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January 12th, 2010

Mortgage Insurance Industry Making Do On Its Own?

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We’ve been following developments in the mortgage insurance (MI) industry for a while now, documenting the reasons why the industry has practically disappeared from the marketplace, questioning why it wasn’t being assisted to a greater degree by the government, and declaring that mortgage credit conditions won’t improve without the resurrection of MI.

About four months ago we, along with National Mortgage News (NMN), thought that billionaire investor Wilbur Ross’s interest in United Guaranty Inc (UGI) was a sign that, among other things, the private market was once again gaining an interest in the mortgage market.

Late last week when we first read that any possible deal between Ross and UGI was axed, it was easy to think that perhaps the MI industry was even worse off than we thought. Yet, NMN’s Paul Muolo is back on the case, writing that the reason behind the failed deal may be that “the mortgage insurance industry isn’t looking so gloomy after all…”

Muolo concluded an article in NMN yesterday — titled “MI Prospects Get Better” — by suggesting that now may be a great time for the private market to jump back into the MI market (from NMN — emphasis added):

Why get into the MI business now? The answer is simple: Because of the mortgage/credit crisis, strict underwriting of all mortgages is the norm. Any loans funded in 2009 and beyond will be considered “pristine” with delinquencies considered highly unlikely. It’s no wonder why Mr. Ross wanted into the business. But that’s only part of the story. From what I’m told, the head of AIG finally looked at the details of the Ross/UGI deal and came to the conclusion that as bad as its “legacy” book of business is ($127 billion of policies-in-force) that going forward, new premiums might lead UGI out of the desert. As one MI veteran told me, “I think we’re on the other side of the wave now.”

MI firms still have a very long way to go if they want to recover lost market share and become vital again. With FHA’s less-stringent guidelines, borrowers have taken to lower downpayments. However, it may be possible, just a Muolo alluded to, that today’s tight lending restrictions could be the very thing that could propel them back to relevance.

Note: We wrote a post back in October in which we asked “Why hasn’t Washington offered any aid to help the beleaguered mortgage insurance industry?” According to NMN, some of the Federal aid that was offered to global insurer AIG trickled its way down and help prop up their MI division. “It’s safe to assume that if Uncle Sam hadn’t bailed out AIG, UGI would’ve closed its doors,” wrote Muolo.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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