TheMReport — News and strategies for the evolving mortgage marketplace.
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TH E M R EP O RT | 13 challenge where mortgage insurance comes into play. High loan production costs have already driven several major lenders to an- nounce cutbacks. But new technologies in mortgage insurance, such as risk-based pricing, are taking hold and have been found to help both lenders and borrowers save money. While the challenges the market faces next year are significant, they aren't insurmount- able. My personal belief is that the American Dream of homeownership is very much alive and well. M // How is the concept of risk-based pricing changing the way mortgage insurers operate? MERKLE // Compared to traditional rate cards, risk-based pricing enables mortgage insurers to compete more effectively on price based on the specific characteristics of each loan. Given recent advancements in loan origination system technology, these new pricing engines can also be embedded nicely into a lender's platform. Most importantly, perhaps, is that a risk- based pricing approach creates savings. For ex- ample, our Rate GPS pricing platform assesses a far greater number of loan variables than rate cards allow—such as credit scores, LTV, and DTI ratios, and other loan and borrower characteristics—to more precisely calculate the appropriate insurance pricing. Overall, the shift toward risk-based pricing is great news for the long-term health of our industry and will provide the best rate for the borrower. M // How did the past financial crisis shape today's mortgage insurance industry? MERKLE // The financial crisis changed our industry for the better. Insurers struggled dur- ing the crisis because they didn't have enough capital to pay claims. That issue ultimately resulted in the Private Mortgage Insurer Eligibility Requirements capital framework that exists today. Because mortgage insurers are now required to hold a certain amount of capital, they'll be much more capable of weathering a future economic downturn. That's a pretty obvious example. A less obvious outcome of the crisis was that it paved the way for a newer, more inno- vative approach to private mortgage insurance. We weren't around during the crisis—National MI launched in 2012 and insured its first loan in 2013 during the economic recovery period— but we incorporated the lessons learned from the crisis to come up with a new approach. A shift in the industry to the full documentation of loan files was another important outcome of the crisis, and it's one that National MI fully supports. No one in our industry wants an- other crisis. We're all in favor of putting bor- rowers in homes they can afford, not homes that are beyond their means. MDWELL The Best and Worst Metros for Homebuyers Which cities score top marks on the affordability scale for first-time homebuyers? P ittsburgh, Pennsylvania is the most affordable city for buyers looking to purchase their first home, according to a study by the American Enterprise Institute's (AEI's) Center on Housing Markets and Finance. The study ranked the affordability of 50 metropolitan regions in the U.S. for first-time homebuyers by using the ratio of home prices to incomes. The study also factored in the square footage and the price per square foot of living area. The study found that median first-time homebuyers bought homes that were worth 3.3 times their household income. While the 10 most affordable cities had an average ratio of 2.6, the 10 most expensive ones had an average ratio of 4.3. The study also revealed that house prices and incomes were higher in the 10 least affordable cities compared with the 10 most affordable ones, even though homes for first-time buyers were similar in size across the country. It also found that while afford- ability had remained relatively constant in the most affordable metros, it had worsened in the cities that were ranked among the least affordable ones. 10 MOST AFFORDABLE CITIES* City Median First-Time Buyer Price to Income Ratio 1. Pittsburgh, Pennsylvania 2.3 2. Cleveland, Ohio 2.4 3. Cinncinati, Ohio 2.6 4. St. Louis, Missouri 2.6 5. Columbus, Ohio 2.7 6. Detroit, Michigan 2.7 7. Milwaukee, Wisconsin 2.7 8. Oklahoma City, Oklahoma 2.7 9. Houston, Texas 2.7 10. Indianapolis, Indiana 2.7 10 LEAST AFFORDABLE CITIES* City Median First-Time Buyer Price to Income Ratio 1. San Jose, California 5.0 2. Los Angeles, California 4.6 3. San Francisco, California 4.6 4. San Diego, California 4.5 5. Denver, Colorado 4.1 6. Salt Lake City, Utah 4.1 7. Seattle, Washington 4.1 8. Portland, Oregon 4.0 9. Riverside-SB, California 4.0 10. Sacramento, California 4.0 * According to the AEI Center on Housing Markets and Finance's "Ten Best and Worst Metro Areas to Be a First Time Homebuyer."