Three mortgage insurers last week reported solid earnings gains for the third quarter, providing more evidence of the industry's resilience.
On Wednesday, PMI Group and CMAC Investment Corp. reported increases in earnings of 18% and 22%, respectively.
PMI is the holding company for PMI Mortgage Insurance Co., the nation's third-largest mortgage insurer. CMAC Investment is the parent of Commonwealth Mortgage Assurance Co., the fifth-largest.
Triad Guaranty Inc., one of the smaller insurers, announced Thursday that its earnings rose 40% on strong revenue growth.
These increases came on the heels of MGIC Investment Corp.'s announcement two weeks ago that its earnings rose 23% in the third quarter. The company's subsidiary, Mortgage Guaranty Insurance Corp., is the country's largest mortgage insurer.
The gains for PMI and CMAC were fueled by increases in premiums earned and insurance in force.
PMI's primary insurance in force rose 8% and premiums earned rose 25% since the period last year, while CMAC's primary insurance in force increased 23% and premiums earned advanced 37%.
Industry observers said the increases were expected, even though origination volume slowed somewhat in the third quarter.
Goldman, Sachs & Co. analyst Robert Hottensen said the sluggishness in originations was offset by a decline in refinancing. He noted that there has been an increase in default ratios, but that they were not unusually large increases.
PMI's default ratio - the percentage of insured loans in default - rose to 2.03% in the third quarter, up from 1.88% a year ago. CMAC's default ratio was 2.29%, compared with 2.08% a year ago.
In the case of CMAC, Mr. Hottensen said the higher rate of defaults can be attributed to loans for affordable housing programs CMAC undertook in 1994 and 1995. Default rates on these loans are about three times higher than those of an average loan.
But CMAC's reserve for losses increased 61% from last year's third quarter. Mr. Hottensen said the company is building reserves from what had been a relatively low level, and said that would help offset losses from defaults.
A day after releasing its earnings, CMAC announced that it would split its stock 2 for 1 and increase its cash dividend to shareholders by 20%.
