Losses Widen at Triad, as Paid Claims Jump

Mortgage insurer Triad Guaranty Inc. (TGIC), who put its portfolio into run-off in July after ratings downgrades, said Monday evening that it lost $160.1 million during the third quarter, or $10.69 per share. The loss came amid rising delinquencies and increasing paid claims on mortgages the company had insured; net paid claims rose sharply to $59.4 million in Q3, Triad said, versus $28.5 million one year earlier. “Our focus is now strictly on the efficient and effective servicing of our insured portfolio, particularly around loss mitigation,” said Triad president Ken Jones. “We continue to improve our processes in this area by examining and refining all aspects of our default management and claims process, including enhancing our processes for investigating potential misrepresentation and fraud in the mortgage commitment process.” Nearly every major mortgage insurer has suggested it will aggressively look to repudiate any insurance contracts over loans that it feels were subject to misrepresentation — primarily, according to HousingWire‘s key sources, nearly everything in the most recent Alt-A vintages. But for Triad, such close examination is the only way to generate a return for investors, so the company has been extremely aggressive in managing claims, our sources suggested. Interestingly, total insurance in force amounted to $64.3 billion at the end of the quarter, just a three percent decline from Q2; Triad cited “high persistency rates as reduced credit availability and declining home prices limit the opportunities for borrowers to refinance existing mortgages” as the key driver for such high persistency. But the trend underscores the problem now facing many borrowers in markets such as California, Florida, Arizona and Nevada — how to refinance, when no loan is available? Jones suggested losses in those four states were likely to rise, and led to 65 percent of the company’s $166 million increase in gross loss reserves during the quarter. Overall, delinquencies in the company’s primary insurance portfolio rose to 7.49 percent by the end of Q3; pool insurance delinquencies rose to 13.32 percent. That compares with 6.01 percent and 10.75 percent just one quarter earlier, underscoring just how fast delinquencies continue to rise. See chart, here, for delinquency histories at Triad. (For those unfamiliar with the insurance business, primary insurance is what you might expect, meaning first-dollar loss coverage up to some specified percentage of the total loan; in contrast, pool insurance offers similar loan-level coverage on a pool of loans, but caps exposure at some specified stop-loss level). Shares of Triad closed at 81 cents Monday; the stock has lost more than 90 percent of its value since January, as mortgage insurers have been rocked in the nation’s housing and credit crisis. Write to Paul Jackson at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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