Home Builders and Mortgage Insurers Are Not Optimistic

While a hopeful nation looked on as President Obama took the helm, financial experts continued to tune in to the battered economy. The housing sector holds a prominent position in any discussion about the economy. As the new President entered his first official full day in office, the housing index for the first month of 2009 was published by Wells Fargo and the Home Builders Association. The survey canvasses nearly 420 builders in the housing industry for their opinions about how confident they are about their industry. The confidence indicated by the index decreased to a level not seen since the mid 1980s. Home builder confidence has been waning since May 2006. The credit crisis and economic downturn hit home builders particularly hard, due to the resulting rising home foreclosures and significant increase in the inventory of existing homes. Although mortgage interest rates are very low, demand for new homes is not expected to increase much in the coming year. Many housing experts do not expect the building industry to pick up until 2010. Some analysts think that a recovery is dependent upon government programs and policies to encourage qualified consumers to start buying again. The National Association of Home Builders, for example, is pushing for increased tax credits and a reduction in mortgage rates for consumers buying a home in 2009.
Builders are not the only ones predicted to have difficulty this coming year. Mortgage insurers, most notably MGIC, are not anticipating much profitability either. Mortgage foreclosures are anticipated to go up even more, which will reduce the bottom line of mortgage insurers who back those mortgages. Risky mortgage practices undertaken by many banks and investors came to head in 2008 and left many homeowners holding the bag of declining home values. Those practices offered subprime loans to consumers who were not eligible for traditional mortgages. Other consumers simply bought a home priced beyond their means, sometimes with an adjustable rate mortgage that has since reset, and are now struggling to make those mortgage payments. As a result, mortgage insurance companies like MGIC are paying out claims from lenders more and more as defaults rise. That is quite a contrast to just two short years ago, when private mortgage insurance was one of the most lucrative types of insurance offered by companies. Mortgage insurers like MGIC are hoping to utilize some of the $700B from the federal bridge loan to help them through 2009. President Obama has said that preventing mortgage foreclosures should be a priority in any plan to help boost the real estate sector.