Special Report: Mortgage Insurance

eLenders take great pains to make sure that "bad" loans don't get in the door. Underwriting, coupled with sophisticated credit and behavioral scoring technology, allows the mortgage industry to assess default risk and set appropriate rules about what loan applications should be funded. But try as lenders might, some loans do go "bad." Usually its because loan applicants who had reasonable credit strength at the time of loan origination have suffered a setback. And in some cases, underwriting rules have been eased in an effort to boost homeownership rates. But no underwriting team can prevent every weak loan application from getting funded, and so foreclosures and the associated credit losses, will always be with us.

The private mortgage insurance industry, which complements with government mortgage programs at the Departments of Housing and Urban Development and Veterans Affairs, helps to make it possible for households to buy homes with less than a 20% downpayment. In the event of default, the MI firms provide the first line of defense by taking the first losses on the loan. And the private MI firms are not playing second fiddle to the government programs. Last year, private mortgage insurance accounted for about 60% insured mortgages that were originated.

And the industry is stronger than ever before by a wide range of financial measures. Despite paying $9 billion in claims during the 1990s (see page 24), the industry enters the 21st century poised to continue expanding homeownership opportunities.

But the industry does face challenges. The refinancing boom has diminished the "persistency" of policies-in-force. And the industry continues to be concerned about the possibility that government sponsored enterprises or other entities might try to encroach upon their profitable turf.

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