Radian Group Inc., the third-largest U.S. mortgage insurer, said Tuesday that homeowners who are able to pay their loans on time may purposefully default to force their lenders into renegotiating mortgages under government and industry programs.
"Some borrowers may voluntarily default to take advantage of certain loan modification programs currently being offered," the Philadelphia insurer said in its annual report filed with the Securities and Exchange Commission.
An increasing number of borrowers also are expected to purposefully fall behind on their payments, because declining prices are making their homes worth less than their mortgages, Radian said.
Last week the Obama administration introduced a modification program that would pay lenders for revising terms and cutting interest rates to as low as 2%.
Mortgage insurers have faced mounting losses in the past year, because a record number of homeowners have been unable to keep up with payments.
In response to tightened mortgage standards, some Radian policyholders with the best credit scores could refinance their loans to take advantage of lower interest rates, the company said.
Those borrowers might obtain loans that do not require insurance, canceling their policies, and that would leave riskier borrowers as a larger proportion of all policyholders, Radian said in the filing.
Until 2007 private mortgage insurance had been one of the most profitable types of coverage sold by insurers. From 2004 to 2006 members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar collected in premiums.
Auto insurers made less than 5 cents on every dollar in 2006, according to A.M. Best Co.
