Financial Difficulties for Private Mortgage Insurers
By hdnelson
An article in this week’s Barron’s highlights the problems in the private mortgage insurance industry. Typically private mortgage insurance was required for conventional loans when the borrower was making less than a 20% down payment. Borrowers make payment on their mortgage insurance premium as part of their house payment. During the credit crisis, private mortgage insurers such as MGIC, PMI, and Old Republic underwrote many thousands of sub prime and alt A loans. Upon default, the mortgage insurer has to pay losses up to about 25% of the value of the loan.
With the huge number of subprime and alt-A mortgage defaults, these companies have seen staggering losses. Two insurers, PMI and Old Republic, have been ordered by state regulators to stop originating new insurance.They will just collect premiums and pay losses until the money runs out. They are also sometimes paying less than the full amount of insurance owed in short sales and foreclosures. For short sellers this means more difficulty in getting the sale approved if a mortgage insurer is involved. For the American taxpayer, it means greater losses for Fannie Mae and Freddie Mac, who own the bulk of the some $700 billion in mortgages enhanced by mortgage insurance. The remaining mortgages insurers (MGIC and Radian) are in perilous financial shape, and for most low down payment borrowers, FHA has become their only option to obtain financing. All this adds up to just another obstacle in reviving the US housing market.
See more at http://online.barrons.com/article/SB50001424052748703535904577152831234907986.html
Related Articles
By hdnelson
Each month we try to compare some reports about the national real estate market to what we see in our local markets. While nationally the blog Calculated Risk reported that short sales increased significantly in the 4th quarter, we only saw 27% (a very modest rise if any) of last year’s short sales close in Q4. There was also a report from Marc Hanson that the percentage of REO (bank owned) sales In December fell in California as an overall percentage of sales in that market. In our market the number of closed sales that were bank owned rose from 38 in November to 43 in December (up 12%). Our market agrees with the article that $200-300k is the new normal for homebuilders. The article shows that the percentage of sales in the west under $300k was 42% in 2007, but is now 65%. In Kitsap County, the percentage of sales under $300k was 54% (1945 of 3615 total sales) in 2007 and in 2011 was 72% (1829 of 2538 total sales). More at http://tinyurl.com/7pljyjx
Read Story
By hdnelson
The number of closed sales in Kitsap County in January fell about 37% from December and was about 6% lower than a year ago. Pending sales rose about 42% compared to last month and were about 16% higher than a year ago. In December, there were 195 closed sales and 191 pending sales. In January there were 123 closed sales and 275 pending sales. 48% of the closed sales were distressed properties (compared to 32% last month). 46% of the pending sales were distressed properties (compared with 38% last month). Among closed distressed sales, bank owned sales were more than 3 times the number of short sales closed. This month we will report that the median price dropped sharply. This reflects the higher percentage of sales that were distress properties. More at http://www.prowserealestate.com/Blog/Kitsap-Real-Estate-Market-Report-February-2012
Read Story
By hdnelson
The influential real estate and economics blog Calculated Risk has posted that “The Housing Bottom is Here”. He differentiates between new home sales increasing - this is happening already - and housing prices reaching a bottom, which he thinks nationally will occur in March 2012.
There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales.
See http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html
Read Story
Subscribe to the News
Reader Discussion
Be the first to comment, using the form below.