Here’s What Our Weiss Data Shows About the State of the Mortgage Insurance Industry
Nobody likes paying for insurance. That’s doubly true for insurance that doesn’t even cover YOUR life or property! But without one kind of coverage – called “private mortgage insurance” – many people couldn’t afford to buy homes. So, it does in fact serve a purpose.
In short, PMI is coverage you have to pay for if you can’t put at least 20% down on a new or existing home. If you default on your loan, the insurance provider pays your lender to cover its losses. That’s unlike other forms of coverage, where you’re the beneficiary.
So, how is the industry faring these days? Let’s look at what our Weiss Ratings data shows. Five companies dominate the market, with 82.2 percent of all direct premiums written in Q2 2017.
Mortgage Guaranty Ins. Corp. led the top insurers, with 26.7 percent market share in that quarter. Radian Guaranty Inc. was in second place with 25.3 percent of the market. Genworth Mortgage Insurance Corp. was in the third spot, with 18.6 percent . United Guaranty Residential Insurance Co. and Essent Guaranty Inc. followed in the fourth and fifth spots, holding 16.8 percent and 12.6 percent, respectively. You can see the total premiums they collected in this chart:
When it comes to growth, four of the five players increased business in Q2. Mortgage Guaranty Ins. Corp. say 4.5 percent growth, while Radian Guaranty Inc. experienced a rise of 8.7 percent.
Genworth Mortgage Ins. Corp. increased its direct premiums written by 5.4 percent. United Guaranty Residential Ins. Co., on the other hand, saw a 4 percent decrease. The smallest of the five, Essent Guaranty Inc., increased its new business by 12.3 percent.
The fact four out of five insurers grew their business gels with a few things we know about the mortgage market. New home sales jumped 18.9% between August and September and 17% from a year earlier. That shows sales are extremely buoyant. But what about affordability?
Well, the S&P/Case-Shiller index data we got at the end of October showed an average price rise in 20 metropolitan areas of 5.9 percent for the twelve months to August 2017. That was up from 5.8 percent in July. It was also greater than the rate of wage growth.
This continued excess home price growth is translating into stronger mortgage insurance demand. After all, it’s tough to amass a 20 percent down payment when your salary is rising more slowly than the price of homes. But it also raises questions about the health of the industry. During the Great Recession, mortgage insurers came under extreme financial pressure. Some didn’t even survive.
To help alleviate that threat, and boost industry capitalization, Private Mortgage Insurer Eligibility Requirements (PMIERs) were put in place during 2016. These mandated all mortgage insurers to comply with a set of minimum capital requirements. This change essentially restricted the amount of business that an insurer could write
It’s also worth noting that lender losses are running at low levels due to reduced foreclosure activity. According to RealtyTrac, foreclosures in the first six months of 2017 were down 20 percent year-over-year and down 28 percent from the same time period two years ago. States with highest foreclosure rates in the first half of the year included New Jersey, Delaware, and Maryland. In New Jersey, 0.99 percent of housing units were in foreclosure, while in Delaware and Maryland, 0.73 percent and 0.62 percent of housing units were in foreclosure.
Bottom line: These numbers show that mortgage insurers should be making a great deal of money. As long as they resist the temptation to essentially treat the market as a commodity, where the lowest price buys the business, they’ll do okay. Our industry Ratings below show how the established insurers are continuing to dig their way out of the place they put themselves in after the recession.
One last thing: Additional industry changes are on the way. The government-sponsored enterprises, Fannie Mae and Freddie Mac, are working on a new set of PMIER requirements. These new guidelines are expected to be released by March 2018, with implementation to follow in the fourth quarter of next year. That should help ensure the industry remains healthy in coming years.
Bottom line: Because insurers are essential to the health of the housing market, they aren’t being fully trusted to self-regulate. Hopefully, industry oversight will ensure that the recent, positive trends in Ratings and premium growth will continue – and we won’t see a future restriction of coverage availability.
As always, be sure to check an insurer’s safety rating on the Weiss Ratings website.
Insurance Insights Edition, By Gavin Magor, Senior Financial Analyst
Gavin has more than 30 years of international experience in credit-risk management, commercial lending and insurance, banking and stock analysis and holds an MBA. Gavin oversees the Weiss ratings process, developing the methodology for Weiss’ Sovereign Debt and Global Bank Ratings. Gavin has appeared on both radio and television, including ABC and NBC as an expert in insurance, bank and stock ratings and has been quoted by CNBC, The New York Times, Los Angeles Times, and Reuters as well as several regional newspapers and trade media.