Will Traditional MI Regain Market Share from Piggybacks?
Mortgage insurers have been complaining for years about business they've lost to "piggyback" loans but their days of griping may be waning.
Thanks to rising interest rates - in particular on the short end - home-equity loans, a key component of piggybacks or 80-10-10 structures, are becoming more expensive, which means consumers are now finding a cheaper alternative in traditional mortgage insurance.
"We're absolutely seeing it," said Kevin D. Schneider, president of Genworth Financial's mortgage division in Raleigh, N.C. "Our traditional MI product is much more competitive now," he said, "and we're hearing more and more lenders acknowledging it."
Mr. Schneider could not offer any hard numerical evidence on an uptick in business, at least not yet, but he said many consumers with 80-10-10 loans are seeing or will soon face "sticker shock" as the home-equity portion of their low structure adjusts upward. He said some consumers will choose to refinance out of the loan into a first with private mortgage insurance.
According to figures compiled by Mortgage Servicing News, MI firms have been losing market share (as a percentage of originations) for years. In 1999, for example, MI policies covered 15.57% of all new loans written. In 2005, MI covered just 8.07%, a market share loss of almost 50% in six years.
MI firms have continued to earn millions each year but they have acknowledged that their growth prospects look much better overseas than in the U.S. With interest rates falling to historic lows in recent years, borrowing costs have been reduced - for both first and second liens. Using the tax deductibility status of mortgage interest, lenders have aggressively marketed 80-10-10 loans as being a cheaper alternative than PMI.
The MI industry is backing legislation that would make PMI payments tax deductible as well, which would give the product a boost. The bill's future is uncertain, but thanks to rising rates, MI firms are catching a much-needed competitive break.
Glen Corso, a top executive with The PMI Group, San Francisco, said, "I don't think there's any question that piggybacks are more expensive these days," but added, "I don't think there's any question that piggybacks have given us tough competition the past few years."
MORTGAGE INSURANCE - Policies-in-Force as a % of Residential Debt
(Dollars in billions)
The Policies-in- Total residential Policies-in-force
year force at yr-end debt in U.S. as a % of res. debt
2005 $ 732 $ 8,291 8.83 %
2004 $ 735 $ 7,664 9.59 %
2003 $ 755 $ 7,081 10.66 %
2002 $ 749 $ 6,305 11.88 %
Notes: Numbers rounded. Total residential housing debt includes all loans types and both first and second liens.
SOURCE: MSN/QuarterlyData Report. Questions? Email: Paul.Muolo
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