Jan. 31 (Bloomberg) -- Defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, an industry report today showed, as the U.S. housing slump deepened to the worst in a quarter century.

The number of insured borrowers falling more than 60 days late on payments jumped to a record 64,384 last month from 46,921 in December 2006, according to the Washington-based Mortgage Insurance Companies of America. Defaults increased 5.5 percent from November, the prior high.

A surge in home foreclosures is sapping profit at lenders and the insurers that protect them from borrower defaults. Banks have reported $146 billion in asset writedowns and credit losses on securities linked to U.S. mortgages since the beginning of 2007, according to Bloomberg data. MGIC Investment Corp., the largest U.S. mortgage insurer, said fourth-quarter claims rose sevenfold to $1.3 billion.

``Serious delinquency rates -- those that go into foreclosure -- probably won't peak until early in 2009,'' said David Berson, chief economist at PMI Group Inc., the No. 2 mortgage insurer. ``This is a big housing decline. At this point it's looking as if when it's done it may be on par with the '81- '82 decline.''

Home Prices Fall

Home prices in 20 U.S. metropolitan areas dropped for the 11th consecutive month in November, declining 7.7 percent from a year earlier, according to the most recent S&P/Case-Shiller home-price index. Lower values hurt the ability of borrowers to refinance or lenders to recoup their investment in a foreclosure.

The number of delinquent insured mortgages that returned to good standing fell to 34,813 in December from 37,137 a month earlier, according to the report.

``The stress continues to increase on the mortgage insurers,'' David Havens, a credit analyst at UBS AG in Stamford, Connecticut said in an interview. ``It's going to be a tumultuous year.''

Foreclosure rates rose 75 percent in 2007 as a record number of adjustable-rate loans to borrowers with weak or limited credit histories reset at higher rates, according to RealtyTrac Inc.

The Federal Reserve yesterday cut its benchmark interest rate by half a point to 3 percent, eight days after an emergency three-quarter point reduction, as the central bank responded to the housing and credit crisis with the fastest easing of monetary policy since 1990.

Adjustable-Rate Mortgages

That won't help prevent a rise in monthly payments for the majority of adjustable-rate mortgages, which aren't classified as prime, said PMI's Berson, formerly the chief economist at Fannie Mae, the world's largest mortgage finance company.

``Most ARM borrowers will see a rate rise even with all this easing, just not as much,'' Berson said in an interview. The 7.5 percent average rate on subprime ARMs issued two years ago may reset to 8.5 or 9 percent instead of 10 percent, he said. Because subprime borrowers tend to have less wealth as well as income, they make smaller down payments, ``which means it doesn't take much decline in price to put the loan underwater,'' Berson said.

PMI, Radian

MGIC, based in Milwaukee, and its two largest rivals, PMI and Radian Group Inc. reported their first quarterly losses as publicly traded companies in the July-through-September period. MGIC, Walnut Creek, California-based PMI and Philadelphia-based Radian have all plunged more than 70 percent in the past 12 months.

Firms including Standard & Poor's and Fitch Ratings have lowered their claims-paying ability ratings for mortgage insurers or said they face possible downgrade. Lower ratings may force the companies to add to reserves for claims.

MBIA Inc., the world's largest bond insurer, said it lost a record $2.3 billion in the fourth quarter, after a slump in the value of subprime-mortgage securities it guarantees. The Armonk, New York-based company dismissed speculation it faces bankruptcy and said it has more than enough capital to avoid following No. 2 Ambac Financial Group Inc. and others in losing AAA credit ratings.

Even as losses mount, mortgage insurers' sales are climbing as lenders require more borrowers to buy the coverage. The association's members wrote 141,588 policies for homeowners last month, up 57 percent from a year earlier.

MGIC gained $1.26, or 7.4 percent, to $18.41 at 4:27 p.m. in New York Stock Exchange composite trading. Radian rose 8.4 percent, and PMI climbed 4.3 percent.

The trade group's data understate the total number of defaults as they are drawn from six of the seven biggest U.S. mortgage insurers, excluding non-member Radian.

To contact the reporter on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.net.

Last Updated: January 31, 2008 16:54 EST