MI's Paid $9 Billion in 1990s

The nation's private mortgage insurance companies enjoyed strong financial health during most of the 1990s, but the industry still paid out over $9 billion in claims during the decade, according to the trade group that represents the industry.

In its recent fact book, the Mortgage Insurance Companies of America noted that while the industry faced financial stress during the decade of the 1980s, when MI companies paid out more than $6 billion in claims. During that era, adjustable-rate loans, an energy sector crisis, negative amortization loans and graduated payment increases stressed underwriting and MI pricing.

But changes that took place during the 1980s resulted in a much stronger industry during the 1990s, according to MICA. And the industry's volume of business grew throughout the 1990s.

As a result, the industry became financially stronger in the 1990s and remains so today, according to the trade group. The industry's combined ratio, which is the percentage of a company's premium income that it pays out in claims and expenses, declined from 1994 to 2000. And although it has edged up since that time, it remained below 50% last year.

And the industry's capital base continues to grow, according to MICA. Last year, the industry reported $16 billion of capital, for a risk-to-capital ratio of 11.03. That compares to capital of $10.8 billion in 1999 and a risk-to-capital ratio of 13.51.

Factors fueling that growth included increased low- and moderate-income lending, increased inner city lending, enhanced marketing efforts, single-digit mortgage interest rates, and greater public awareness about the availability of mortgage insurance, according to MICA.

In addition, banks and thrifts made greater use of MI as a credit enhancement to meet risk-based capital requirements. And trade-up homebuyers used MI to maximize their mortgage interest deduction.

New mortgage insurance written averaged about $40 billion annually between 1988 and 1991. The volume topped $100 billion in 1992 and has remained above that threshold ever since, MICA said.

In 2002, new MI coverage was written on $337 billion of home loans, a single-year record. While high prepayments created a "persistency" problem for insurers, the aggregate volume of insurance-in-force has continued to grow as well.

The growth during the 1990s has helped pave the way for a successful 21st century for the industry, the trade group said.

Generally, when a claim is submitted to a mortgage insurance firm, the insurer can pay the entire claim amount and take title to the property, recouping as much as possible from the sale of the foreclosed real estate. Or the MI firm can pay the percentage of coverage of the total claim amount stated and let the lender retain title to the property.

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