Recent increases in Federal Housing Administration mortgage insurance premiums, plus its recent decision to require insurance on some mortgages for the life of the loan, are giving a much needed shot in the arm to the private mortgage insurance industry.
Officials of some of the largest PMI companies say their market share has been rising the past two years but has recently taken a sharper move upward in reaction to the FHA changes.
FHA has been steadily increasing its insurance premiums the past few years while rates on private MI have held steady.
“FHA has made a number of changes over the last few years that have made private mortgage insurance a better competitive product in the marketplace,” says Teresa Bryce Bazemore, president of Radian Guaranty Inc.
Previously, she said, only borrowers who could put at least 5% down could usually get a better deal with a conventional loan with PMI, while borrowers who could only put 3% down were better off going with an FHA loan. Now, she says, even borrowers who can only put 3% down may be better off going with PMI.
“Because of where the FHA is at we’re seeing more loans coming to us,” agrees Sal Miosi, vice president of marketing at Mortgage Guaranty Insurance Corp. “Borrowers who can put 5% down at lower FICO scores may be better off going with conventional financing because the combination of our premium and the rate the lender is charging is going to give them a more competitive monthly payment.”
That wasn’t the case two years ago, he said, when it usually made more sense for borrowers with high loan-to-value mortgages to choose an FHA loan.
PMI market share, or penetration rate, has been growing strongly since the first quarter of 2012, when it stood at 5.6%. That was up sharply from less than 3% in 2009 and 2010, when FHA controlled practically the entire market of high LTV loans after the housing collapse. In this year’s first quarter, by contrast, the industry penetration rate had risen to 7.8%, and Bazemore expects it to rise further to about 8.7% in the second quarter.
That increase, she said, “was directly attributable to the changes by the FHA,” adding that she expects the industry’s penetration rate to go up even more once the
The changes are also evident in each company’s respective book of business. MGIC said this week that new insurance written in the second quarter jumped to $8 billion, up nearly 36% from $5.9 billion in the second quarter of 2012 and the highest quarterly total in more than four years. For the first six months, new insurance written was $14.5 billion, up almost 44% from $10.1 billion for the same period last year.
At Radian, growth rates have been even more impressive. New mortgage insurance written grew to $13.4 billion during the second quarter, up from $10.9 billion in the first quarter and $8.3 billion in the second quarter of 2012. For the first six months, new insurance written totaled $24.3 billion this year versus $14.8 billion in the same period last year, a 64% increase.
The figures for both companies don’t include loans made under the Home Affordable Refinance Program; those loans are treated as loan modifications, not new business.
More recently, the FHA announced that it would require borrowers with loans it insures with loan-to-value ratios over 90% to maintain mortgage insurance for the life of the loan. Previously, the FHA permitted MI to drop off when the LTV fell to 78%.
By contrast, mortgage services are required to drop private MI on mortgages they service when the loan amortizes down to 78%, according to Miosi. In addition, he said, many servicers allow borrowers to request cancellation of PMI if they can demonstrate that the LTV on the loan has dropped to below 80%, either through property appreciation or amortization. Sometimes that might happen in a few years.
Under FHA’s new rules, borrowers with government insurance will no longer have that luxury, which should further incent borrowers to choose conventional loans with PMI.
“That to me is a pretty big tipping point” in favor of PMI, says Radian’s Bazemore. She said it was too early to tell how that change has affected industry market share versus FHA.
Going forward, Bazemore said she expects PMI market share to grow even further as the market shifts away from refinances to more purchase mortgages, irrespective of what FHA does.
“Historically we typically do three to four times better in terms of penetration in the purchase market than the refinance market,” she said.
George Yacik has been covering the residential mortgage business for more than 20 years and writes frequently for industry publications. He can be reached at gyacik@yahoo.com.
