Latest housing victim: Mortgage insurers

updated 2:46 p.m. ET Nov. 11, 2007

MILWAUKEE - 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.

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