Private mortgage insurance company Triad Guaranty said today via an SEC filing that it may stop writing new business because of rising mortgage defaults and costly claims.
The Winston-Salem, North Carolina-based company noted that the mortgage industry boomed during the last five years, but in 2007 property values began to decline and mortgage defaults shot upward, especially in markets that experienced high rates of appreciation.
“The ability to refinance with relative ease coupled with strong home price appreciation contributed to a lower default rate and facilitated loss mitigation efforts, particularly in fast growth states such as California and Florida,” the company said in the filing.
“Over the past six to nine months, however, these distressed markets have experienced substantial growth in default rates and also have significantly higher average loan amounts. As a result, our average reserve and claim size on defaulted loans is significantly greater in these distressed markets than with respect to our overall portfolio.”
The company added that its risk-to-capital ratio has “risen dramatically” over the last 12 months, driven by a significant increase in risk-in-force coupled with operating losses during the second half of 2007.
“Based on our internal projections, we must significantly augment our capital resources in the second quarter of 2008 in order to preserve our ability to continue to write new insurance.”
“The proposals that have been considered involve structures under which Triad would implement a “run-off” plan and a newly formed mortgage insurer would acquire certain of Triad’s employees, infrastructure, sales force and insurance underwriting operations. In addition, we would cease writing new business.”
A month ago, Triad reported a $75 million fourth-quarter loss and a net loss of $77.5 million for 2007, compared to net income of $65.6 million in 2006.
The company blamed ongoing deterioration in the housing and mortgage markets, particularly in states like California and Florida, where default counts rose a combined 85 percent.
Shares of Triad Guaranty were down $1.32, or 25.14%, to $3.93 in afternoon trading on Wall Street, more than 90 percent below their 52-week high.