Radian Confirms: rising home values is lowering claims cost
It has been a theory often talked about, rising home values will lower claims for mortgage insurers but, we lacked tangible proof of that axiom. Well guest what?, It now happening.
At Earnings Conference on February 11th for Radian, the president, SA Ibrahim stated that their average claim fell by around $3000 in Q4. Reason was rising home values cut claims cost in two ways:
1. Rising home prices cause homeowners to try harder to fight foreclosure by making payments through other sacrifices.
2. Rising home values receive better prices when sold, thereby lowering the claim amount. Radian said their average fell by around $3,000 in Q4.
Count on MGIC saving money too on claims going forward and in Q4 2012.
Formula for analyzing home appreciation affect on claims looks this:
Home price appreciation 8%. Multiple 8% times incurred losses and subtract that amount from incurred losses. Since there are four quarters in a year, take the result and divide by four and repeat the process four times to account for exponential effect of the reduced incurred losses.