TheMReport — News and strategies for the evolving mortgage marketplace.
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feature Insuring the Future The private mortgage insurance industry endured lending's shifting standards, remaining vital to housing finance through advanced adaptation initiatives, and companies with growing market share are leading the innovation of insurance through new practices and products. By Phil Britt A s the mortgage industry suffered through rising delinquent payments and outright defaults, the private mortgage insurance industry bore the brunt of increasing claims. As a result, PMI and Triad went out of business. Though it didn't go out of business, Old Republic subsidiary RMIC quit writing new policies. With little more than a handful of companies offering private mortgage insurance, the number of failures was high on a purely percentage basis, acknowledged Michael Zimmerman, SVP, investor relations at Mortgage Guarantee Corp (MGIC), the firm that in 1957 founded the mortgage insurance business. While there were a few failures during the downturn, there have been a couple new entrants to the industry as well–Essent and National Mortgage Insurance Corp. "During the economic crisis and the housing crisis, the industry took a lot of losses. Since then we have tightened up our lending guidelines quite a bit," said Bob Quint, EVP and CFO of Radian Guaranty, Inc., a wholly owned subsidiary of Philadelphia-based Radian Group, Inc. "Beginning in 2009, we started seeing higher credit quality and prices started going up as well." Radian also became more aggressive in building market share, Quint added. The company has grown from the mid-teens in terms of market share to about 28 percent as a result of diversifying its base from just a few large lenders to include a much larger array of mid-sized banks, community banks, and credit unions. The difference among the different insurers is becoming less noticeable, according to Mark Coupland, VP of business development for Loan Sifter, based in Appleton, Wisconsin. He added that lenders are more likely to review multiple insurance options than they once were. With more consistency among the insurance offerings, there is less risk for the industry as a whole. As a result, the competition among mortgage insurers centers more around service than price today, according to Coupland. Radian has expanded its service by expanding its sales force. The company laid much of the groundwork for its recent growth while the market was still soft, according to Quint. "It was part of our strategic vision. Our CEO had the good vision to have Radian emerge as one of the leading players," he said. "It would have been easy to sit back and lessen the effort. But we increased the effort and the sales force. We wanted to come out with a strong market position." There is still some overhang from the mortgage industry losses from the last few years, Quint said. Yet he and Zimmerman say the worst is over, though it is taking private mortgage insurers longer to replenish their capital base due to the slow nature of the economic recovery. "Our capital levels are lower than they were," Quint said. "We will rebuild those capital levels over time." Genworth Financial, Inc., is also pursuing a strategy to strengthen its financials. The company announced in January a comprehensive U.S. mortgage capital plan that, when implemented, "would reduce Genworth Mortgage Insurance Company's [GMICO] risk-to-capital ratio by 12 to 15 points, decrease the likelihood that the company's mortgage insurance subsidiaries would require additional capital for the foreseeable future, ensure the continued ability to write new business, and reduce the risk of default." Genworth is contributing $100 million to GMICO as part of the comprehensive capital plan, with the transition of funds expected to occur in the second quarter. The company anticipates the plan to reduce the combined risk-tocapital ratio by 8 to 10 points. The private mortgage insurance business is getting some business as a result of the FHA strengthening its financial requirements, according to The M Report | 27