There is an ominous being, creator of all in my world. Call him my Boz. Or -by no means after the fashion of men in their projection of themselves onto their ideas of greater power, which only a heretic would attribute to a nature that makes it difficult to conceive of anything better than one's self- I'll just call him Tapley.
Tapley -since we are done with philosophy- spoke with Steve Smith -head muckity muck at PMI- for a handful or two of minutes in early March. At that time, he told the CEO of PMI he had compiled MICA cure rates since 1989 and noticed that the late 80's and early 90's were all above 100 percent as interest rates came down (until 94) and the economy and real estate markets rebounded. He then asked Mr. Smith if such rates could be repeated. Mr. Smith said -off cuff- that a repeat of such rate performance would require an unemployment rate 1 percentage point lower than consensus projections.
Here's the data Tapley referenced:
Period Cures Defaults Ratio
1989 231,505 218,693 105.9%
1990 237,408 219,983 107.9%
1991 232,598 223,442 104.1%
1992 229,647 207,352 110.8%
1993 212,944 200,776 106.1%
1994 251,182 249,292 100.8%
1995 257,201 285,265 90.2%
1996 297,950 327,629 90.9%
1997 337,067 360,038 93.6%
1998 351,438 383,041 91.7%
1999 207,313 218,565 94.9%
2000 298,534 374,754 79.7%
2001 399,003 471,159 84.7%
2002 499,719 562,860 88.8%
2003 512,127 568,315 90.1%
2004 433,657 517,560 83.8%
2005 408,189 517,900 78.8%
2006 415,101 519,834 79.9%
2007 411,845 624,076 66.0%
2008 516,838 884,231 58.5%
2009 686,353 1,091,960 62.9%
Well, here we are at the end of 2010. Unemployment has done anything but outperform this year and the MICA data virtually guaranty a better than 90% full year number. YTD the rate is 94.25%. Given the state of the labor and other markets, that's pretty darn good. And though it isn't above 100% I don't think Smith or many others would have expected such a high number given the backdrop.
I didn't post the Smith interview to question his expertise. He is an expert. And looking back at all the costly capital raising by his counterparts in the industry, they probably wouldn't have expected this good of performance either. Rather this is a great example of how pessimistic leaders, analysts, and investors have become. Pessimism and optimism play a big part in cycles. Our expectations determine the prices we will pay for assets as well as the earning power of those assets. Could they also reflected loss reserves? I think so. Who cares? Its all an interesting observation of human nature but otherwise I could give a shit. Until I consider the how that is just one factor that is a symptom and cause of the magnified pessimism focused on the private MI industry (and for that matter financial guarantee industry more broadly). That makes me care.
Update: YTD through Nov. here: http://tapleysbluedragon.blogspot.com/2011/01/ytd-privat-mi-cure-data.html
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