Competition Intensifies (Sorta) in Mortgage Insurance
Private mortgage insurance competition has picked up slightly as new players have entered the business. Emphasis on the "slightly" part.
New players have entered the field and are vying for lenders' business, but pressure on pricing is marginal.
“Despite the extreme competitiveness in the industry the pricing environment has been pretty stable," Radian's chief financial officer C. Robert Quint told attendees at the recent KBW mortgage finance conference in New York. "I think most of the mortgage insurance players know that if there's a widespread cut across the board, chances are there's going to be a matching of that and no one will ultimately benefit."
There is some downward pressure on mortgage insurance pricing, but not to the point where it threatens companies' profitability, says Gavin Magor, a senior financial analyst at Weiss Inc.
"There has been a little bit of price competition going on, which is good for the consumer, but not necessarily good for the bottom lines of the individual insurers. They don't seem to be concerned by that. They seem to think that there's plenty of room for them all to make some respectable returns," he says. “I don’t think it’s a war. There is calmness to it.”
No company's market share position has changed drastically, data from National Mortgage News' mortgagestats.com shows. One company gained five percentage points in the first quarter compared to a year earlier, another lost as much share, and that's as big a change as there was.
The No. 4 player in this category, Genworth Financial, was the five-point gainer. The company "made changes in our prices and guidelines to improve our competitiveness," in the second half of last year, says John Clifford, the senior vice president for commercial operations at Genworth MI.
No. 3 player Mortgage Guaranty Insurance Corp. and No. 5-ranked Essent Guaranty gained market share too, roughly a per apiece. No. 7-ranked startup NMI Holdings didn't started writing new mortgage insurance until April of last year, but it held about a 1% share of the market in the first quarter. The No. 2-ranked Radian's share slipped by roughly five points. No. 1 player United Guaranty and No. 6 ranked Arch Mortgage Insurance lost roughly a percentage point or so of their share.
“That's pretty much what we anticipated. The only surprise was the amount of growth at Genworth,” says David Lykken, managing partner of the consulting firm Mortgage Banking Solutions. “You look at United Guaranty and they're just such a dominant force in the marketplace. They're able to do things that no one else is on the product side. It's going to be very difficult to knock them off the pedestal.”
Magor advises also looking at measures beyond new insurance written, however, to get a more complete view of where the private mortgage insurance players stand. Rankings by direct premiums (the amount paid directly to the company rather than through a third party for coverage), for example, show the top still-active mortgage insurers stack up as follows: Radian Guaranty Inc., No. 1; MGIC, No. 2; United Guaranty, No. 3; and Genworth Financial, No. 4.
“There was some change in the past year, although the big companies definitely held the overall portion of the market," Magor says. "They ended up with around 79% of the market, but MGIC fell behind Radian in the second quarter of last year. I think the feeling is that United Guaranty could take second place ahead if they continued the way that they are had been in 2013 for 2014,” Magor says.
The increased competition pits new players’ advantage –a lack of legacy liabilities – against incumbent companies’ scale, he notes.
“The old-time companies are still trying to make up for their very poor performances over the last five or six years, whereas some of the newer entrants haven't had those major losses,” he says.
Newer players are having some success gaining market share by competing on things other than price. The Emeryville, Calif.-based National Mortgage Insurance, for example, reserves the right to rescind policies on certain loans for a shorter period of time than other companies.
“Our rescission relief period occurs after 12 months versus the standard 36 months typically seen in the industry,” says Pete Pannes, National's executive vice president and chief sales officer.
Because the new companies are still a long way from getting anywhere near the largest players’ leading positions, such moves are unlikely to put much pressure on bigger entities at this stage of the game, says Magor.
“I'm sure it's very profitable business they are writing. That can be very good for stockholders, but at this stage the big boys are not going to be bothered by whatever they do,” he says.