Comments on: Moody’s Warns on Bond Insurers’ Ratings http://blownmortgage.com/2008/05/14/moodys-warns-on-bond-insurers-ratings/ #1 Free Home Loan Modification & Debt Relief Help For US Home Owners - Truths, Facts & News About the Mortgage Industry Mon, 09 Nov 2009 22:42:54 -0700 http://wordpress.org/?v=2.8.3 hourly 1 By: morganb http://blownmortgage.com/2008/05/14/moodys-warns-on-bond-insurers-ratings/comment-page-1/#comment-12394 morganb Wed, 14 May 2008 18:40:03 +0000 http://blownmortgage.com/?p=1046#comment-12394 Toby - great point. In addition to a broken model, the companies didn't<br>respond fast enough to the change and continued making bets at premium<br>spreads that were out of touch with market realities. Toby – great point. In addition to a broken model, the companies didn't
respond fast enough to the change and continued making bets at premium
spreads that were out of touch with market realities.

]]> By: Toby http://blownmortgage.com/2008/05/14/moodys-warns-on-bond-insurers-ratings/comment-page-1/#comment-12393 Toby Wed, 14 May 2008 18:34:30 +0000 http://blownmortgage.com/?p=1046#comment-12393 The top 20% (actually about 18..5%) of any insured loan is effectively unsecured on the day the loan papers are signed. The average payout on a foreclosure is about 18.5% (before 2006 - near 20% now)) as this is the typical discount on a foreclosure. Sometimes the M/I company will take possession of a house and market it themselves (1 out of 34 before 2005), but none do that now. The problem with morgage insurance is that there are now too many claims and not enough premium. Its as if six times the number of people that normally get in a car wreck crashed their cars. No insurance model will work for very long without an increase in premiums.<br><br>The point is that the M/I model has always relied on a predictable number of claims. That predicition never considered a deep national drop in housing values. The top 20% (actually about 18..5%) of any insured loan is effectively unsecured on the day the loan papers are signed. The average payout on a foreclosure is about 18.5% (before 2006 – near 20% now)) as this is the typical discount on a foreclosure. Sometimes the M/I company will take possession of a house and market it themselves (1 out of 34 before 2005), but none do that now. The problem with morgage insurance is that there are now too many claims and not enough premium. Its as if six times the number of people that normally get in a car wreck crashed their cars. No insurance model will work for very long without an increase in premiums.

The point is that the M/I model has always relied on a predictable number of claims. That predicition never considered a deep national drop in housing values.

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