MGIC released a market update late Tuesday warning that mortgages it insures are seeing a significant increase in defaults, while cure rates are touching historic lows. From the press statement:
Cure rates have continued to deteriorate, resulting in a higher percentage of delinquent loans that become claims, and average claim size has also continued to increase.
The bottom line: the insurer said it expects incurred losses for the fourth quarter to approximate $1.3 billion as a result. And talk about missing by an entire continent -- earlier guidance, provided in October, had suggested paid losses would be between $270 to $290 million. Looking to 2008, MGIC also revised its paid loss forecast for the year to $1.8 to $2.0 billion, up from its earlier forecast of $1.2 to $1.5 billion. Underscoring the difficulties facing capital markets for mortgages, MGIC noted that during the fourth quarter it had halted writing bulk insurance for "loans included in Wall Street securitizations" -- codespeak for all non-agency loans -- and said that it was "analyzing the accounting implications of that decision on its fourth quarter results." That last part is codespeak for we're probably going to lose money because of this. Regular HW readers have seen ample previous coverage here bringing attention to historic lows in insured mortgage cure rates (see this post from September; and this post from December). The most recent 12-month moving average for cure rates stood at just 68.6 percent; the industry has never recorded an annual cure rate below 79 percent, according to available data provided by MICA. Disclosure: The author held numerous put options on PMI, a large mortgage insurer, at the time this post was published; no positions in MTG.