Loan Modifications For Banks Could Mask Future Losses

NEW YORK -(Dow Jones)- Banks modifying mortgage terms for homeowners could actually undermine the banking industry's return to health by masking possible losses.

Historical evidence suggests that even when lenders modify mortgage terms for at-risk borrowers - cutting interest rates, principal or extending the loan's life - a hefty portion of those borrowers default within a year or two anyway. Besides, in many cases with subprime loans, so many borrowers had so markedly inflated their income status, that even a vastly modified loan still won't make it affordable for their true earnings.

Banks and politicians have been pushing the use of mortgage modifications as a way of keeping at-risk borrowers out of foreclosure. They hope that will stanch the steep nationwide slide in housing values. Loan modifications can also provide some accounting and earnings relief for banks, since lenders can re-list many modified delinquent loans as current loans, so long as the borrower resumes regular payments once the loan is modified.

Many industry officials say loan modifications will help a large number of borrowers avoid foreclosure, since banks are working to identify at-risk borrowers before they default. They are focusing intensely on borrowers of adjustable rates mortgages whose rates are soon scheduled to reset higher. Just two weeks ago, for example, JPMorgan Chase & Co. (JPM) disclosed that it prevented 250,000 home foreclosures since it started to actively modify mortgages in early 2007.

But loan modifications have shown a glaring historical weakness: According a 2007 Fitch Ratings report, 35% to 40% of borrowers default on their modified loans within 12-24 months. Research from Moody's Investors Service and other firms have found similar, albeit bleaker, statistics. Both the Fitch and Moody's reports collected information from mortgages that lenders sold to third-party investors via mortgage-backed securities, and those pools of mortgages include both prime and subprime loans.

Dr. Joseph Mason, a banking professor at Louisiana State University's business school, aggregated that data in a report last year that critiqued the practice of modifying loans. He puts the benchmark success rate for modified loans at 50% .

Mason says, furthermore, that there isn't yet evidence to suggest that banks will see lower re-default rates among mortgages sitting on their balance sheets, as compared to loans sitting in mortgage-backed securities.

"Unless we get into skewed outcomes," where bank-held loans outperform securitized loans, "or vice versa," he says, "then we wouldn't expect to see any difference."

But federal banking regulators, including the Federal Deposit Insurance Corp., and even Federal Reserve Chairman Benjamin Bernanke, have nonetheless been pushing banks to offer modifications to mortgage borrowers.

"The FDIC believes modifications should be systematic and sustainable," a spokeswoman for the FDIC said.

What's more, the FDIC is itself working to modify mortgages written by IndyMac Bancorp Inc. (IDMCQ), the California bank company that the FDIC seized in July - at the time, the largest bank failure in the nation's history.

"The modified (IndyMac) loans will be underwritten to an affordable debt-to- income ratio" of 38%, said FDIC Chairman Sheila Bair, in an August statement. That means the FDIC will modify IndyMac borrowers' loans in a way that a loan's monthly payments are equal to 38% of a borrower's monthly income.

But Mason cites research suggesting that borrowers substantially inflated their incomes in about 70% of loans, meaning it may be highly difficult to modify many loans in a way that reflects the borrowers' true incomes - as opposed to the incomes borrowers submitted on the original loan applications, often with the help of mortgage brokers or loan officers.

"If modifications are given to borrowers that are not well suited for homeownership in the long term," Mason writes in his report, "the loan modification only serves to delay the inevitable."

And yet, banks struggling with rising delinquencies may be able to use modifications as a way to re-list delinquent loans as current, and thereby disclose stronger balance sheets.

Some banks have undertaken conservative policies to ensure that modified loans are not re-classified as current loans, only to lapse back into default within months, and produce yet another spike in so-called "nonperforming" loans, or loans in default.

Both Wells Fargo & Co. (WFC) and Wachovia Corp. (WB) - which Wells Fargo is set to purchase by year's end - wait until borrowers have made six consecutive payments on a modified loan before they classify such a loan as current.

There is no specific requirement for how many payments borrowers must make before banks can re-classify a modified loan as current. While Wells Fargo and Wachovia have adopted decidedly conservative standards, banks are apparently free to adopt less stringent policies, and more quickly re-classify modified loans as current. Such practices could later produce a spike in reports of bad loan.

Lana Chan, an analyst at BMO Capital Markets, therefore says that loan modifications could "potentially be delaying the inevitable."

Taken from : http://money.cnn.com/news/newsfeeds/articles/djf500/200811181400DOWJONESDJONLINE000588_FORTUNE5.htm

Top 10 Things to Know About Life Insurance

Life insurance can be a great way to get protection for now and to plan for the future. After all, we want to make sure that our plans and loved ones are taken care of for as long as possible. Doing research ahead of time helps you get the best possible coverage at the right price. Here are some helpful facts and ways they can help you.
1. Shopping around can save money
2. Having enough coverage is crucial
3. The healthier you are, the better the rates
4. Buying sooner rather than later can help
5. It's important to regularly review your coverage
6. There are different types of life insurance
7. You might pay more by choosing monthly premium payments
8. You shouldn't rely solely on the life insurance offered by your employer
9. You should tell the whole truth and nothing but the truth
10. Buying more can be cheaper

MIB Life Index Reports North American Life Insurance Activity Off 1.8% in October

BRAINTREE, Mass., Nov. 11 /PRNewswire/ -- North American application activity for individually underwritten life insurance was down -1.8% in October year-over-year, according to the MIB Life Index(SM). Year to date (YTD) U.S. and Canadian activity remained stable off -1.9%, compared to the same ten months last year. October activity was up +2.5% over September 2008, in a range consistent for this period.

U.S. application activity declined -2.3% in October year-over-year, all ages combined. Consistent with past trends, age groups 0-44 and 45-59 were off -3.7% and -1.3%, respectively, with the 60+ age group up +3.2% year-over-year. At the close of October, YTD U.S. application activity remained stable at -2.4%, compared to the same ten months last year.

Canadian application activity grew slightly in October up +1.1% year-over-year, all ages combined. Activity by age group was contrary to U.S. results: 0-44 and 45-59 were up +1.7% and +1.2% respectively, with the 60+ age group off -3.0% year-over-year. Year to date, Canadian application activity remained stable at +1.8%, compared to the same ten months last year.

Monthly Percent Change vs. 2007 U.S. Canada Total October 2008 -2.3% +1.1% -1.8% September 2008 -4.4% +0.5% -3.8% YTD 2008 -2.4% +1.8% -1.9% Monthly Percent Change vs. Previous Month U.S. Canada Total October 2008 +3.0% -0.6% +2.5%

The MIB Life Index is the life insurance industry's timeliest measure of application activity across the U.S. and Canada. Released to the media each month, the Index is based on the number of searches life member company underwriters perform on the MIB Checking Service database. Since the vast majority of individually underwritten life premium dollars in North America include an MIB search as a routine underwriting requirement, the MIB Life Index provides a reasonable means to estimate new business activity

Taken From : http://www.insurancenewsnet.com

Emphasis: All-Weather Insurance Securitization

Insurance-linked securitization is becoming a reinsurance program option no longer dependent on major catastrophic events.

Insurance-linked securities (ILS) continue to grow in unexpected ways irrespective of recent major catastrophic events. In the past, ILS issuance spikes occurred immediately after large catastrophes, as witnessed post-Katrina/Rita/Wilma. However, even without significant events, the popularity of ILS has increased. What used to be an alternative to the hard-market pricing of traditional reinsurance is evolving into an integral part of overall reinsurance programs as cedents look for ways to diversify their overall risk management plan, lock in terms and conditions over multiple periods, and create access to long-term, stable capacity relatively unaffected by market cycle and systemic risk.

Intuitively, when reinsurers are strong and reinsurance is cheap, alternative sources of capital such as catastrophe bonds and other ILS structures may not seem necessary. However, although ILS issuance is expected to decline in the fourth quarter of 2008 compared to 2007, it remains at all-time-high levels. The up-front transaction costs and time spent bringing bonds to market require a commitment to longer-term strategic solutions as opposed to tactical responses to managing risk. Cedents should take advantage of the lower risk-transfer costs and other benefits of this alternative source of capacity.

16th Milliman Survey Indicates Health Insurance Rate Increases in 2009 About 3% Lower for HMOs than PPOs

SEATTLE, Nov. 18 /PRNewswire/ -- Results from Milliman's 2008 Group Health Insurance Survey indicate estimated premium rate increases for January 2009 renewals are 8.4% for Health Maintenance Organizations (HMOs) and 10.7% to 12.1% for Preferred Provider Organizations (PPOs). The PPO results were compiled for a high deductible plan and a standard lower deductible plan, respectively.

The reported annual increase in premium (July 2008 versus July 2007 assuming no changes in benefit or cost-sharing levels) was 9.7% for HMOs and 10.3% to 10.7% for PPOs.

The Milliman survey is unique in that it asks HMOs and PPOs to respond to a given set of benefits and demographics. The survey thus removes three important factors that often skew the results of other health cost surveys: differences in benefit design, cost-sharing levels, and member demographics. These trends, therefore, reflect the increase in medical utilization and costs experienced by the HMOs and PPOs.

The 2008 survey also reports that the average premium savings incurred by switching from a $250 deductible to a $1,000 deductible is almost 12% and over 20% by switching to a plan with a $2,000 deductible. "High deductible plans are an integral part of consumer driven health (CDH) plans, for which health savings accounts (HSAs) and healthcare reimbursement accounts (HRAs) are used to help cover the deductible and other out-of-pocket healthcare expenses," notes Doug Proebsting, co-author of the report. The survey shows continued growth in CDH plans, with respondents anticipating 6% of their premium income to come from these products in 2009.
The 2008 report includes premium rates and trends for medical and prescription drug coverage per survey responses. Milliman also provides hospital inpatient cost and utilization data, physician reimbursement levels, medical expense ratios, and profit levels from Milliman databases. The 2008 survey also addresses prescription drug costs, broker commissions, and progress toward implementing ICD-10 coding per survey responses. This marks the sixteenth year that Milliman has conducted the survey.

The survey was sent to HMOs and fully insured PPOs that serve the nation's commercial, large and mid-group employer market. About 40% of all eligible insurers typically participate in the survey. Results are provided by metropolitan area, state, region and nationwide. Results for HMOs and PPOs are shown separately when possible.

Milliman is among the world's largest independent actuarial and consulting firms. Founded in Seattle in 1947 as Milliman & Robertson, the company currently has 49 offices in key locations worldwide. Milliman employs over two thousand people, with a professional staff of more than a thousand qualified consultants and actuaries, including specialists ranging from clinicians to economists. The firm has consulting practices in healthcare, employee benefits, property & casualty insurance, life insurance and financial services. Milliman serves the full spectrum of business, financial, government, union, education and nonprofit organizations.

LTC Global Announces the Acquisition of United Insurance Group

MEDFORD, Ore., Nov 11, 2008 (BUSINESS WIRE) -- LTC Global, Inc. today announced that it has completed the acquisition of United Insurance Group Agency, Inc. (UIG), a life and health insurance agency based in Milford, Michigan, from Penn Treaty American Corporation. LTC Global also acquired UIG's three subsidiaries. UIG executive Robert McClellan joined the LTC Global group of companies in connection with the acquisition and will serve as Executive Vice President of UIG. John Chitwood will serve as President of UIG.

With 15 offices located throughout the United States, UIG is a leading national distributor of Medicare Advantage insurance products in addition to offering other senior market insurance products. The acquisition marks LTC Global's entrance into the Medicare Supplement and Medicare Advantage market. "We feel very fortunate to have the opportunity to add UIG's proven distribution models and national sales force to our existing platforms," said Thomas A. Skiff, Chief Executive Officer of LTC Global. "We believe in LTC Global's vision for UIG, and LTC Global's expertise in marketing Long Term Care insurance will greatly benefit both our career agents and our brokers," said Robert McClellan.

UIG will remain headquartered in Milford, and LTC Global anticipates that there will be no involuntary work force reductions in connection with the acquisition.

About LTC Global

LTC Global, based in Medford, Oregon, is a leader in providing capital, sales and marketing solutions to the senior market insurance industry. LTC Global maintains a strong North American presence in the marketing and distribution of Long Term Care insurance and other insurance-related products through its subsidiaries ACSIA Long Term Care, Inc., Gelbwaks Insurance Services, Inc., Senior WealthCare Insurance Services and United Insurance Group Agency, Inc.