Mortgage Insurers See Defaults Increase in July

UPDATE 1: Added in clarification of April’s reporting change, invalidity of annual growth comparison

Home owner delinquencies are ratcheting back up again after a few months of easing; the latest data suggesting this comes Friday morning from the Mortgage Insurance Companies of America, a trade group representing many of the nation’s private mortgage insurance companies. MICA reported that July defaults were up nearly 34 percent from one year earlier, reaching 68,831; that compares to 67,908 in June.

The year over year comparison is potentially inflated, however, as one large lender altered how it reports insured defaults in April; it’s unclear what the impact of that change has been in subsequent months.

Further, starting with July’s data, MICA no longer includes data from Triad Guaranty Inc. (TGIC: 0.88 +4.76%), the nation’s seventh-largest insurer. Triad said in June that it would stop selling new policies and move its portfolio into runoff after failing to raise fresh capital.

“We are continuing to see a return to basics in the housing market, and home loans with private mortgage insurance are playing an important role in that effort,” said Suzanne Hutchinson, executive vice president of MICA.

With Triad missing from July’s data, it’s tough to say just how much defaults rose in July; but we know defaults are on the rise, given data released earlier this month. See earlier HW report.

The total number of reported cures also headed down, and irrespective of Triad’s exclusion, the cure rate reported by MICA fell back below the 60 percent watermark: July’s cure rate registered just 57 percent of primary defaults.

July’s sub-60 percent cure rate is the third such instance in the past four months; in January, the reported cure rate fell to 51.4 percent, the lowest monthly cure rate on record. (The organization’s data is available back into the mid 1990s, although monthly data is only available beginning December 1999.)

Prior to the current housing mess, cure rates below 60 percent were rarely, if ever, recorded.

Not surprisingly, given the exit of Triad and general tightening of policy standards across all insurers, insurance underwritten in July and the number of applications received continued to freefall. Insurers received just 86,734 applications last month; that’s well off of the 180,546 received in July 2007, and the lowest total on record.

New insurance written totaled just $12.3 billion in July, compared to $13.7 billion in June and $26.5 billion one year ago.

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Disclosure: The author held no positions in TGIC when this story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.