The PMI Group Inc.
, a California-based mortgage insurer, on Thursday announced it had downwardly adjusted its estimate
of total paid mortgage insurance claims for 2008. The company said it expects total paid claims for the year to be between $810 million and $835 million, down from the estimate announced Nov. 3 when the company said it expected to pay out from $850 million to $900 million in claims by the end of 2008. November's estimate was also downwardly adjusted from the previous $900 million to $975 million estimate.
PMI provides what CEO and chairman Steve Smith in an investor call Thursday called "sustainable" homeownership by offering first loss protection on insured loans sold to the GSEs and on loans held by portfolio lenders. By mitigating default risk, PMI facilitates the origination of mortgages with down payments of less than 20 percent of the value of the home. In the case of default and foreclosure, the lender or servicer makes a claim to recapture the portion of the loan the borrower did not pay in cash when the loan was closed.
Certainly the issue seen in the housing market that has led to much more than just lenders' woes is the dropping value of homes. Borrowers who went in on insured loans at the peak of housing prices without investing any equity now find themselves deep underwater. Many of these borrower default unless the mortgage is modified, or simply walk away and leave the property to foreclose. The borrower's credit hurts, the servicer hurts and any investor who might hold the loan in a securitized trust hurts. PMI has worked to shield servicers and lenders from that situation by mitigating losses.
"We understand these are very challenging times for everyone in the financial sector," Smith said. But PMI's services continues to gain in value as piggy-back loans -- second loans taken out by the borrower in lieu of the initial 20 percent equity investment in the home -- decline in popularity. Smith said the company plans to move forward into 2009 with a strong plan to manage expenses and continue implementing its homeownership preservation initiative.
This homeownership preservation initiative, part of the company's loss mitigation efforts, allowed the second consecutive month of downward revision of estimated paid claims, Tom Taggart, PMI's vice president of public relations, said in an interview Thursday. PMI, a member of the Hope Now Alliance
of mortgage industry professionals, has participated in a direct mail and calling campaign to borrowers with PMI insurance tied to their loans. PMI informs local borrowers of any Hope Now events, letting them know where they can find help for unaffordable mortgages.
"We're able to clearly track the number of borrowers with PMI on their loans and that we've been able to find solutions collectively with the lender," he said. "Obviously whenever we can prevent a foreclosure, everyone benefits. We've been fairly successful with that."
But what about the delinquencies?
Certainly the market is seeing no shortage of defaults and severe delinquencies -- which increased more than 50
percent from year-ago levels during the third quarter, according to data released Tuesday morning by credit reporting agency TransUnion LLC
. A separate report released Friday confirmed the upward trend of delinquency rates, though it differed slightly in the extent of the increases.
The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 6.99 percent of all loans outstanding
at the end of the third quarter of 2008, up 58 basis points from the second quarter of 2008, and up 140 basis points from one year ago on a seasonally adjusted basis, according to the Mortgage Bankers Association
’s National Delinquency Survey.
In light of rising delinquencies and continued declines in home values
, it might seem surprising that a mortgage insurer could lower its estimate on the dollar amount in claims it expects to have paid for all of 2008. Remember, of course, that this estimate only reflects the amount of insurance claims expected to have been paid
. It has no bearing on how many insurance claims were actually received in 2008 -- or were yet to be received on properties about to foreclose, thanks to voluntary and imposed foreclosure moratoria in place at large financial institutions and government-sponsored entities.
It could be that all the "dams" in place that delay foreclosure processes have artificially reduced the claim volume, causing fewer paid claims, until the freezes are up and the foreclosures enter the system further down the river. Or it could be that insurance claims have not decreased significantly, but that fewer have been paid than originally estimated.
Diana Golobay at firstname.lastname@example.org