Why Isn’t the Govt Helping Mortgage Insurers?by Tim Manni
Why hasn’t Washington offered any aid to help the beleaguered mortgage insurance (MI) industry?
Lawmakers have thrown a bone to nearly every other sector of the housing and mortgage-related industries, but not to mortgage insurers. Especially at a time when credit requirements are so stringent and when most lenders are requiring a maximum downpayment, has not one lawmaker on Capitol Hill even considered propping up this industry that’s on the brink?
Note: MI policies help make low-downpayment mortgages possible since they help offset a lender’s cost of recovering the property if a borrower defaults. The inability to secure MI policies has crippled sales in some markets and for some types of properties since a buyer must come up with a 20% (or more) downpayment.
The industry is struggling so much so that the Standard & Poor’s Rating Service has put the seven mortgage insurers on watch for a possible downgrade (again). The firms seem to be doing worse than expected, according to the Wall Street Journal:
Analyst Ron Joas said S&P’s move reflects “our view that macroeconomic conditions may have become more difficult for the mortgage insurers since we last conducted an extensive review of the sector in April.” Then, the ratings company expected mortgage insurers were likely to report losses through 2010 and possibly into 2011, but that some mitigation of losses was expected to start in the second half of this year.
However, S&P said third-quarter results from MGIC Investment Corp. and Old Republic International Corp. “may be indicative of an elongation of the loss cycle, and that mortgage insurers are experiencing a sharper and more rapid transition of delinquencies into prime books of business than we expected.”
Why The Industry is Struggling
In what we classified as industry “on the rocks” last month, has turned into an industry on the brink.
The better part of the decade, MI has been an industry on its way out. Between the years 2003 and 2006, the increasing presence of piggyback loans — a loan structure that allows borrowers to finance a down payment by taking out a second mortgage — severely diminished MI’s presence and influence in the marketplace. Secondly, the housing crisis resulted in the failure of countless loans backed by MI. The combination of decreased market share and failed loans have crippled the industry.
MI is Worth Saving
We’re quickly being ushered into an era where private industry is vanishing from the mortgage and housing markets. Long-standing contracts are being broken (between first and second lien holders), and the old way of doing things is vanishing on account of the host of Federal programs and initiatives designed to save borrowers and preserve housing.
Is a lack of government support an indication that MI doesn’t fit into Washington’s future plans for the mortgage industry, or that lawmakers would prefer to see all low-downpayment borrowers use the government-backed FHA program?
If a viable mortgage insurance industry can reemerge, it would significantly help to ease some of the lending restrictions that are holding back the housing market. It would put more borrowers back into private markets, leaving FHA to serve a more “core” group of “needy” borrowers.
To us, mortgage insurance is a time-tested and important component of the mortgage industry. We’re just really perplexed to why no one in Washington has realized that yet.
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