarter was $57,900, which also was up significantly compared to $41,300 in the third quarter of 2007 and $26,200 in the fourth quarter of 2006. The Primary delinquency rate was 3.81% at December 31, 2007 compared with 2.80% at September 30, 2007 and 2.47% at December 31, 2006. The Modified Pool delinquency rate rose to 6.09% at December 31, 2007 compared with 4.42% and 2.67% at September 30, 2007 and December 31, 2006, respectively.

by Tanta on 2/14/2008 08:29:00 AM

I had a feeling this sort of thing might get underway:

McLean, VA – Freddie Mac (NYSE: FRE) today announced it is temporarily changing its Private Mortgage Insurer Eligibility Requirements [PDF 160K] in order to increase the claims-paying and capital retention capacities of its mortgage insurance counterparties during the current market correction.

Effective on or after June 1, 2008, Freddie Mac-approved private mortgage insurers may not cede new risk if the gross risk or gross premium ceded to captive reinsurers is greater than 25 percent. Beyond limiting the allowable cede to 25 percent, the temporary policy does not limit the mortgage industry's use of captive reinsurance.

Triggered by the ongoing decline in home prices and poor performance of subprime, Alt A and other higher-risk mortgages, Freddie Mac says the temporary change is intended to allow mortgage insurers to retain more insurance premiums to pay current claims and re-build their capital base.

Today's announcement applies to all Freddie Mac-approved private mortgage insurers. In addition, Freddie Mac is now requiring all eligible private mortgage insurers to provide additional information about their business activities to better monitor the state of the industry.

Private mortgage insurance enables Freddie Mac to buy loans when a borrower makes a downpayment of less than 20 percent of the purchase price. In a captive reinsurance structure, the mortgage insurer cedes a portion of its premium income to a special trust set up to cover an agreed upon share of losses from a pool of mortgages.

Freddie Mac also announced it is suspending its Type II Insurer requirements otherwise automatically applicable to mortgage insurers that are downgraded below AA- or Aa3 by the rating agencies provided the mortgage insurer commits to submitting a complete remediation plan for our review and approval within 90 days of the downgrade. Freddie Mac also reserves the right to impose additional restrictions in its sole discretion.

The GSEs have enormous exposure to the MIs. Their own risk management depends on how they maintain eligibility standards for MI carriers; if they accept policies written by lower-grade insurers with less certain claims-paying ability, their own reserves for loss have to increase. On the other hand, if they cut off an insurer that gets notched under AA-, they're not just losing new insured mortgage business, they're increasing the pressure on the MI by cutting off its main source of new policies written. The problem with a downgraded MI for the GSEs: you can't live with them, and you can't shoot them.

So the "workout" proposals begin. Whether this is a wise response that will avert major catastrophe in the MI business, or the first step in following a failing MI down, is anyone's guess. I personally can't see how they can not "work things out" with the MIs right now, even as I see it as just one more reason that Congress needs to give it a rest with these plans for the GSEs to take on more and more of the risk of failing private sector mortgage portfolios.

by Tanta on 2/13/2008 09:05:00 AM

MILWAUKEE, Feb 13, 2008 /PRNewswire-FirstCall via COMTEX/ -- MGIC Investment Corporation today reported a net loss for the quarter ended December 31, 2007 of $1.47 billion, including certain items described below. This compares with net income of $121.5 million for the same quarter a year ago. Diluted loss per share was $18.17 for the quarter ending December 31, 2007, compared to earnings per share of $1.47 for the same quarter a year ago.

Included in the quarterly results is the establishment of a pre-tax premium deficiency reserve of approximately $1.2 billion relating to Wall Street bulk transactions. The premium deficiency reserve reflects the present value of expected future losses and expenses that exceeded the present value of the expected future premium and already established loss reserves for these bulk transactions. Also included in the quarterly results is an after-tax charge of $33 million related to equity losses incurred by C-BASS in the fourth quarter that reduced the carrying value of the $50 million note from C-BASS to zero.

Curt S. Culver, chairman and chief executive officer of MGIC Investment Corporation and Mortgage Guaranty Insurance Corporation (MGIC), said that the low cure rates coupled with higher loss severities and higher delinquencies had a material impact on the company's financial results both in the quarter and for the year. Mr. Culver said that given the company's expectations for credit loss development, unless the cure rate and loss severity improves, the company does not foresee net income for 2008. . . .

As of December 31, 2007, the delinquency inventory is 107,120. At December 31, 2007, the percentage of loans that were delinquent, excluding bulk loans, was 4.99 percent, compared with 4.08 percent at December 31, 2006, and 4.52 percent at December 31, 2005. Including bulk loans, the percentage of loans that were delinquent at December 31, 2007 was 7.45 percent, compared to 6.13 percent at December 31, 2006, and 6.58 percent at December 31, 2005.

Losses incurred in the fourth quarter were $1.35 billion, up from $187.3 million reported for the same period last year due primarily to the increase in both the number and size of loans that are delinquent, increased loss severity, decreased cure rates in certain markets, particularly California and Florida, continued weakness in the Midwest, and increased paid losses. . . .

Historically a significant portion of the mortgage insurance provided by MGIC through the bulk channel has been used as a credit enhancement for securitizations. During the fourth quarter, the performance of loans included in Wall Street bulk transactions deteriorated materially. Therefore, during the fourth quarter of 2007, we decided to stop writing that portion of our bulk business. A Wall Street bulk transaction is any bulk transaction where we had knowledge that the loans would serve as collateral in a home equity securitization. In general, these bulk transactions on average reflect lower average FICO scores and a higher percentage of ARMs, compared to our other bulk business. We plan to continue to provide mortgage insurance on bulk transactions with the GSEs or portfolio transactions where the lender will hold the loans. Wall Street bulk transactions represented approximately 41%, 66% and 89% of our new insurance written for bulk transactions during 2007, 2006 and 2005, respectively, and at December 31, 2007 included approximately 145,000 loans with insurance in force of approximately $25.5 billion and risk in force of approximately $7.6 billion (which is 74% of our total bulk risk in force).

Guess they won't be holding the bag on those "Super Duper Seniors" any more . . .

by Tanta on 2/01/2008 09:23:00 AM

Early edition of your Friday Rating Actions (registration required):

New York, January 31, 2008 -- Moody's Investors Service has announced rating actions on a number of mortgage insurance companies due to continued US mortgage market stress and significant uncertainty about the amount of mortgage insurance claims that could emerge over the next several years. The following rating actions have been taken. The Aa2 insurance financial strength (IFS) ratings of the mortgage insurance subsidiaries of The PMI Group and the Aa3 IFS rating of Triad Guaranty Insurance Corporation were placed on review for possible downgrade. The Aa2 IFS ratings of the mortgage insurance subsidiaries of Genworth Financial and the Aa3 IFS rating of Republic Mortgage Insurance Company were affirmed, but the rating outlooks were changed to negative. The Aa2 IFS ratings of the mortgage insurance subsidiaries of United Guaranty Corporation (a wholly-owned subsidiary of American International Group, Inc.) were affirmed with a stable outlook. In the same rating action, Moody's placed the Prime-1 commercial paper rating of MGIC Investment Corp. on review for possible downgrade. The Aa2 IFS ratings on the main mortgage insurance subsidiaries of MGIC Investment Corp and the Aa3 IFS mortgage subsidiary ratings of Radian Group Inc. remain on review for possible downgrade.

These rating actions result from Moody's increased loss expectations for US residential mortgages and the potential adverse impact on mortgage insurer capitalization relative to previous assumptions. Moody's announced on January 30, 2008 that its projection for cumulative losses on 2006 vintage subprime mortgages is now in the 14-18% range and that it will update loss projections for other mortgage types over the next several weeks. While the majority of the mortgage insurers' exposure is to prime fixed-rate conforming mortgage loans, the industry does have material exposure to Alt-A and subprime mortgage loans.

Moody's stated that rating actions for specific mortgage insurers were influenced by Moody's views regarding the volatility in expected performance of the insured portfolio, as well as the existence of implicit and explicit forms of parental support for companies that are wholly-owned subsidiaries of larger diversified insurance holding companies. Moody's will, in the next several weeks, update its evaluation of capital adequacy of mortgage insurers based on updated information and incorporating revised expectations about performance across different loan types. Moody's will consider updated estimates of capital adequacy in the context of potential capital strengthening measures or other strategies that may be under consideration at these companies. Moody's will also be considering the changing risk and opportunities to the mortgage insurers as a result of shifting dynamics in the conforming mortgage market.

I'd say that last sentence translates as "we're still trying to figure out how much trouble they'd be in if they started insuring these LFKAJs."