Defaults on insured mortgages increase 30%

More American homeowners are missing mortgage payments, pushing defaults on privately insured home loans up 30 per cent last month from year-earlier levels, according to a trade group.

Borrowers more than 60 days behind rose to 58,441 in August, Washington-based Mortgage Insurance Companies of America said last week on its website.

The report bolsters data that show the worst US housing slump in 16 years may be getting deeper. Foreclosures set a record in the second quarter, according to the Mortgage Bankers Association, and last month lenders sent a record 108,716 notices of default, auction or repossession, RealtyTrac Inc. reported.

Fannie Mae Chief Executive Officer Daniel Mudd said yesterday the weakness will last beyond 2008, increasing credit losses.

"These defaults are a lagging indicator, so they're probably going to get worse from here," said Michael Darda, economist at Greenwich, Connecticut-based equity trading firm MKM Partners LP.

Mortgage insurers, which reimburse home lenders when borrowers don't pay, have stumbled in stock market trading as the record defaults increased claims. MGIC Investment Corp, the largest US mortgage insurer, lost about half its value this year.

PMI Group Inc, the second-largest, lost more than 30 per cent. Third-ranked Radian Group, the insurer whose acquisition by MGIC was scuttled, has fallen almost 60 per cent.

Lenders often require homeowners to buy private mortgage insurance if they contribute less than 20 per cent in cash for a home purchase. The report said 197,169 US borrowers used the coverage in August, 15 per cent more than in July.

Insurers are selling more coverage as lenders seek to lower their risk and make loans attractive to investors. Policies sold to homeowners surged 66 per cent to $23.8 billion last month over the year-earlier period, the mortgage insurance trade group said.

Delinquent policyholders who resumed paying on time rose by 11 per cent from July to 33,811, results that "appear encouraging" to Michael Grasher, analyst at Piper Jaffray & Co. in Chicago.

"While we expect investors remain guarded on the group, numbers out this morning do not reflect a level of risk commensurate with existing valuations" of some mortgage insurers, Grasher said today in a research note.

The trade group's report draws data from six of the seven US mortgage insurers, excluding Radian, which isn't an association member.