Private Mortgage Insurance Today

Presented by:

Susie Avery – United Guaranty

Mike Kull – Mortgage Guaranty Insurance Corporation

Private Mortgage Insurance – Industry Overview

Current market conditionsHow is MI fitting in and helping out

(purchase through servicing)Private MI vs FHA as a purchase optionSolutions available for buyersHow MI is assisting homeowners in defaultProposed regulation and the future of private

mortgage insurance

U.S. EconomyRecovery continues to be weak, with fear of

another dipUnemployment rate continues to be high,

along with under-employed and those who have given up on looking for employment

Private sector job creation is sluggishHome sales are down from 2010Home values continue to dropBorrowers continue to struggle with making

payments

Indiana StatisticsUnemployment rate at 8.7% in August vs 9.1% for

the entire United States (US Bureau of Labor Statistics 9/16/11)

Employment down 28,300 from 7/10 – 7/11 (US Bureau of Labor Statistics 9/2/11)

Home sales in Indiana this year, through July, are down 8.5%, with pending sales down 10.5% and new listings down 11.5% (Indiana Association of REALTORS)

2nd quarter home sale prices in Indiana fell 1.33% from a year earlier (Federal Home Finance Agency 8/24/11)

Indiana Statistics (cont’d)Past due mortgage payments as of the 2nd

quarter include:9.51% of all loans (FHA 13.3%)4.56% of all loans are 30 days past due (FHA

6.3%)3.35% of all loans 90 days or over (FHA 4.69%)Foreclosure inventory stood at 4.86% of homes

(Mortgage Bankers Association 8/22/11)

Housing AffordabilityAt near all-time highs (National Association

of REALTORS) with rates at historic lows (Freddie MAC)

1.2m – 1.4m new households projected to be formed annually between 2010 – 2020

Minorities will account for 70% of this growth

Persons born between 1979 and 1994 will account for the majority of growth

Private MI Market AssistanceConstantly reviewing housing and delinquency

data and adjusting guideline and pricing modelsWorking with and educating lenders nationwide

to improve home purchase and refinance options and consumer education

Adding to staffing to help lenders and consumers nationwide with mortgage delinquency challenges

Advocating at both the national and state levels of government for informed legislation and regulation of the mortgage industry

Private MI Market Assistance (cont’d)

50% of every premium $ set aside for claimsHistoric support of housing market with

claims paid:$6B in the 1980s$8B in the 1990s$22B paid since 2007 with expected total of

$30B!Private mortgage insurance is private capital,

not taxpayer $$$!

FHA 2010 FHA statistics:

Accounted for 40% of all originationsInsured 1.1M homeowners40% of FHA loans were 95% loan-to-value or

greater70% of FHA borrowers invested their own

funds as down paymentThe average FHA purchase price was $167,782

FHA Insurance FundTarget of 2%Fell to below .5% in 1st quarter of 2011

Private MI Advantages vs FHAPrivate MI companies want market share

increase while FHA wants to pull backMortgage insurance cost is lessFlexibility in premium options and structureLower or comparable monthly paymentIncrease in equity, not the loan amountOpportunity for MI cancellation earlier (as

little as 2 years vs 5 for FHA)

Private MI vs FHA (cont’d)FHA offers few options for payment of

premiumWith FHA, credit scores do not impact

pricing, only loan-to-valuePrivate MI has many different options as ‘one

size does not fit all’Consumers should ask lenders questions as

to options available and best fit for them

Private MI Assistance in Default Situations – Private MI Loans

Not interested in owning properties!Works primarily with lenders as they are the

insured partySignificantly increased loss mitigation staff in

recent yearsPre-purchase education for prospective

homeowners, including on-line, for default prevention

MICA web site for education tools at www.privatemi.com

Proposed Regulations Impacting Private Mortgage Insurance

Qualified Residential Mortgage (QRM)

Qualified Mortgage (QM)

Qualified Residential MortgagePart of Dodd-Frank Bill8 months to prepare and 360 pages longMinimum 5% retention risk by lendersNarrow definition that includes; 20% DP on

purchases, 25% equity in refi. and 30% cash-out refi., 28/36% ratios, 0 x 60 in last 24 mos., fully documented, and, no ARMs or interest –only

As written, significant impact on mortgage availability

Fannie Mae, Freddie Mac are exempt until no longer supported by gov’t., along with FHA and VA

Qualified MortgagePart of Dodd-Frank BillRequires lenders to verify and document

income, Tasks the CFPB to issue regulations covering

the originator confirming the borrower’s ability to repay, that they did not steer a consumer to the loan they chose outside of a QM, and, prohibits originator from engaging in abusive or unfair practices that promote disparities among consumers of equal credit worthiness

Private MI Going Forward

Larger share of the market with FHA wanting to reduce their share

Over $250B in capacity to serve the needs of the US housing market

Evolving products and pricing to service new market(s)