MILWAUKEE (AP) -- As the housing market
crumbles, homeowners are worried about mortgage payments and sellers
are worried about slumping prices -- but the companies that insure
their loans are worrying about their very survival in the face of
billions of dollars in claims.
Insurers like industry leader MGIC
Investment Corp. are predicting they won't turn a profit for at least a
year. The uncertainty has sent their stocks plunging and raised
questions about what happens if so many loans go bad that the insurers
behind them go out of business.
In the short term, regulators and analysts say they aren't concerned about the biggest insurers staying in business.
"We're
not worried about it today. You can ask us tomorrow. It may change. But
right now, it's not a high priority," said Gail Madziar, spokeswoman
for the Michigan Bankers Association.
And at least one competitor
is making a big bet on the industry's survival. Shares of MGIC and PMI
Group Inc. surged Friday after mortgage insurer Old Republic
International Corp. disclosed in a Securities and Exchange Commission
filings that it had accumulated a 15 percent stake in PMI Group and an
11 percent stake in MGIC.
Bankers know that insurers have cash
reserves, often a threshold set by the individual states, and find
mortgage insurance to be the least of their worries now, said Madzair.
Instead, they just want to make sure they're giving loans to people who
can afford them, she added.
Most mortgage lenders typically
require home buyers to pay for mortgage insurance when they put down
less than 20 percent of their home's value. Payouts to the lenders are
triggered when borrowers miss payments on home loans. And with falling
home prices, it's becoming less likely that delinquent buyers can sell
their homes and pay off their loans.
If the insurers do run into
trouble, the risks for the industry are huge. About 10 percent of the
total loan market has private mortgage insurance, according to the
Mortgage Insurance Companies of America. There was $776 billion in
private mortgage insurance in force as of September, the trade group
reported.
MGIC, which has $196.6 billion in policies written, is
confident it can pay even though it figures it won't return to
profitability until at least 2009. So far this year, MGIC has paid out
$586 million in claims and expects to pay out $875 million for the full
year.
Next year, claim payouts are expected to rise to between
$1.2 billion and $1.5 billion, roughly doubling the $611 million paid
in losses in 2006.
"These are big numbers," said Michael
Zimmerman, vice president of investor relations. "Obviously we'll pay
out large numbers but we're receiving money at the same time. We don't
anticipate losing a billion dollars."
The company, like others,
can decline to cover certain types of loans, including those to buyers
with lower credit scores, or some that represent 95 percent or more of
a home's value, Zimmerman said.
PMI Group saw its quarterly U.S.
claims rise 49 percent to $92.6 million. And the insurer Radian Group
Inc. posted a loss of $703.9 million in the third quarter after getting
hit by writedowns and losses at a subprime mortgage joint venture with
MGIC.
The industry's woes pressured MGIC to back out of a deal to
buy Philadelpia-based Radian in September. The companies saw mounting
losses in their joint venture and figured it was in each other's best
interest to concentrate on staying afloat.
Radian chief executive officer S.A. Ibrahim likened the turmoil to "an industrywide scramble to survive."
The
whole industry will most likely continue to lose money next year, break
even by 2009 and possibly return to profit the following year, said
Geoffrey M. Dunn, an analyst with Keefe, Bruyette & Woods. Even
with those losses, the insurers should have enough in reserves to
survive. He estimated MGIC has access to about $2 billion in capital to
pay out claims.
"I think these companies are very well capitalized. At this point, I don't see any of these companies going under," he said.
As
losses mount at the insurers, though, investors have suffered. MGIC
shares are down 66 percent this year, PMI shares are off 69 percent and
Radian shares are down 77 percent.
But Wall Street was buoyed
Friday by the Old Republic news. PMI Group's stock jumped $3.77, or 34
percent, to $14.88 and shares of MGIC rose $2.94, or 16 percent, to
$21.30. Sares of Radian Group increased $2.42, or 24 percent, to $12.62.
Shares
of Old Republic initially slipped to their lowest level in more than
four years before recovering. The stock rose 90 cents, or 6 percent, to
$15.07.
"The sentiment has been so poor on mortgage insurance and
the data keeps coming out worse than the last time it came out," said
Thane Bublitz, an equity analyst for Thrivent Investment Management
Inc. "That's a hard environment for these stocks to gain any positive
momentum."
But he thinks the companies will survive, too, because
of the extra cash they've stored in their reserves. And they'll have to
make shifts in their business, Bublitz said, such as charging more for
certain types of loans, as MGIC plans to do.
Several analysts
noted an upside to the crisis, though -- more business as consumers and
lenders seek to get more loans insured. The total number of policies
written through September this year was up 41 percent to 1,498,132,
from the same period last year, the industry's trade group reported.