Tags: Private | Mortgage | Insurers | Seen | Brink | Meltdown

Private Mortgage Insurers Seen on Brink of Meltdown

Monday, 27 Jun 2011 02:00 PM

Think the United States is out of the mortgage meltdown? Think again, as providers of private mortgage insurance, who covered $700 billion in U.S. home loans, are battling a growing number of foreclosures and dwindling capital.

Big companies like MGIC, Radian and PMI are at risk, Barron's reports.

Those and other companies in the private mortgage insurance industry insure loans that allow buyers to purchase homes without making a full 20 percent down payment.

The policies cover the first 25 percent of a mortgage's value against default, plus accrued interest.

About $700 billion of U.S. mortgages carry these policies, Barron's adds, and a growing backlog of foreclosures is threatening to disrupt the industry.

"The three big monoline insurers — MGIC, Radian and PMI, which comprise 60 percent of the industry, according to research outfit Inside Mortgage — appear woefully undercapitalized to meet the claims that loom over the next couple of years, as defaulted mortgages residing in their inventories rumble through the foreclosure pipeline to eventual insurance payoffs," Barron's reports.

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(Getty Images photo)
Regulators are worried if such companies are undercapitalized, making them vulnerable to fresh shocks in the housing sector.

The Standard & Poor's ratings agency, for example, is keeping an eye on PMI, expressing concern about its capital levels, MarketWatch reports.

"We expect that in second-quarter 2011 PMI will breach the regulatory thresholds for writing new business, which regulators of 16 states have put in place," S&P analyst Miles Kaschalk says, according to MarketWatch.

The housing market continues to drag on the economy, especially as unemployment rates remain high and access to credit remains tight.

Even Federal Reserve officials say there is no clear end to the current period of sluggishness and uncertainty.

"Looking forward, I unfortunately can envision no quick or easy solutions for the problems still afflicting the housing market," says Federal Reserve Vice Chairman Janet Yellen, according to Bloomberg.

"Even once it begins to take hold, recovery in the housing market likely will be a long, drawn-out process."

There are just too many vacant homes out there, and with such a large supply with weak demand, the housing sector remains sluggish and so does the economy.

About 2 million homes were vacant as of the first quarter, and the Fed will do what it can to get the economy going again, Yellen says.

"For its part, the Federal Reserve will continue to use its policy tools to support the economic recovery and carry out its dual mandate to foster maximum employment in the context of price stability."

Fed Chairman Ben Bernanke has said that some of the hurdles facing greater economic recovery are temporary, such as high fuel prices.
Housing concerns, however, are threatening to stick around for while.

"We don't have a precise read on why this slower pace of growth is persisting," Bernanke said at a recent press conference, according to the Associated Press.

"Maybe some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector ... some of the headwinds may be stronger and more persistent than we thought."

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Think the United States is out of the mortgage meltdown? Think again, as providers of private mortgage insurance, who covered $700 billion in U.S. home loans, are battling a growing number of foreclosures and dwindling capital. Big companies like MGIC, Radian and PMI are...
Private,Mortgage,Insurers,Seen,Brink,Meltdown
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2011-00-27
Monday, 27 Jun 2011 02:00 PM
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