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20 | Th e M Rep o RT cover story financial health as even with the reduction, FHA is projected to add $7-10 billion annually in new capital reserves. Genworth-CEO Gupta said he believes the FHA reduced their premiums too quickly before their capital is shored up. Gupta said the right level of capital for FHA is 4.5 percent. Even at 2 percent, he said it will take years for the FHA to rebuild to that level. It may be that investors will have to add more capital or that money will have to be taken from the Treasury, Gupta explained. In recent years, Gupta said, the private mortgage insurance industry has been raising capital to reduce the amount of capital taken from taxpayers. "However, the action of FHA in reducing the price on their mortgage insurance changes that trajectory," he said. "It makes it very difficult for private mortgage insurance companies to compete with FHA." MGIC CEO Sinks said that FHA played an important role in the housing crisis, stepping in to provide a source of funds in buyers' times of need. However, over a period of time, they have struggled. "They have increased their premium five times in five years," he said. "In the last few years, they have been operating below established minimum capital requirements." He added, "I was disappointed to see them decrease their rates at this point. I think they should have their capital in order first, and then they could go back to playing their traditional role in the housing finance industry." He explained that MGIC was founded as an alternative to FHA. "We would like to see us operate together, because we both want to put qualified low- to moderate-income homebuyers into a home." Radian CEO Ibrahim said that in the downturn around 2009, FHA represented approximately 80 percent of the share of mortgage insurance and private MI compa- nies represented 20 percent. At the present time, private MI companies represent approximately 60 percent of mortgage insurance and FHA represents 40 percent. "Everyone agrees that FHA should play a smaller role," Ibrahim said. Arch Mortgage Insurance CEO David Gansberg has similar thoughts. "The most important difference is that private MI companies are really standing in front of the taxpayers and protect taxpayer risks," he said. Arch Mortgage MI is unique in today's insurance realm, as it is one of the companies founded in the aftermath of the mortgage crisis. "Most loans with private mort- gage insurance (PMI) are being sold to Freddie and Fannie," Gansberg said. "If there is a default, PMI pays the claims and protects taxpayers." In contrast, he explained that with FHA, any loss in excess of the Mutual Mortgage Insurance Fund is borne by the taxpayers. In addition, Gansberg ex- plained that there is a differ- ence in the life and extent of MI premiums. "FHA mortgage insurance continues for the life of the loan," he said. "PMI goes away when the loan hits 78 percent LTV. With FHA, the borrower has to pay for the life of the loan." He feels that it's in- cumbent on the PMI industry to educate the public to understand who bears the risk. Companies That Survived Doing Well Today D espite the large amount of claims paid out, CEO Gupta said that Genworth is going through a turnaround and doing very well. "In 2013, we made $37 million, in addition to $91 million in 2014. So, we are coming out of the cycle, and moving in the right direction." He also said that Genworth's new delinquencies have been down 20 percent for the past three years, and the company's new books of business are performing well. "Loss ratios on newer books are in the 15 percent range," Gupta added. "Not only is our industry growing, we have increased our own market share. So, consequently, we are optimistic about our business and industry." MGIC CEO Sinks said his company is in very good shape as well. "We reported a profit in each quarter of 2014, which dem- onstrates a sustained profitability. Our biggest success, other than survival, has been our growth of market share in the last 18 months." He explained that dur- ing the crisis, MGIC bottomed out at 16.5 percent, but by the end of 2014, their market share hit 20.6 percent. In addition, he said the credit quality of MGIC's current book of business is outstanding. "It's Gansberg and Rhiannon Bolen, Region VP-South Region Field Sales, discuss Arch's sales initiatives.

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