Mortgage Defaults Continue to Rise, MI Firms Say

By PAUL JACKSON

December 1, 2008

 

A surge in residential mortgage defaults continued during October, according to a trade organization representing private mortgage insurers. More than 80,000 defaults were recorded during the month, the highest such total in at least 12 months, said the Mortgage Insurance Companies of America Monday, in its monthly report.

 

Against 80,071 reported primary insurance defaults, the industry recorded 43,211 cures, generating a 54.0 percent cure rate for October. That total is slightly better than the 53.9 percent cure rate recorded during Sept., but below the 56.1 percent rate recorded one year ago; before the nation’s housing crisis set in, the MI industry had rarely ever recorded a cure rate below 60 percent for any given month. October’s total now means MICA members have posted sub-60 percent cure rates for 7 months this year, and the past four months in a row.

 

MICA highlighted continued strength in the total dollar amount of insurance in force in its press statement announcing the numbers. MICA’s members reported a total of $800,880.5 million in primary insurance in force for the month of Oct.; that compares to $801,346.9 million one month earlier. Numerous individual insurers, however, have said in earnings calls with analysts that such high persistency rates tend to reflect the difficulty many insured borrowers — including troubled borrowers — are having in refinancing their way into another mortgage.

 

While persistency remains high, new policies aren’t exactly flooding in the front door. MICA members reported that just 42,167 borrowers used private mortgage insurance to buy or refinance a home in October, down from 49,544 in Sept. and well off the 173,949 certificated issued one year earlier. Likewise, the dollar volume of primary new insurance written on newly originated conventional mortgage loans totaled $7,737.3 million in Oct., well below the $25,349.0 recorded in Oct. 2007.

 

MICA’s statistics include data AIG United Guaranty, Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, PMI Mortgage Insurance Co., and Republic Mortgage Insurance Company.

 

For more information, visit paul.jackson@housingwire.com.

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Countrywide Sued by Fund Over $8.4 Billion Loan Deal (Update1)

By Patricia Hurtado

 

Dec. 1 (Bloomberg) -- Countrywide Financial Corp., the home lender acquired by Bank of America Corp., was sued by Greenwich Financial Services Fund over claims an agreement to reduce payments on mortgages by $8.4 billion would hurt investors.

 

The hedge fund claims investors will be harmed by Bank of America’s settlement, reached on behalf of Countrywide, with 15 state attorneys general. The value of trusts that bought 400,000 mortgages will decline under the deal, the fund said.

 

In the proposed class action, or group lawsuit, the Greenwich, Connecticut-based fund demands a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts,” David Grais, a lawyer for the fund said today in an e-mailed statement. Grais said Countrywide could owe $80 billion to the trusts.

 

“Countrywide plans not to absorb the $8.4 billion reduction in mortgage payments itself, even though it was Countrywide’s own conduct of which the attorneys general complained,” the fund said in the complaint filed today in New York State Supreme Court in Manhattan. Under the settlement, the mortgage lender would “pass most or all of that reduction on to the trusts that purchased mortgage loans from Countrywide,” the fund said in the complaint.

 

Bank of America reached the settlement in October with 15 state attorneys general. The bank didn’t admit or deny any wrongdoing under the accords. Shirley Norton, a Bank of America spokeswoman, didn’t immediately return a voice-mail seeking comment on today’s complaint.

 

374 Securitization Trusts

 

Grais said in his e-mail that the hedge fund is seeking a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts.”

 

Countrywide must change at least 50,000 mortgage loans between today, when its modification program starts, and March 31, he said. The lender has said it may modify as many as 400,000 loans, Grais said.

 

“We believe that the average unpaid principal balance of these loans is approximately $200,000. If so, and if the court grants the declaration we seek in this complaint, then Countrywide (and its parent Bank of America) would be liable to pay the trusts approximately $80 billion for the loans it modifies,” he said.

 

The case is Greenwich Financial Services Distressed Mortgage Fund 3 v. Countrywide Financial Corp., New York State Supreme Court (Manhattan).

 

To contact the reporter on this story: Patricia Hurtado in Manhattan at pathurtado@bloomberg.net

Last Updated: December 1, 2008 14:52 EST

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FanFred’s NEW PLAN Keeps Borrowers Underwater in Neg-Am’s & Teasers

Posted on November 11th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

 

The great new and improved big plan to save the housing sector involves giving 40-year terms, adding balances to the end of the loan and offering teaser rates. IT WAS THESE EXACT PRACTICES THAT GOT US HERE IN THE FIRST PLACE! They were called ‘interest only’ and ‘Pay Option ARMs’.

 

This ‘new’ program is nothing new at all. It is simply an aggregation of a bunch of stuff brought forth previously that just makes everyone renters. The government’s new plan of reducing rates, extending terms and allowing negative amortization is being done primarily to keep borrowers from walking and renting by competing with rentals.

 

Why walk from your home when you can essentially rent your own home for the same? That is what the government is banking on. But in doing this the borrower stays underwater and highly leveraged. Its sad when it takes reducing rates to 1-2% to get the borrowers to be able to afford their mortgage. It highlights just how over-leveraged the housing system is. If this new program is widely adopted and successful, it ensures lost future DECADES for housing.

 

This new plan certainly does not instill any confidence in new buyers because it makes everything much more opaque. It makes true valuations much more difficult to derive.

 

This plan does not solve the problem - that home owners are hopelessly underwater and over-leveraged to their home. They can’t sell or refi. In turn, they are making a wise financial decision and walking away. Negative equity cuts across all loan types and borrower demographics.

 

Another main problem is that the borrowers have to produce income documentation. Remember, in the Alt-A universe 83% of all loans were limited documentation (stated income). In the Subprime universe 55% were stated income and in the Prime world, some 35% were limited documentation. How many that lied on their original loan application will be willing to give the real information now?

 

Additionally, by the time borrowers have missed so many payments they have been beat up by the lender for months. Many just give up and don’t care anymore. You would be surprised how hard it is to get borrowers to help themselves even with massive principal balance reductions, which are not being offered through the program to the best of my knowledge.

 

It is impossible to quantify, but I still maintain that programs that do not address the root problem will promote bad behavior by good borrowers looking to benefit. There are millions underwater in their property perfectly able to make their payments that may chose to default as a means to better their balance-sheet.

 

Today’s hype was just that…a non-starter ’solution’ that ultimately turns home owners into leveraged renters because banks refuse to reduce the principal balance. Until principal is waived for good, no solution will work.

 

I highly urge you to read the two posts below regarding the terrible solutions being brought forth by the government. - Best, Mr Mortgage

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