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PMI Trends Reveal Strength Among Mortgage Lenders

Posted by  on May 21, 2009
 

Mortgage market analysts have found good news in an often-overlooked economic indicator: the number of MI payouts triggered by foreclosure or default. Private mortgage insurance reduces risk for banks that underwrite home loans for borrowers with down payments of less than 20%. MI policies paid out to banks at record levels in 2008, helping to cushion the blow caused by customers' rising mortgage defaults. Recent news reports highlight three trends among MI providers that suggest a return to stability in the home loan marketplace:

Private mortgage insurance payouts were less than expected in Q1 of 2009. One of the largest providers of MI policies reported year-over-year losses amounting to a third of the amount reported for the same time in 2008. According to analysts, these results indicate that many of the companies' most risky policies have already cycled through the system.

Leading MI providers have stopped hoarding cash. Just as major banks have scoured the globe for capital, insurance companies have turned to investors to help cover the cost of paying off MI policies. 10Q reports and other government filings indicate a slowdown of capital accumulation among the largest private mortgage insurance providers, suggesting that insiders feel more confident that payouts will decrease in the short term.

Government mortgage modification programs may pump new capital into the MI industry. Many government-backed refinancing deals will require MI, ensuring a stream of premiums to stabilize the sector. Because the Obama administration's programs favor borrowers with long term mortgages, these new MI policies will carry far less risk of default than agreements made during the subprime home loan surge.

Though homeowners try hard to avoid the extra expense of MI in their home loan deals, this good news from the insurance sector underscores the importance of risk management among mortgage lenders. These trends also reveal the impact of more stringent underwriting guidelines, forcing prospective borrowers to document income and credit history in more detail than in previous years.

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