Nov. 12, 2007: Lesson 1 of 5 on MI, and more changes in the mortgage biz Rob Chrisman
(This is the first of five small write-ups on mortgage insurance. These are the basics, and for more details it is best to contact your MI rep.)
The seven private mortgage insurance companies wrote new coverage on $96 billion of home mortgages during the third quarter of 2007, down 2% from the previous period. That was a much smaller decline than the 22% drop in mortgage originations, however, and with increases in both FHA and VA production, the share of new originations covered by primary MI rose to 21% in the third quarter, the highest level since 2000. Bulk private MI coverage accounted for just 15% of new private MI business written during the third quarter, down from 25% in the previous three-month period. PMI Mortgage Insurance, which has been the top player in the bulk market through the first nine months of 2007, still ranked as the top MI for the first nine months of the year, with a 20% share of the market.
With the decline of 2nds, mortgage insurance is on everyone’s mind. MI protects lenders against loss due to default on loans with less than 20% down payment. (It is not the same as title insurance, property insurance, credit life, etc.!) It can be for various coverage levels, but the coverage that is purchased is the amount of protection that the lender receives under the certificate of insurance. MI is 100% tax deductible for borrowers with incomes less than $100k, and then is reduced 10% for each $1k above $100k.
Anyone brokering to WAMU noted the changes that they made over the weekend on their wholesale channel. These include increasing their minimum FICO scores for non-owner to 680 for Full Doc, increasing their minimum FICO for Loc Doc referrals to 720, eliminating loans in a “soft market” (based on their index), and lowering their maximum LTV’s in declining markets.
Wachovia Corp., the second-largest regional bank, said mortgage-related losses total $1.7 billion so far this quarter, more than the lender reported for the previous three months. Their stock has declined 30% this year. Wachovia set aside as much as $600 million for bad loans in the fourth quarter and said in a regulatory filing that securities linked to subprime mortgages lost $1.1 billion last month. The company’s $1.3 billion of writedowns in the third quarter prompted its first earnings decline in six years.
As mentioned, Morgan Stanley, the second-largest U.S. securities firm, reported last week that its subprime mortgage-related assets lost $3.7 billion in the previous two months, and said its outlook for credit markets was bleaker than in September.
Delta Financial reported a net loss of $39.6 million for the third quarter, compared with net income of $8.0 million for the same period in 2006.
PHH Corp. lost $38 million in the third quarter as trouble in the mortgage sector hurt the company’s business.
The markets are closed today in observance of Veteran’s Day. So beware of any rate sheets that are produced, as they will tend to be conservative. The markets improved on Friday, so we could possibly see some of that carry through to tomorrow’s rates. There is no news tomorrow (Tuesday), but Wednesday we’ll have October’s Producer Price Index & Retail Sales, Thursday we’ll see the Consumer Price Index & Jobless Claims, and on Friday we have Industrial Production and Capacity Utilization.
A family is driving in their car on holidays. A frog crosses the road and the wife, who is driving, is able to stop the car. She gets out and takes the frog and carries him to the side of the road. The frog is grateful, thanks the woman and tells her that he will grant her a wish.
The woman says, “Please make my dog win the next dog race.”
The frog asks to look at the dog, which limps out of the car. The frog notices that the dog only has three legs, it very fat, and can barely move at all so he tells the woman that he thinks it is almost impossible to fulfill her wish and asks that the woman will tell him another wish.
The woman says, “Well, then please make my husband win the next Mr. America contest. The frog asks her to tell her husband to get out of the car.
The husband comes out of the car and approaches the frog.
The frog turns to the woman and says, “Could I please have another look at the dog?”
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