Insured Defaults Surge, Thanks to Reporting Quirk
One large unidentified lender changed how it reports defaulted mortgages during April, pushing the number of primary insurance defaults to a record high for the month and underscoring the somewhat fragile nature of reporting on borrower defaults. According to the Mortgage Insurance Companies of America on Friday, "a major lender's change to its methodology for recording delinquencies" led to a dramatic increase in reported defaults, to 73,880 in April versus 58,131 in March. The jump essentially makes it impossible to know whether defaults actually did increase or decrease relative to April's statistics; MICA did not release statistics summarizing the impact of the reporting change on overall reported defaults. MICA press representative Jeff Lubar told Housing Wire Friday that the change involved a lender adopting MICA's own reporting standards, rather than the lender's switch from the so-called OTS to MBA reporting methodology. The OTS and MBA delinquency reporting methods are among the most common standards used for reporting delinquencies, and can lead to vastly different reporting numbers; most prime lenders/servicers use the MBA method, while the OTS method has been standard for some time among subprime lenders/servicers. "The lender in question was using 90-days and then conformed to our method," Lubar said. MICA considers 60 day delinquencies as defaults, he said. The group did not comment on the identity of the lender/servicer, or why a lender changing their reporting would impact how insurers report on delinquencies to the trade group. Ostensibly, an insurer would know how many loans are 60 versus 90 days delinquent from any number of lenders whose loans it has insured, HW's sources said -- unless a lender was completely miscoding its loans altogether, which would be a much more sinister outcome than MICA suggested publicly in its press statement. Cures fall, again - or do they? Cures were similarly affected by the reporting change, MICA said, although it is similarly unclear how a change in reporting defaults would impact reporting of cures. "Either a loan is modified, reperforming, in a repayment plan, or it isn't," said one source, who asked not to be named. "It's not clear how that would flow through to recorded defaults, unless a lender completely changed how it accounts for its servicing pipeline." The trade group reported that 39,584 loans were cured during the month -- a steep 21.7 percent drop from March's 50,585 cures in March. The total number of cures for April was up slightly from 34,347 in cures recorded one year earlier, although the industry's reported $855.7 billion of primary insurance in force in April was well above the $696.5 billion in force during April of last year, as well. "While the change in reporting methodology by a major lender has resulted in an increase in reported delinquencies, it is important to note that this is a one-time adjustment," said Suzanne Hutchinson, executive vice president of MICA. "Overall, the market is returning to fundamentals. "The year-over-year increase of 11.7 percent in new insurance written reflects that return to quality in the marketplace." Mortgage insurers have seen volume return to their business despite tightening underwriting standards, as lenders and investors have shunned second lien originations -- primarily of the so-called "piggyback" variety -- that had previously siphoned off much of the MI's core business pipeline. For more information, visit http://www.housingwire.com.