Mortgage Informer

American International Group Inc.’s mortgage insurance unit removed 45 geographic areas from its riskiest underwriting category, saying housing markets in those regions are improving.

The mortgage insurer, United Guaranty Corp., removed the locations from its list of markets where it says borrowers are more likely to default on loans, the Greensboro, North Carolina- based unit said yesterday on its Web site. United Guaranty also added two areas to the list of declining markets where it uses tighter underwriting standards on its policies.

“Some markets have begun to show signs of maybe reaching a trough,” Steve Buisson, a senior vice president at United Guaranty, said in an interview. “In general, we will see a very slow recovery, but more importantly, it’s the fact we are reaching the bottom on average. We still have a long way to go in some parts of the country.”

United Guaranty, which tracks nearly 400 U.S. markets, joins rival Genworth Financial Inc. in adjusting underwriting guidelines as some areas show signs of improvement. Housing prices in 20 U.S. cities rose 0.4 percent in October, the fifth straight monthly gain, according to the S&P/Case-Shiller Index. The October prices, the latest available, are 29 percent below their peak in July 2006.

Genworth Chief Executive Officer Michael Fraizer said in an October conference call that the company reduced underwriting restrictions in about 200 markets.

“As we saw conditions in many housing markets improve in recent months, we took appropriate steps to adjust our guidelines,” Fraizer said. “This change notably broadens where we will pursue new business and we expect it to help drive growth in new insurance written as we move into 2010.”

Unemployment, Home Prices

Mortgage insurers, which pay lenders when homeowners default and when foreclosure doesn’t recoup costs, tightened underwriting standards in 2008 to avoid backing riskier policies. United Guaranty created its declining markets list in February of that year as a growing number of homeowners were unable to meet mortgage payments. The insurer uses housing supply and demand, unemployment, home prices, building permits and other factors in evaluating markets, Buisson said.

The latest changes in United Guaranty’s list shows “there’s a growing confidence that we are seeing some bottoming in housing prices,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We’ve certainly seen the worst of it.”

AIG’s mortgage insurance unit has been unprofitable over the past two years on borrower defaults. New York-based AIG, which is selling units to repay loans in a $182.3 billion government bailout, has struck deals to divest mortgage guarantee operations in Israel and Canada.

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Tags: Mortgage, mortgage insurance