According to monthly data from Mortgage Insurance Companies of America, defaults by U.S. homeowners with private mortgage insurance surged 22 percent last month.
The number of insured borrowers who fell more than 60 days behind on their mortgage payments rose to 54,699 in September, a significant increase from the 44,791 in the year-ago period.
Insured loan defaults were up 4.9 percent from a revised August total of 52,129.
“Defaults have risen faster than expected in 2007 and seem likely to rise further,” David Hochstim, an analyst with Bear Stearns, said in a research note.
Rising defaults are cutting into the profits of mortgage insurers, as MGIC and PMI Group reported their first quarterly losses since going public.
Yesterday, PMI Group announced a third-quarter loss of $86.8 million, while MGIC chalked a loss of $372.5 million a couple weeks ago, saying it wouldn’t be profitable in 2008 as foreclosures rise to record levels.
Mortgage insurance is required on first mortgages that exceed 80 percent loan-to-value, protecting the lenders who write the risky loans.
With falling home prices and difficult lending conditions, many homeowners have few options aside from foreclosure.
But despite a rise in defaults, association member issued policies increased to 151,355 homeowners last month, a sizable 59 percent increase from September of last year.
Loans with mortgage insurance are more attractive to investors who buy them as mortgage-backed securities on the secondary market.
And with second mortgages becoming more difficult to obtain, private mortgage insurance is the only alternative if borrowers are unable to put down a sizable down payment.
The Mortgage Insurance Companies of America includes AIG United Guaranty, Genworth Mortgage Insurance Corp., PMI Group, and others.
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