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More MI Cures Than Defaults For the Third Straight Month

It might be too early to tell if it is a trend, but three consecutive months where the mortgage insurance industry reported more cures than defaults is still good news.

According to the Mortgage Insurance Cos. of America, there were 66,170 cures and 60,656 defaults in April for a cure/default ratio of 109.1%. In March, the ratio was 123.4% and in February it was 117.6%.

While unable to share specific information regarding its May numbers as of press time, S.A. Ibrahim, chief executive at Radian, said that in a broad sense the company is encouraged by the trends it is seeing on cures and defaults.

A real encouraging sign, he said, is what has been happening in regards to loan modifications, where sources have been reporting servicers and even the government-sponsored enterprises are now doing modifications where the borrower is in a stronger position than what is required as part of the government's Home Affordable Modification Program.

While he is encouraged by the near-term trend and that augurs well for now, in a typical year, seasonally the fourth quarter is one that is "more challenging" in terms of defaults, Ibrahim noted.

However, this year has broken the trend of what has been occurring with the mortgage insurance business over the last two or three years, "but it is hard to extrapolate a trend," he continued.

It is still a "month-to-month thing, but it is going a little better than we expected."

In terms of reserves that mortgage insurance companies have been taking against future losses, Ibrahim noted it is too early to say what effect the improved cure/default ratio will have.

There are still issues with high unemployment.

Plus, while home prices have stabilized in most markets, there still are a few where they are declining.

In an interview conducted after the release of the March MICA numbers, Ron Joas, the sector lead analyst for Standard & Poor's, said one way of looking at things is that the private mortgage insurers are in a better position now than where they were after the first quarter of 2009.

There are signs of stabilization in housing prices (although there might be a mild decline through the middle of the year) and it seems like unemployment rates have stabilized as well.

In the earnings releases for Radian, PMI Mortgage Insurance and MGIC, there are indications that their delinquency inventories are going down, and that new notices of delinquencies are being outnumbered by the new cure notices, echoing the MICA data, which covers the mortgage insurance industry as a whole.

When the February MICA numbers first came out, Joas said people were waiting to see if more data would confirm that turn in the cure/default ratio.

The March numbers seem to indicate this is the case.

Ibrahim noted that people should be prepared to see some "zigzags," as improvement usually does not occur on a linear basis.

An earlier sign that things might be getting ready to change is in a report just released from A.M. Best covering the entire property/casualty insurance arena in 2009, which noted that for the year there was a substantial reduction in underwriting losses for the mortgage guaranty sector.

Together with the financial guaranty sector, the reduction of approximately $10 billion in losses helped to bring the underwriting losses for the entire property/casualty area down from $16.9 billion in 2008 to $4.1 billion in 2009.

For these two sectors, Best said, in 2009, they collectively reported an underwriting loss of $4.8 billion.

That compared with an underwriting loss of $14.5 billion in 2008.

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