Posted on 07/16/2009 10:17:28 AM PDT by FromLori
This is REALLY BIG folks:
NEW YORK, July 16 (Reuters) - Mortgage insurer MGIC Investment Corp reported a wider quarterly loss and said it will stop writing new business as losses mount in the battered housing sector, sending its shares down 14 percent in premarket trade.
You basically cannot finance a home purchase with more than 80% LTV (loan to value) without private mortgage insurance - that is, insurance that covers the lender if you default and they take a loss.
MGIC (NYSE: MTG) is the largest issuer in this area. They said they will be "trying" to capitalize a new company to write this business, but their continuing losses - which, by the way, they said they thought they had under control last year after repeated flirtations with going under outright - has apparently forced this decision.
There is absolutely no way to read this as anything but an outright disaster for the housing industry.
We need to force lending back to 80% maximum LTV (20% down payments in CASH) and 36% DTI (debt-to-income) ratios maximum, but the housing industry has continued to rely on and demand access to money on looser (that is, more leveraged) terms.
The problem is that there's no way to do that and turn a profit, as MGIC continues to show. Between them and PMI, the other "big" player in this space (due to report in August) they provide the backing for these high-LTV loans - backing that is now disappearing.
Let me be clear: this sort of lending needs to go away, but essentially the entire thesis behind those who claim that we're "bottoming" in the recession and the housing market depends on the availability of private mortgage insurance so these loans can be funded, securitized and financed, including but not limited to funding by Fannie and Freddie.
Put a fork in the calls for a bottom to housing folks - we're going back to sustainable lending whether the Realtors Guild and Housing Crooners like it or not.
With the death of the "housing has bottomed" call will come an end to those who claim that the economy has turned. It may take an hour, a day, a week or a few months before these folks realize they were wrong, but there's no way around the conclusion given this set of facts.
Related
http://www.cbsnews.com/stories/2009/07/14/business/main5160228.shtml
New Home Appraisal Rules Prompt Backlash
Real Estate Industry Say New Rules Are Hurting the Housing Market
I believe the title should say Mortgage Insurance BUST! ( Boom implies growth — not when PI isn’t being written)
Impossible. Someone just told me on Free Republic that because of Ben Bernanke’s brilliance, we’ve averted disaster and the economy will start growing again this year.
Too big to fail!!!!
MGIC Investment Corp’s new ticker symbol will be USA.
Mr Bernanke please pick up the white curtosy phone....
This has personally affected me and my community by not making it worth adding onto my home as I wanted and not creating jobs for contractors, sub-contractors, building supply, etc... Real people doing real work are not because this. Now multiply this scenario thousands of times across the nation and see what the results are.
As Mark Twain said, “the news of my death is premature”.
In the case of MGIC, management is repeating the strategy they adopted the last time this happened (in the 1980’s), putting “old MGIC” into runoff (no new business), and capitalizing “new MGIC” to write new business.
See
http://www.rttnews.com/Content/BreakingNews.aspx?Node=B1&Id=1007058%20&Category=Breaking%20News
for details.
“Real Estate Industry Say New Rules Are Hurting the Housing Market”
More accurate would be to say, “new appraisal rules enable true price discovery for borrowers”.
The Realtors, loan officers, and builders don’t care if the borrower agreed to a price far above current market value. In the past, they’ve been able to strong-arm appraisers into “backing into” the sales price by threatening cutoff of more business, and game AVM valuations by using a “polling system” that gets multiple AVM valuation and picking the ‘best one’ (for getting the deal done).
It’s true that appraisers are either finding few good comparables in many cases (catch 22 - need sales to generate comparables, need comparables under the rules to generate sales - - - perhaps this aspect of the rules needs to be addressed), or being cautious in their comparable-based valuations, but both AVM and manual appraisals have large margins of ‘normal error’ that was not evident when the loan officers were free to game the system. Naturally, the “usual suspects” don’t like the change.
Good information, Geek. Thanks.
Zackly. Ahhhhgggg! Get out of my head!!!
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