Lender Paid MI Use Could Benefit Because of QM

LPMI's market share is likely to grow after the QM rule takes effect. Credit: © Jan Engel - Fotolia.com

Lender-paid mortgage insurance could see an increase in share as fees for this product do not count towards the qualified mortgage 3% test, one of the larger underwriters of this product says.

With the upcoming implementation of QM, lender-paid mortgage insurance offers lenders more flexibility because the cost of coverage is built into the loan interest rate and is not counted in the points and fees cap, says a spokesman for United Guaranty Corp., one of the companies believed to be the top originators of this product.

In a LPMI policy, the lender obtains the coverage and then passes on the cost to the borrower through a higher interest rate in the loan. The policy cannot be cancelled, unlike borrower-paid mortgage insurance.

The benefit to the consumer is that there is a lower monthly payment when compared to borrower-paid monthly MI, the UG spokesman says.

UG did not reveal what percentage of its business comes from LPMI.

However, it is believed that 25% of total new insurance written is LPMI, with most coming from UG and Radian, which are also the two largest originators of single-premium MI and total NIW.

Based on reported NIW figures from the four publicly traded legacy MI companies, there was $43 billion of MI written in 3Q13, so over $10 billion of that should be LPMI.

Approximately 20% of Radianís 2Q13 business was LPMI, a spokeswoman says.

By being rolled into the rate LPMI gives a tax advantage to consumers, as it falls into the mortgage interest deduction, the Radian spokeswoman adds.

BPMI is currently tax deductible, but that deduction is set to expire at the end of the year, unless Congress acts to extend it.

Radian was created from the merger of Commonwealth Mortgage Assurance Corp. and Amerin. Amerin, created back in 1993, was the last de novo private mortgage insurer until Essent entered the business.

At first LPMI was the companyís sole product, amid much controversy from the rest of the industry. As a result, the secondary market required higher coverage levels for LPMI than BPMI. Eventually the coverage levels were equalized. Plus, Amerin decided it needed to offer BPMI as well to compete.

Meanwhile, other firms added LPMI to their product menu.

At MGIC, 10% of its business is from single-premium products. Three-quarters of that is LPMI, a spokeswoman said.

As for the rest of the MI industry, Genworth, as well as the two underwriters which entered the business after the housing crisis, Essent Guaranty and National MI, all offer LPMI. Essent did not wish to comment for this article and National MI is in a quiet period because of its recently priced public offering. Genworth did not respond to request for comment.

Comments (2)
Be wary of anyone that tells you LPMI does not affect points and fees or is QM friendly. If LPMI is offset by discount points, as is often the case for LPMI Singles, they will be counted toward the QM points and fees test. If LPMI is paid through rate you may create a higher priced mortgage loan that does not meet QM Safe Harbor thresholds. Depending on the lender, this could also create an issue.
Posted by KELLY R | Tuesday, December 03 2013 at 1:53PM ET
LPMI is rarely a better choice for consumers. Everyone likes the lower payment but in the long run this is not the best option. Due to QM this is likely the only option however. Unfortunate.
Posted by SHAWN V | Monday, November 11 2013 at 1:44PM ET
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