MReport September 2015 - Cool Under Pressure

TheMReport — News and strategies for the evolving mortgage marketplace.

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Th e M Rep o RT | 53 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ANALYTICS the latest Pmis Benefiting From economic growth, affordability, credit Quality pMIs have more than doubled their market share since 2009. U .S. private mortgage insurers (PMIs) are expected to continue benefiting from eco- nomic growth, good house price affordability, and strong mort- gage credit quality. According to recent report from Moody's Investors Service, PMIs have been positioned in a favorable housing finance environment that will allow them to reap the benefits in the industry, even if the Federal Reserve increases interest rates. "The growth in market share for US private mortgage insur- ers has been in an environment of exceptionally strong mortgage credit quality, and in many ways the industry is benefiting from a sweet spot in the credit cycle," said Brandan Holmes Moody's VP. "The current housing finance environment is as good as it will likely be for US private insurers in this cycle." Moody's named three key attributes of the housing environ- ment that it feels are the main macro factors that affect PMIs: 1) the demand for mortgage insur- ance; 2) the generic mortgage loan attributes; and 3) the prevailing housing market conditions. According to the report, since 2009, private mortgage insur- ers have increased their market share from 15.4 percent to 37.4 percent against government is- sued options from the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA). In a new report, Moody's said it expects GDP growth, improve- ment in employment, and pent-up demand for housing, will continue to support stable housing market conditions benefiting PMIs. Low interest rates and moder- ate appreciation in house prices have limited the negative risk on recent vintage business for many mortgage insurers, according to Moody's. Even with the Federal Reserve hinting of a rate increase before the end of the year, Moody's analysts determined an incremen- tal rise in rates would have limited impact on the PMI sector. "US private insurers have had limited downside risk as low interest rates have contributed to strong housing affordability," Holmes said. "While there will be negative pressures on housing markets when the Fed moves on interest rates, we expect such markets to withstand measured rates increase, as a the return to typical housing affordability levels will be met by a cyclical increase in demand for housing." The report also noted that since the financial crisis, PMI writing business is nearly ex- clusively in the prime, first-lien segment of the mortgage market, with almost all conforming origi- nations being made to borrowers with high credit scores. Boston leads Healthiest Housing markets; las vegas among the Weakest Lower down payments and higher rates of approval for consumers with average credit scores point to a normalizing housing market. m any housing markets are still finding their foot- ing following the unforgettable financial crisis and housing market collapse. Recent data from WalletHub titled, "The Health of the Housing Market in 25 Big Cities," written by Richie Bernardo found the housing market is a major driver of economic growth. "Although mortgages continue to saddle American consumers, who collectively owed $8.17 trillion in housing debt by the end of the second quarter of 2015, signs of economic improvement abound, thanks to real estate's resurrection," according to the report. The report analyzed 25 real estate markets in the largest metro- politan areas across 10 key metrics: equity levels, underwater mort- gages, precarious mortgages, down payments, financial freedom, mort- gage cost, easy mortgages, first-time homebuyer assistance, home equity lines of credit (HELOCs), and lump sum home equity loans. As of the first quarter of 2015, for instance, about 255,000 con- sumers had a bankruptcy nota- tion added to their credit reports, the lowest quarterly total since 2006. Foreclosure rates have also dipped to their lowest since that same year. In addition, lower down payments and higher approval rates for people with average credit scores indicate a growing housing market. According to the report, Boston, Massachusetts is ranked No. 1 overall with the healthiest housing market. Oklahoma City, Oklahoma follows in second with a healthy housing market. San Antonio, Texas; Northern New Jersey, New Jersey; and Hartford, Connecticut round out the top five cities with the healthiest markets. Minneapolis-Saint Paul, Minnesota; Tucson, Arizona; Orlando, Florida; Tampa-Saint Petersburg-Clearwater, Florida; and Las Vegas, Nevada finish up the list with healthy but weaker housing markets. WalletHub determined New York, New York had the high- est equity level at 47 percent. Boston, Massachusetts, had the second-highest at 43 percent and Rochester, New York and Northern New Jersey, New Jersey tied for third with a 38 percent equity level. On the other hand, Las Vegas, Nevada had the lowest equity level at 12 percent. The city with the lowest per- centage of underwater mortgages is Rochester, New York at 6.13 percent. Boston, Massachusetts (6.67 percent); Austin, Texas (7.29 percent); Oklahoma City, Oklahoma (7.32 percent); and San Antonio, Texas (9.08 percent) finish up the top five cities with the lowest percentage of un- derwater mortgages. Las Vegas, Nevada, once again, makes the bottom of the list with 38.58 per- cent of homeowners underwater on their mortgages. WalletHub said San Antonio, Texas hosts the lowest down pay- ment percentage option at 13.71 per- cent, while New York, New York hosts the highest at 23.98 percent.

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