Mortgage Insurance companies facing billions worth of claims

Although most attention turns towards homeowners and mortgage lenders during the housing slump, private mortgage insurance companies that insure the loans are facing billions in expected payout next year.

When a borrower puts down less than 20 percent on a purchase or refinances a loan about 80% LTV, they are required to carry private mortgage insurance, commonly referred to as PMI or MI. Mortgage Insurance protects the lenders, and MI companies are forced to pay the lenders when a borrower misses a payment.

MGIC, which has $196.6 billion in policies written, isn’t expecting to be profitable until at least 2009. So far this year, MGIC has paid out $586 million in claims and expects to pay out $875 million in total by the end of the year. Next year, MGIC expects payouts to rise to between $1.2 billion and $1.5 billion, rougly doubling the $611 million paid out in 2006.

Industry experts aren’t worried about mortgage insurance companies like MGIC going out of business as insurers have cash reserves, often a threshold set by the individual states.

You can read more about mortgage insurance companies suffering at MSNBC.