Foreclosed Homes Down Builder and Insurer

by Donald Hanz on Foreclosure Crisis

The glut of foreclosed homes has clobbered not only homeowners and communities, but also home builders, mortgage insurers and mortgage lenders.

Two of these are Milwaukee-based MGIC Investment Corp., the country’s largest mortgage insurer based on policy sales, and Calabasas, California-based Ryland Group Inc., a home builder operating in 16 states that include foreclosure-battered states such as Nevada, Florida and Arizona.

MGIC fell by 15 percent in Wall Street trading on April 29 after it announced it needs additional capital to sell new mortgage insurance policies.

Curt Culver, chief executive of MGIC, said the company is working out its options with the U.S. Treasury and Wisconsin’s state insurance department. In the first quarter, MGIC registered a loss of $184.6 million, marking the seventh consecutive quarter the insurer posted losses as more and more foreclosed homes wiped out its funds.

MGIC said the cost of claims increased in the first quarter to $757.9 million as more foreclosed homes continued to be posted. As of March 31, 13.51 percent of mortgage loans were either delinquent or already posted as foreclosed homes.

MGIC lost a total of $2.19 billion from 2007 to 2008 and has started negotiating last year with U.S. Treasury officials about getting some of the government’s $700 bailout money to boost its capital.

MGIC said it spent over $2 to pay insurance claims for each premium dollar it received, a stark contrast to the estimated 35 cents it earned for each premium dollar between 2004 and 2006.

Similarly in the first quarter, builder Ryland Group lost $75.3 million after its revenue fell by 36 percent to $259 million. Orders for Ryland’s new homes dropped by 37 percent as bargain-priced foreclosed homes caught home buyers’ attention.

Ryland’s bank sale homes in the first quarter declined to $259 million, much lower than the total sales of $399.6 million in last year’s first quarter.

During the first quarter, orders for Ryland’s homes decreased to only 1,347 units, down by 37.6 percent from orders in last year’s first quarter.

According to the Census Bureau, sales of new homes across the country declined by 30.6 in March compared to March 2008, as home buyers and investors turned to bargain-priced foreclosed homes.

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